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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 20-F

[  ]REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

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

For The Fiscal Year Ended October 31, 2015

Or

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

or

[  ]SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell report

Commission File No. 0-26005

MICROMEM TECHNOLOGIES INC.(Exact name of Registrant as specified in its
charter)

Ontario, Canada(Jurisdiction of incorporation
or organization)

121 Richmond Street West, Suite 304Toronto,
Ontario M5H 2K1, CanadaTel: (416) 364-6513Fax: (416)
360-4034(Address of principal executive offices)

Joseph Fuda; 416-364-6513, JFuda@micromeminc.com, 121
Richmond Street West, Suite 304 Toronto, OnM5H 2K1(Name, Telephone, E-Mail and/or Facsimile number and Address of Company
Contact Person)

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

1

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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:197,176,368 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 [X]

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 [X]

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X]    
 No [  ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [ 
]      No [  ]

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



|Large Accelerated Filer [  ] | Accelerated Filer [X] | Non-Accelerated Filer [  ]
|---------------------------- | --------------------- | --------------------------

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

|U.S. GAAP [  ] | International Financial Reporting Standards as
      issued by the International Accounting Standards Board [X] | Other [  ]
|-------------- | --------------------------------------------------------------------------------------------------------------- | ----------

| | 1. | If Other has been checked in response to the
      previous question, indicate by check mark which financial statement item
      the Registrant has elected to follow:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Item 17 [  ]      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 [X]

2

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TABLE OF CONTENTS

|           |                                                                                    | Page
|---------- | ---------------------------------------------------------------------------------- | ----
|Part I     |                                                                                    | 4   
|           |                                                                                    |     
|Item 1.    | Identity of
      Directors, Senior Management and Advisors                        | 4   
|Item 2.    | Offer Statistics and Expected
      Timetable                                      | 4   
|Item 3.    | Key
      Information                                                              | 4   
|Item 4.    | Information on the Company                                                         | 13  
|Item 4A.   | Unresolved
      Staff Comments                                                    | 21  
|Item 5.    | Operating and Financial
      Review and Prospects                                 | 21  
|Item 6.    | Directors,
      Senior Management and Employees                                   | 26  
|Item 7.    | Major Shareholders and
      Related Party Transactions                            | 33  
|Item 8.    | Financial
      Information                                                        | 34  
|Item 9.    | The Offer and Listing                                                              | 35  
|Item 10.   | Additional
      Information                                                       | 35  
|Item 11.   | Quantitative and Qualitative
      Disclosures about Market Risk                   | 43  
|Item 12.   | Description
      of Securities Other Than Equity Securities                       | 43  
|           |                                                                                    |     
|Part II    |                                                                                    | 43  
|           |                                                                                    |     
|Item 13.   | Defaults,
      Dividend Arrearages and Delinquencies                              | 43  
|Item 14.   | Material Modifications to
      the Rights of Security Holders and Use of Proceeds | 43  
|Item 15.   | Controls and
      Procedures                                                      | 43  
|Item 16.   | [Reserved]                                                                         | 44  
|Item 16A   | Audit
      Committee Financial Expert                                             | 44  
|Item 16B   | Code of Ethics                                                                     | 44  
|Item 16C   | Principal
      Accountant Fees and Services                                       | 44  
|Item 16D   | Exemptions from the Listing
      Standards for Audit Committees                   | 45  
|Item 16E   | Purchases of
      Equity by the Issuer and Affiliated Purchasers                  | 45  
|Item 16F   | Changes in Registrants
      Certifying Accountant                                | 45  
|Item 16G   | Corporate
      Governance                                                         | 45  
|Item 16H   | Mine Safety Disclosure                                                             | 45  
|           |                                                                                    |     
|Part III   |                                                                                    | 45  
|           |                                                                                    |     
|Item 17.   | Financial Statements                                                               | 45  
|Item 18    | Financial
      Statements                                                         | 45  
|Item 19.   | Exhibits                                                                           | 46  
|Signatures |                                                                                    | 48  

3

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PART I

INTRODUCTION

Abbreviations

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

Forward Looking and Cautionary Statements

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

|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISORS
|------- | -----------------------------------------------------------

Not applicable.

|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not applicable.

|ITEM 3. | KEY INFORMATION
|------- | ---------------

|A. | Selected Financial Data
|-- | -----------------------

Fiscal Years 2015, 2014, 2013, 2012 and 2011

The following table sets forth our selected consolidated
financial data in United States dollars as of and for each of the fiscal years
ended October 31, 2015, October 31, 2014, October 31, 2013, October 31, 2012 and
October 31, 2011. The selected consolidated financial data has been derived from
our audited consolidated financial statements. All information contained in the
following table should be read in conjunction with our audited consolidated
audited financial statements and the notes thereto in Item 18-Financial
Statements and "Item 5 - Operating and Financial Review and Prospects included
elsewhere in this Annual Report on Form 20-F.

Our consolidated financial statements for the years ended
October 31, 2015, 2014, 2013, 2012 and 2011 have been prepared in accordance
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.

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International Financial Reporting Standards

Selected balance sheet information (all amounts in
U.S. dollars)

|                                  |   | 2015       |   |   | 2014       |  |   | 2013       |  |  | 2012        |  |  | 2011        |  
|--------------------------------- | - | ---------- | - | - | ---------- |  | - | ---------- |  |  | ----------- |  |  | ----------- | -
|Working capital (deficiency)      | $ | (2,049,302 | ) | $ | 1,034,921  |  | $ | 425,888    |  |  | ($1,793,217 |  |  | ($2,239,178 | )
|Capital Assets                    |   | 15,592     |   |   | 21,483     |  |   | 13,998     |  |  | 5,787       |  |  | 10,201      |  
|Total Assets                      |   | 3,667,866  |   |   | 5,636,605  |  |   | 2,166,455  |  |  | 1,180,278   |  |  | 906,346     |  
|Capital Stock                     |   | 74,083,975 |   |   | 70,802,776 |  |   | 57,755,613 |  |  | 54,728,239  |  |  | 51,774,555  |  
|Shareholders' equity (deficiency) |   | 1,403,888  |   |   | 4,862,773  |  |   | 1,536,319  |  |  | (904,030    |  |  | (1,409,228  | )

Selected statement of operations and deficit information

(all amounts in U.S. dollars)

|                                                             |  | 2015        |   |  | 2014        |   |  | 2013        |   |  | 2012        |   |  | 2011        |  
|------------------------------------------------------------ |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | -
|Interest and other income                                    |  | -           |   |  | -           |   |  | -           |   |  | -           |   |  | 963         |  
|Research and development expenses                            |  | 2,649,019   |   |  | 703,671     |   |  | 160,920     |   |  | 229,840     |   |  | (75,896     | )
|General and administrative
      and other expenses          |  | 2,703,650   |   |  | 3,081,947   |   |  | 2,198,466   |   |  | 2,618,792   |   |  | 1,916,981   |  
|(Gain) Loss on revaluation of embedded
      derivatives (1) |  | -           |   |  | -           |   |  | 3,205,752   |   |  | (1,504,423  | ) |  | 412,563     |  
|Stock compensation expense
      (2)                         |  | 1,163,941   |   |  | 379,253     |   |  | 368,790     |   |  | 430,856     |   |  | 928,497     |  
|Loss before income taxes                                     |  | (6,516,610  | ) |  | (4,164,871  | ) |  | (5,933,928  | ) |  | (1,775,065  | ) |  | (3,181,182  | )
|Provision for income taxes
      (recovery)                  |  | -           |   |  | -           |   |  | -           |   |  | -           |   |  | 1205        |  
|Net loss                                                     |  | (6,516,610  | ) |  | (4,164,871  | ) |  | (5,933,928  | ) |  | (1,775,065  | ) |  | (3,182,387  | )
|Loss per share-basic and
      diluted                       |  | (0.03       | ) |  | (0.02       | ) |  | (0.04       | ) |  | (0.01       | ) |  | (0.03       | )
|Weighted average number of basic and diluted shares          |  | 192,629,666 |   |  | 171,534,969 |   |  | 146,814,466 |   |  | 123,375,510 |   |  | 102,301,168 |  
|Dividends                                                    |  | -           |   |  | -           |   |  | -           |   |  | -           |   |  | -           |  

|1) | (Gain) loss on revaluation of embedded derivatives as
      reported above relates principally to the measurement of the derivative
      warrant liability relating to outstanding Canadian dollar denominated
      common share purchase warrants. The (gain) loss as reported is a non-cash
      charge which is calculated in accordance with IFRS.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                          
|2) | Stock compensation expense is a non cash expense
      calculated in accordance with the Black Scholes option pricing
    model.                                                                                                                                                                                                                         

Currency and Exchange Rates

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

Transactions that were conducted in Canadian dollars or other
foreign currencies have been converted into United States dollars using the 3
month average rate of exchange per quarter which rate approximates the rate of
exchange prevailing at the date of such transactions. Monetary 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. Non
monetary assets and liabilities denominated in Canadian dollars but expressed in
this Form 20-F in United States dollars have been converted into US dollars at
the historical exchange rate at the date of the transaction.

5

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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.

|                   | 2015   | 2014   | 2013   | 2012   | 2011  
|------------------ | ------ | ------ | ------ | ------ | ------
|High for period    | 0.8501 | 0.9422 | 1.0164 | 1.0281 | 1.0583
|Low for period     | 0.7141 | 0.8589 | 0.9348 | 0.9783 | 0.9430
|End of period      | 0.7233 | 0.8620 | 0.9402 | 0.9872 | 1.0079
|Average for period | 0.7793 | 0.9054 | 0.9710 | 1.0046 | 1.0139

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.

|     | February | March  | April  | May    | June   | July  
|---- | -------- | ------ | ------ | ------ | ------ | ------
|     | 2015     | 2015   | 2015   | 2015   | 2015   | 2015  
|High | 1.2530   | 1.2784 | 1.2134 | 12527  | 1.2497 | 1.3099
|Low  | 1.2449   | 1.2653 | 1.2000 | 1.2428 | 1.2363 | 1.2940

|     | August | September | October | November | December | January
|---- | ------ | --------- | ------- | -------- | -------- | -------
|     | 2015   | 2015      | 2015    | 2015     | 2015     | 2016   
|High | 1.3327 | 1.3425    | 1.3193  | 1.3375   | 1.3903   | 1.3900 
|Low  | 1.3153 | 1.3340    | 1.3056  | 1.3312   | 1.3825   | 1.3650 

On February 29, 2016 the noon buying rate for one Canadian
dollar, as quoted by the Bank of Canada, was CDN $.1.3531 = 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 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.

6

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Our ability to continue as a going concern is dependent upon
the successful commercialization of our sensor technology platforms that we
currently have under development with our industry partners. Ultimately we must
achieve a profitable level of operation through licensing fees, royalties and
the commercial sale of our products. We will require additional financing in the
interim to fund our activity.

Our consolidated financial statements have been prepared on a
going concern basis 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. Such adjustments could be material.

At October 31, 2015 we had $158,568 cash on hand and our
current monthly cash expenses were approximately $175,000. Our working capital
position is ($2,049,302) at October 31, 2015. Subsequent to October 31, 2015,
through to the date of the filing of this Annual Report on Form 20-F, we have
raised an additional $1,401,280 through the issuance of convertible debentures.
Additionally, we collected $443,901 from development partners with respect to
our ongoing joint product development projects with our existing customers.

We currently have no operating revenue.

We have not yet reported commercial revenues from licensing
fees, royalties or product sales. If we fail to enter into license agreements or
if we do not obtain purchase orders from potential customers, 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 secure from each licensee and the
ability of licensees to compete in their particular market.

There are market risks relating to the sale of our sensor
technology platforms.

We continued to develop applications of our magnetic sensor
technology in 2015 working with our technical advisors and our strategic
development partners. We are pursuing joint development agreements with
potential strategic partners with the expectation that we will jointly develop
sensor applications for use by these potential strategic partners. We believe
that these current initiatives will result in revenues and cash flow to the
Company in the future but there can be no assurance when and if such revenues
will be achieved.

We may face competition from larger corporations which also
sell sensor technology and who have greater financial resources than the
Company.

Our success will in part be determined by the following factors
which have not yet been fully and completely tested nor measured: the ability of
manufacturers to incorporate the technology into existing manufacturing
capabilities without significant retooling and material costs, price
competitiveness and the differential performance advantages of our
technology.

Additionally 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. Our success will depend on our ability
to protect our intellectual property, 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.

We are not actively pursuing further development of our
memory technology.

Until 2008 our Company was positioned as a developer of memory
technology, specifically our Magnetic Random Access Memory (MRAM), which is a
non-volatile memory technology that uses magnetic, thin film elements on a
gallium arsenide substrate to store information.

7

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Beginning in 2008 we began to shift our focus to the
development of sensor based technology solutions. By 2011, we decided to no
longer pursue memory technology. We wrote off all costs associated with our
memory technology by 2011. We are currently attempting to sell our interests in
our memory related intellectual property. To date we have not been successful in
attracting a buyer for this intellectual property and there can be no assurance
that we will secure a buyer.

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

Since there is no assurance that commercial revenues will be
realized in future, we will need additional financing to continue our
development and to successfully market our technology to potential licensees and
strategic partners.

There can be no assurance that we will be able to continue to
raise sufficient financing in the future and the failure to do so would affect
our ability to further develop our technology platforms and to market our
products to existing and new potential customers.

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 all required steps we have taken will
prevent misappropriation or infringement of our intellectual property.

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

Our future success and competitive position depend in part on
our ability to retain rights to our technology, including any improvements that
may be made on that technology from time to time by us or on our behalf. Our
technology is patented or is subject to pending patent applications in the
United States and abroad and we know of no challenge that has been made either
against our technology or our rights to it. 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 can be 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 future.

To date, we have operated as a product development company and
have not been profitable. Unless and until we are able to successfully
commercialize our technology applications, we may not be able to generate
sufficient revenues in future periods and we may not be able to attain
profitability.

The further development of our sensor technology may require
significant additional capital which we may have to fund directly if we are
unable to secure financing from development partners. Therefore, we may incur
expenses without receiving equal and offsetting revenues at least until we are
able to license our technology to third parties. This may result in net
operating losses until we can generate an acceptable level of revenues. Further,
even if we achieve operating revenues, there can be no assurance that such
revenues will be sufficient to fund continuing operations.

8

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The likelihood of the 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 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 our sensor technology. If we are not successful in
commercializing our technology platforms, 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, on a timely basis. This could limit future
revenues and profitability.

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

In order to generate revenues from our sensor technology
platforms, we will need to enter into licensing arrangements with third parties
who can integrate our technology into products that will gain acceptance in the
market. We have not yet entered into any licensing agreements, and there is no
assurance that we will be able to do so on acceptable terms in future. 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 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 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 effect on our future royalty payments and financial condition.

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

At present, we have limited sales and marketing capability and
our financial resources have been limited. We will need to add marketing and
sales expertise and must also develop the necessary supporting distribution
channels. Although we believe we can build the required infrastructure either
in-house or through strategic relationships, we may not be successful in doing
so. Failure to establish a sales force and distribution network would have an
adverse effect on our ability to grow our business.

We depend on key personnel.

Our senior managers and employees are Joseph Fuda, who serves
as our Chief Executive Officer; Steven Van Fleet, who has primary responsibility
for business development and who serves as President of our wholly-owned
subsidiary, Micromem Applied Sensor Technology Inc (MAST) and Dan Amadori, who
serves as our Chief Financial Officer. We have engaged the services of several
engineering/technical consulting firms to assist in converting our development
efforts to commercialization. Our success depends on our ability to retain
certain of our senior management and key technical personnel, our ability to
attract and retain additional highly skilled personnel in the future and to
maintain our working relationships with our engineering and technical consulting
firms with which we subcontract our development work.

The depressed oil and gas sector places our development
projects at risk.

Certain of our development partners are engaged primarily in
the oil and gas sector. In the currently depressed market conditions for this
sector, there is a risk that such companies could defer or cancel previously
established capital expenditure programs or product development
initiatives. If these situations arose with our development partners in this
sector, our related development projects could be at risk of delays or
cancellation.

9

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

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

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

Short product life cycles are inherent in high-technology
companies due to rapid technological change and evolving industry standards. Our
future financial condition and results of operations depend on our ability to
respond effectively to these changes. There can be no assurance that we will be
able to successfully do so 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 of adoption of our technology.

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

Our new product 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
development efforts could be adversely affected by hardware and software design
flaws, product development delays, 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. If we are not successful in meeting these requirements, this could
adversely affect our ability to introduce new products on a timely basis.

Our operations may be materially affected by the risks
associated with the continued developments and protection of our intellectual
property.

There can be no 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. We have decided to file
patent and trademark registration applications with certain foreign governments
but we may not have appropriate coverage in all jurisdictions where we may sell
or license our product in future.

We enter into confidentiality and non-disclosure agreements
relating to our intellectual property with our employees and consultants.
Despite 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 be certain that we will be able to adequately protect
our intellectual property in the future.

There are foreign exchange risks associated with our
Company.

Because we have historically raised funds in both U.S. and
Canadian markets and a 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 so as
to offset potential currency rate fluctuations.

Risk Factors Related to Our Common Shares

10

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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. 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. The penny stock regulations may
discourage brokers from effecting transactions in the common shares. This would
decrease market liquidity, adversely affect market price and make it difficult
for you to use the common shares as collateral.

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

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

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

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

11

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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 $344 million in
assets, except for certain economic sectors with respect to which the lower
threshold would apply. A non-Canadian, whether a national of a WTO member or
otherwise, would acquire control of Micromem for purposes of the Investment Act
if he or she acquired a majority of our common shares. The acquisition of less
than a majority, but at least one-third of our common shares, would also be
presumed to be an acquisition of control of Micromem, unless it could be
established that Micromem was not controlled in fact by the acquirer through the
ownership of voting shares. The United States is a WTO Member for purposes of
the Investment Act. Certain transactions involving our common shares would be
exempt from the Investment Act, including:

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

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

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

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, 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.

12

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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 OTC QX without a significant reduction in the market
price of the shares.

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

|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

|A. | History and Development of Our
  Company
|-- | ----------------------------------------

Micromem is a corporation formed under the laws of the Province
of Ontario, Canada, with principal executive offices at 121 Richmond Street
West, Suite 304, Toronto, Ontario M5H 2K1 (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 Avanti Corp
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.

The Evolution of Micromem from Memory to Sensor Based Client
Solutions

Micromem Applied Sensors Technologies, Inc., our wholly-owned
subsidiary (MAST) was incorporated in 2008 in the State of Delaware. MAST was
formed in connection with a contract with BAE Systems in Nashua, New Hampshire.
BAE Systems is a Department of Defense trusted facility, which can only do
business with U.S. entities (ITAR regulations). BAE Systems interest was in the
potential to utilize our MRAM technology in a radiation-hardened environment for
military applications. At the time of contract, Micromem had not taken the MRAM
from the university research environment into a foundry, so the initial contract
with BAE Systems was to use the patented MRAM design and manufacture and deliver
a memory cell from a GaAs foundry. During this work it was determined that the
Hall sensor, which was integral to the MRAM design, had several performance
characteristics that by itself, as a product, would potentially create value for
MAST.

Frost & Sullivan was contracted by MAST in 2009 to assess
the market opportunities for a late entry into the Hall sensor market. The Hall
sensor market in 2009 was robust at an estimated $1.9 billion USD. The market
barriers were: mature market, declining margins and heavy competition. A
decision was taken to not enter the Hall sensor component market for the above
reasons. A decision was taken to explore the market opportunities associated
with creating unique sensor based solutions that revolved around our patented
Hall sensor technology. The MRAM go forward strategy remained with Micromem.

An outside marketing firm was hired to promote the Company. It
was quickly learned that the uniqueness of our products made a traditional
marketing firm relationship ineffective and that relationship was terminated.
Promotion of the Company reverted back to the development of a MAST website and
word of mouth marketing at regional technical conferences. Through these
endeavors, a decision was taken to internally develop, at our own cost, proof
of concepts for products that we had gleaned through our
marketing to have potential market value. These included a magnetic gold sensor
for drilling plug analysis, an oil condition sensor for automotive use and an
oil/gas aerial exploration platform. Provisional patents were created on this
work.

13

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A potential revenue-generating opportunity emerged in August
2010 when Lux Research contacted us on behalf of their client, a world leader in
oil production. They were looking for companies that could create extremely
small foot print magnetic sensor solutions for down hole use in production oil
fields. MAST was subsequently engaged by this client to develop a sensor
platform for detecting four nanometer magnetic particles in a flowing oil stream
at a concentration less than 1 ppb. Another revenue generating opportunity came
in 2011 from GSI Westwind, a supplier for high speed air bearing motors. MAST
replaced the incumbent Hall sensor supplier and delivered a unique circuit board
form factor that incorporated the smallest Hall sensor in the world.

It became clear at this point in the genesis of the Company
that MAST had to find an effective means to disseminate its message to a larger
market audience. It was now evident that a significant market space existed for
companies that could leverage MEMS/Nano fabrication methodologies to create
unique combinations of sensors to provide new solutions to business problems. In
2011 MAST became aware of the NineSigma Open Innovation model. Nine sigmas core
services connect innovation-seeking companies to the best solutions,
capabilities and partners around the world. MAST's relationship with NineSigma
has provided us common ground access to the Global Fortune 1000 companies and
has resulted in a robust future sales proposal pipeline and the first time in
the Company's history an ability to forecast revenue.

In 2011 a decision was taken to stop research and development
effort in the MRAM market space. This decision was taken in part due to the high
capital demand for staying current in the rapidly changing technology and
equally important, the MRAM market has not grown at the anticipated growth
rates. Micromem has amassed multiple memory patents and in 2013 has begun
efforts to value the patent portfolio and arrange for a sale of these assets.
Integral to the MRAM design is our patented Hall sensor. MAST is carrying this
valuable device forward in many of our sensor platforms.

Until 2014, Micromem funded virtually all of its research and
development initiatives. Our main priority has been to provide customers with
sensor based platform solutions that address their difficult business problems.
A recent study by NineSigma states that less than 3% of the Fortune 1000 global
companies admit that they have sufficient in house talent and knowledge to be
able to take advantage of technologies that can help them improve their
business. Our sensor platform solutions address three primary areas of creating
value for our clients:

| |  | Using a MEMS and/or Nano scale pallet, we are able to
      combine disparate sensor modalities into a common, integrated solution
      that brings the exact tools in play in solving the target issue.
      Competitive solutions tend to force fit less than optimum sensor
      combinations in an effort to sell their standard offerings.                   
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Although our solutions are custom designed for each
      client, our processes leading to the solution are automated and the end
      result is a cost effective solution with a differentially higher return on
      investment for our clients.                                                                                                                 
| |  | Our Open Innovation approach to solving client problems
      allows us to bring together already proven sensor technologies in
      different market spaces allowing us to apply them in new applications in
      new markets. This significantly reduces the time to revenue generation by
      both MAST and our client and it reduces risk of project failure.

We intend to pursue specific, definable, market segments with a
multi-tiered, multi-channel approach. We intend to leverage our technologies
with a licensing agreement in certain key areas and a direct sales and
distribution strategy in other areas using established distributors. Our sales
and revenue plan includes looking to foreign markets through established
distributors or strategic partners.

14

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|B. | Business Overview
|-- | -----------------

Prior to 2008 we were engaged in the development of memory
technology. We deemphasized these continued efforts at that time and ceased all
such activity by 2011. We have been actively developing our sensor technology
platforms for multiple commercial applications since 2008. Our technology
combines the use of microelectromechanical systems (MEMS) and
nanoelectromechanical systems (NEMS) for our sensor platforms.

Update of Product Development
Activity at October 31, 2015

The 2015 fiscal year was a challenging year for the Company;
however, we were successful in engaging a number of our customers  notably
Chevron, Castrol and Flextronics  in the continued development of our
respective product development initiatives. In 2015, we also initiated
discussions with a number of other large multinational corporations regarding
product development opportunities and strategic business relationships. While
these latter discussions have not yet evolved into formal working relationships,
the dialogue and the negotiations continue. For example, we believe we may enter
into a product development contract with a multinational European based
automotive parts company in 2016. This opportunity emanated directly from our
dealings with Flextronics and GM over the past several years.

We have previously reported the product development activities
that we have pursued with Saudi Aramco and with Northeast Utilities (now
Eversource Energy  referred to hereinafter as Northeast). The update on these
initiatives as of October 31, 2015 is as follows:

Saudi Aramco (SA):We commenced working with the U.S.
based team for this oil company in 2011. We were engaged by SA to build a
prototype nanoparticle detector platform capable of detecting magnetic
nanoparticles in a flowing oil stream at extremely low (parts per trillion)
concentrations. SA engaged us to complete this prototype unit and agreed to
provide a total of $300,000 of financing to support this development initiative.
By early fiscal year 2014, we had completed this initial phase of the
development program, the technology was tested by SA, the tests results were
accepted by SA and SA made their final payment of $125,000 against their
$300,000 financing commitment.

As part of this undertaking, the Company produced and delivered
several final prototype units to SA in 2014. Since then, we have been waiting
for SA to advise us on their decision whether or not to proceed with orders for
up to several hundred field units to be placed at SA operating wells in various
locations for real time testing and measurement.This is the precursor to what we
believed would be full scale commercial rollout. By late fiscal 2014, however,
the project had not moved forward beyond the initial development initiative and
there has been no definitive update from SA since then.

Based on these developments, the Company decided to write down
its investment in the SA related deferred development costs that it had
previously carried in its balance sheet to nominal value  in the fiscal quarter
ended July 31, 2014 it recorded a reserve of $639,158. The overall project
results, spanning 3 years between 2011-2014, are summarized as:

Total costs incurred:
    $
    939,158Total costs recovered:
    
    (300,000
    )Net amount reserved:
    $
    639,158


While we have previously reported that we anticipated that we
would move ahead with the field trials of this unit under a $2 million client
funded program in 2015 fiscal year, this has not as yet materialized and there
is no current indication from SA that they are moving forward. There remains
potential carry forward benefits to the Company should this project be restarted
in future but, at this date, there can be no assurances that this will happen.

15

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The Company has filed provisional patents with the United
States Patent and Trademark Office (USPTO) for the technology that it has
developed.

Northeast:Our product development initiative with
Northeast began in 2013. We initially approached Northeast with respect to the
development of a sensor platform designed to detect partial discharges inside a
transformer.

The proof of concept work was completed in 2014 and Northeast
paid the Company $200,000 as was previously agreed at that point in time.

During much of fiscal 2014 and through May 2015, we negotiated
with Northeast in an attempt to achieve an overall agreement on all aspects of a
joint project development agreement (JPDA). Ultimately, we were able to
execute a Most Favored Nations agreement with Northeast in May 2015 whereby
Northeast would be entitled to preferential pricing on future commercial
transactions with the Company once it had completed a commercial version of the
partial discharge technology. In the meantime, Northeast remained committed to
working with the Company, meeting on a regular basis to review technical
updates, testing results, etc., on work that our subcontractors were performing
for the Company.

In 2015 we attempted to secure additional funding for this
project from an outside foreign strategic partner who had expressed specific
interest in the work that we were undertaking for Northeast. We incurred
additional expenses in preparing technical specifications and presentations for
that group between January-April of 2015.

In 2014 and continuing into 2015 we began development work with
Northeast on a low cost power line conditioning monitoring device designed for
transmission power lines. We developed this initiative to the point where we
were completing proof of concept and building initial prototypes for this
application.

We also worked during this period with Northeast on the initial
development of a small robotic sensor based platform to test for corrosion
within underground pipelines, with the goal of ultimately being able to
electronically map and measure the extent of corrosion in 100% of a pipeline.
Again, in this case, we developed the initiative to the point where we were
completing proof of concept and building initial prototypes for this
application. We anticipated that we would be in a position to recover a portion
of our costs incurred from Northeast, as we had done earlier with the partial
discharge program.

By the end of 2015, the Company had incurred in excess of $2
million in its development initiatives with Northeast. It was unable to secure
additional financial support from Northeast at that time and, accordingly, it
decided to suspend additional development efforts until such time as sufficient
incremental financing is secured.

On that basis at October 31, 2015, the Company has written down
its investment in the deferred development costs relating to the work it has
completed on all of the Northeast related projects. At October 31, 2015 it
reflected a 4thquarter write down reserve of $2,270,329 against this
work.

The Company believes that there is a substantial opportunity to
further develop these technology applications in future and it retains the
intellectual property related thereto. In 2016 it will continue to evaluate its
strategic options in this segment of its product line.

In completing the work described above on these different
projects, the Company has filed for provisional patents with the USPTO and it
retains the ownership of this intellectual property.

Chevron:We began working with Chevron in 2013 when we
entered into a JPDA. The proposed development work in that JPDA specified a
series of milestones in keeping with our standard development process.

The initial thrust of the work was to develop and test
fluorescent magnetic nanoparticles in the application of interwell tracers. We
successfully completed the proof of concept and prototype phases. This work
progressed in 2014 and the go forward thrust of our development work was to
develop a well head real time detection platform for the detection of existing interwell tracer chemicals to
measurement levels as low as 300 parts per trillion. By October 31, 2014,
Chevron had funded approximately $175,000 of the development costs we had
incurred to that point of time.

16

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In 2015, this work was significantly advanced. We worked
extensively with key subcontractors building towards a lab demonstration late in
the calendar year designed to differentiate between 8-9 interwell tracers
simultaneously. These tests provided positive results in the demonstration and
Chevron is now finalizing their review of these results.

In 2015, Chevron funded our development activity in the amount
of approximately $1.5 million.

We are awaiting the start of the next phase of activity which
will be infield live demonstrations and testing of an initial number of wells in
real time. If this next phase, which is anticipated during 2016, is successful,
we will have the opportunity for possible deployment of the technology
throughout Chevrons organization. In 2015, Chevron requested a quote on a
multiyear rollout of up to 2,000 manufactured units.

In 2015 we executed a Technology Cooperation Agreement with
Chevron relating to the development of a cement integrity sensor platform.
Initial work has been completed in the proof of concept phase of development
activity. Chevron has prioritized this initiative as a development project in
2016.

Castrol:We entered into a JPDA with Castrol in December
2014. The development project is to develop a MEMS solution for real time
detection of wear elements in lubricating fluids for deployment initially in
non-automotive markets and thereafter for the automotive market. During 2015 we
were successful in completing the initial phases of that agreement whereby we
have now provided the initial prototypes to Castrol and these have been
accepted. We have to date received $488,500 as payment from Castrol as of
October 31, 2015 and an additional $250,000 subsequent to year end. We are
awaiting an additional payment of $250,750.

Castrol has commissioned us to produce initial field units for
testing. These units are larger than the ultimate product intended for the
automotive market. We believe that we will penetrate this market in 2016 while
development work will continue on miniaturizing the technology for the
automotive market by 2017.

The next phase of activity will be to identify a manufacturer
for the anticipated rollout of the field units to the non-automotive markets.

At October 31, 2015 we reported $926,777 of deferred
development costs relating to this project. We have filed provisional patents
associated with this development work with the USPTO.

Flextronics:In 2014 we executed a JPDA with Flextronics
to test, manufacture and, ultimately, to commercialize the Companys patented
automotive oil pan plug sensor suite for automotive OEMS. This JPDA developed
after we had spent several years pursuing a proof of concept with GM.

Flextronics has indicated that the initial field development in
automobile testing will commence in early 2017 and that scale production could
begin by 2018.

A new standalone opportunity for the Company with another
automotive parts manufacturer developed in 2015 as a result of the ongoing
dealings that the Company has had with Flextronics. The Company believes that
this will develop into a standalone new development contract in 2016.

17

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The Company's investment in deferred development costs between
2013-2015 is summarized as below.

|                      | Project   | Project     | Project   | Project     | Project | Other     | Total      
|--------------------- | --------- | ----------- | --------- | ----------- | ------- | --------- | -----------
|                      | 1         | 2           | 3         | 4           | 5       |           |            
|                      |           |             |           |             |         |           |            
|Balance at 10/31/2012 | 364,870   | -           | -         | -           | 205,237 | 148,057   | 718,164    
|Additions             | 236,960   | 89,986      | -         | 10,000      | 208,303 | 132,195   | 677,444    
|Recoveries            | (100,000) | (87,290)    | -         | -           | -       | (46,000)  | (233,290)  
|Writedowns            |           |             |           |             |         | (234,241) | (234,241)  
|Balance at 10/31/2013 | 501,830   | 2,696       | -         | 10,000      | 413,540 | 11        | 928,077    
|Additions             | 262,328   | 1,622,554   | 387,519   | 1,427,634   | 116,000 | 120,424   | 3,936,459  
|Recoveries            | (125,000) | (87,290)    | (250,000) | (200,000)   | -       | -         | (662,290)  
|Writedowns            | (639,158) | -           | -         | -           | -       | (37,632)  | (676,790)  
|Balance at 10/31/2014 | -         | 1,537,960   | 137,519   | 1,237,634   | 529,540 | 82,803    | 3,525,456  
|Additions             | -         | 1,321,015   | 1,027,758 | 1,032,695   | 300,139 | 42,293    | 3,723,900  
|Recoveries            | -         | (1,545,132) | (238,500) | -           |         |           | (1,783,632)
|Writedowns            | -         |             |           | (2,270,329) |         | (125,096) | (2,395,425)
|Balance at 10/31/2015 | -         | 1,313,843   | 926,777   | -           | 829,679 | -         | 3,070,299  

Intellectual Property

The Company has been active in building its intellectual
property portfolio during 2015 as it has furthered the above-noted development
projects. We have engaged a Washington, DC based law firm to assist us in these
efforts. The Company incurred $213,820 of patent related costs in 2015.

In 2015 the Company wrote off its residual investment of
approximately $67,000 that related to the original memory related patents that
it holds but which it has not pursued since it abandoned further development
efforts on its memory related technology in 2008.

Share Capital

At October 31, 2015 the Company had 197,176,368 common shares
outstanding (2014: 188,436,724). Additionally, the Company has 9,817,000 stock
options outstanding with a weighted average exercise price of $0.31 per share
(2014: 12,105,000 options outstanding with a weighted average exercise price of
$0.27 per share) and there are no remaining warrants outstanding (2014:
4,485,463 outstanding warrants with a weighted average exercise price of $0.37
per share).

Changes to Our Board of Directors
and Management:

Our 2014  2015 Annual Meeting of Shareholders is scheduled for
April 26, 2016. The Company will propose a slate of directors for the ensuing
year at the meeting.

Our 2013 Annual Meeting of Shareholders was held on January 30,
2015. Salvatore Fuda, , Joseph Fuda, David Sharpless, Steven Van Fleet, Oliver
Nepomuceno, Larry Blue, Alex Dey, Craig Carlson and Brian Von Herzen were
reelected to serve on our Board of Directors. Andrew Brandt did not stand for
reelection to our Board of Directors. Messrs. Salvatore Fuda, Joseph Fuda, Dan
Amadori and Steven Van Fleet continue to serve as officers of the Company. Craig
Carlson was appointed to serve on our Board of Directors in December 2013 and
Brian Von Herzen was appointed in February 2014. Craig Carlson resigned from our
Board of Directors on April 15, 2015.

18

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Equity Financing Transactions:

During 2015, the Company raised $565,777 of financing from the
exercise by warrant holders of 2,988,876 common share purchase warrants issued
in previous private placements that the Company has arranged. At October 31,
2015, there are no remaining warrants outstanding.

In the year ending October 31, 2015, the Company raised
$1,153,007 of financing from the exercise by officers, directors and employees
of 4,428,000 common stock options.

In the year ending October 31, 2015, the Company completed two
private placements and received gross proceeds of $175,000 and issued a total of
422,768 common shares.

Between August to October 2015, the Company secured a series of
bridge loans from investors totaling $1,287,500 CDN ($976,673 US). These loans
are secured by a floating charge on the assets of the Company. The maturity date
of the loans were originally set as 30 days in each case and have been renewed
by the investors through November 2015. The interest rate on the loans ranges
from 2% to 3% per month. These bridge loans were not convertible into common
shares as at October 31, 2015. One of the bridge loans obtained in the amount of
$300,000 CDN ($229,446 US) plus accrued interest of $6,000 CDN ($4,588 US) was
repaid on September 4, 2015. The maturity dates on this series of bridge loans
has since been extended until April 1, 2016.

In August 2015, the Company secured a bridge loan of $200,000
from an investor. The loan is secured by a floating charge on the assets of the
Company within a maturity date of November 1, 2015. The interest rate on the
loan is calculated at 3% per month, payable is arrears. This bridge loan was not
convertible into common shares at October 31, 2015. The maturity date on the
loan has since been extended until May 2, 2016.

In 2014 the Company realized $6,801,619 of proceeds from the
exercise of 27,410,717 common share purchase warrants.

In 2014 the Company settled $8,353 of third party accounts
payable balances through the issuance of 17,081 common shares.

In 2014 the Company extended for a period of six months the
expiration date for 1,405,026 common share purchase warrants which would have
otherwise expired in 2014. The exercise price for 1,105,026 of these warrants
was changed from $0.41 and $0.45 per warrant to $0.50 per warrant. The strike
price remained unchanged for the balance of the warrants at $0.55 per
warrant.

In 2013 the Company completed a series of private placement
financings with investors pursuant to prospectus and registration exemptions set
forth in applicable securities laws. The Company received gross proceeds of
$2,910,532 and issued a total of 16,106,957 common shares. Additionally
16,106,957 common share purchase warrants with an average price of $0.27 were
attached to the private placements completed during 2013. All warrants issued in
2013 have a 12 month term from issue date.

In 2013 the Company extended the expiration date on a total of
11,829,029 common share purchase warrants which would have otherwise expired in
2013. These warrants were extended for a period of 12 months in each case. The
Company changed the strike price on 3,673,032 warrants extended from $0.17 to
$0.21 and other strike prices remained unchanged.

In 2013, the Company repaid one bridge loan of $141,253. At
October 31, 2013, it reported one outstanding bridge loan in the amount of
$290,014. In January 2014, this bridge loan was converted into 2,517,501 common
shares and 2,517,501 common share purchase warrants.

Intangible Assets and Patents:

19

---

Intangible assets comprise the costs which the Company has
  capitalized relating to the technical expertise and knowhow that the Company has
  developed with respect to the commercialization efforts relating to its sensor
  technology. In 2012, the Company determined that it had sufficiently advanced
  its expertise and product knowledge relating to the general commercialization
  efforts for its sensor technology in multiple industry vertical applications. We
  anticipate that we will realize commercial economic benefits from the
  exploitation of these intangible assets in future. Accordingly, we reported
  $58,057 (2014 = $77,409) of intangible assets at October 31, 2015, representing
  direct costs incurred with respect to such assets less amortization expense.

We believe that protection of our intellectual property is
important to our ability to generate revenues from our technology in the future.
We hold issued patents and pending patent applications have 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 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.

In 2015, we continued our activity with respect to advancing
certain provisional patents relating to projects that are underway with current
assignments and projects with our development partners as described above. We
capitalized $213,820 of legal fees associated with this work.

With respect to our memory related patents for which we have no
immediate plans to further develop, we began in 2013 to attempt to monetize
these through the potential sale of such patents. We have written down our net
investment in these patents to nominal value in 2015.

Environmental Matters:

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

C. Organizational Structure

In November, 2007, the Company incorporated Micromem Applied
Sensors Technology, Inc. (MAST) as a Delaware-based wholly-owned subsidiary.
MAST has an office in New York City and is being managed by Steven Van Fleet,
its President and a director of Micromem. MAST is pursuing a number of potential
strategic joint development agreements with industry partners.

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

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. Pageant Technologies USA has been inactive since 2002.

We have a 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 also have a wholly-owned subsidiary Micromem Holdings
(Barbados) Inc. These subsidiaries have been inactive since inception.

20

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D. Property, Plant and Equipment

We maintain our corporate headquarters in Toronto, Ontario,
Canada. We occupy 2,500 square feet of commercial office space pursuant to a
lease that we executed in 2012 and which extends for five years through
2017.

The Company made $1,287 of capital expenditures in 2015;
$16,508 of capital expenditure in 2014; and $14,839 of capital expenditures in
2013.

|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.

|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND
      PROSPECTS
|------- | --------------------------------------------------

This section of the Form 20-F has been prepared to provide a
more substantive discussion of our business and to assist the reader in
analyzing the audited consolidated financial statements for the years ended
October 31, 2015, October 31, 2014 and October 31, 2013. This discussion and
analysis of financial condition and results of operations should be read in
conjunction with the consolidated financial statements and related notes in this
Annual Report, which are prepared in accordance with IFRS and are stated in
United States dollars.

|A. | Operating Results
|-- | -----------------

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

Selected statement of operations and deficit information

|                                         | 2015      | 2014      | 2013     
|---------------------------------------- | --------- | --------- | ---------
|Interest and other income                | -         | -         | -        
|Administration                           | 426,361   | 325,453   | 378,497  
|Professional and other fees and salaries | 1,952,302 | 2,360,867 | 1,572,515
|Travel and entertainment                 | 193,861   | 329,779   | 210,852  
|Other expenses                           | 2,780,145 | 769,519   | 197,522  
|Stock compensation expense               | 1,163,941 | 379,253   | 368,790  
|(Gain) Loss on derivatives               | -         | -         | 3,205,752
|Loss for the year                        | 6,516,610 | 4,164,871 | 5,933,928
|Loss per share - basic and diluted       | 0.03      | 0.02      | 0.04     

Selected balance sheet information

|                                  |   | 2015       |   |   | 2014      |  |   | 2013      | 
|--------------------------------- | - | ---------- | - | - | --------- |  | - | --------- | 
|Working capital (deficiency)      | $ | (2,049,302 | ) | $ | 1,034,921 |  | $ | 425,888   | 
|Other Assets                      |   | 3,453,190  |   |   | 3,827,852 |  |   | 1,110,431 | 
|Total Assets                      |   | 3,667,866  |   |   | 5,636,605 |  |   | 2,166,455 | 
|Shareholders equity (deficiency) |   | 1,403,888  |   |   | 4,862,773 |  |   | 1,536,319 | 

Fiscal 2015 Compared to Fiscal 2014

The Company reported a loss of $6,516,610 in 2015 versus a loss
of $4,164,871 in 2014.

21

---

The change in loss from operations in 2015 from 2014 resulted
from several components including:

| | (a) | Professional fees including audit and legal expenses were
      $466,411 in 2015 (2014: $420,902). Our costs were higher in 2015 as a
      result of the audit of our internal controls over financial reporting
      required by the Sarbanes-Oxley Act, additional legal costs incurred with
      respect to contract negotiations with our development partners, and the
      pending litigation matter discussed below in ITEM 8  Financial
      Information below.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Consulting fees totaled $1,039,316 in 2015 (2014:
      $1,535,522); in 2014 the Company paid additional compensation to the CEO
      of $534,398 above the CEOs base compensation (in 2015: nil) and a
      performance based bonus of $50,000 to the CFO (in 2015: nil).                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Salaries expense was $446,575 in 2015 (2014:
      $404,445).                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The advance reported at October 31, 2014 to Mr. Steven
      Van Fleet, the President of MAST, in the amount of $244,074 was converted
      in February 2015 to performance based additional compensation. There were
      no outstanding advances to the senior management team at October 31, 2015
      (2014: $244,074).                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | In 2015, other expenses included an impairment reserve of
      $2,270,329 relating to one of the Companys deferred development projects.
      The Company also incurred additional development costs of $178,000
      pertaining to one specific project that it initiated in 2015, but which
      project did not ultimately go forward.                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | In 2014 the Company had an impairment reserve of $639,158
      ($764,158 of costs incurred less recoveries of $125,000) on one of its
      deferred development projects.                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | The remaining costs categorized as other expenses
      include:                                                                                                                                                                                                                                                                                                                                                                                                             

| | (i)  | Amortization expense of $7,177 ($7,357 in 2014) on
      property and equipment and amortization of $67,263 (2014 = nil) relating
      to the balance of its investment in its original memory patents, and
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                             
| | (ii) | Foreign currency expense of $59,687 ($58,491 in
    2014).                                                                                                                                                  

| | (c) | Travel and entertainment expense decreased to $193,861 in
      2015 from $329,779 in 2014. The Company incurred significantly more travel
      related costs in 2014 relating to the increased level of activity that it
      was engaged in at that time.with its current clients. The Company incurred
      reduced travel expenses in 2015 through a concerted effort to reduce its
      operating costs.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (d) | Stock compensation expense, calculated in accordance with
      the Black Scholes option pricing model, was $1,163,941 in 2015 relating to
      the issuance of 2,165,000 stock options awarded to directors, officers and
      staff (2014: expense of $379,253 relating to the issuance of 630,000 stock
      options).                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (e) | Administration costs include rent, communication costs,
      insurance, filing fees and costs associated with the Annual General
      meeting. These costs were comparable in 2015 and 2014. The Company also
      reported interest expense of $36,714 ($28,640 in
2014).                                                                                                                                    

Balance Sheet Data:

| | (a) | At October 31, 2015, the Company had working capital of
      ($2,049,302) compared to $1,034,934 at October 31, 2014.                         
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                
| | (b) | The investment in deferred development costs by project
      for the three year period from 2013  2015 is summarized in ITEM 4.B
      above.

22

---

| | (c) | The Company completed equity and bridge loan financings
      in 2015 and 2014 as summarized in ITEM 4.B. above.
| | --- | ----------------------------------------------------------------------------------------------------------------

Fiscal 2014 Compared to Fiscal 2013

The Company reported a loss of $4,164,871 in 2014 versus a loss
of $5,933,928 in 2013. In 2013 the net loss included a non-cash loss on the
revaluation of derivative warrant liability of $3,205,752; excluding this
component, the 2013 loss was $2,728,176.

The increase in loss from operations in 2014 resulted from
several components including:

| | (a) | An increase of $788,352 in professional fees, other fees
      and salaries in 2014 (2014 expense of $2,360,867 versus 2013 expense of
      $1,572,515).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In 2014 the Company incurred additional legal fees
      relating to contract negotiations with its customers, additional costs
      associated with its audit of internal control over financial reporting,
      which was required in 2014 given the Companys status as an accelerated
      filer and additional salary and fees paid to officers, directors and
      employees of approximately $600,000. Research and development costs
      increased from $160,920 in 2013 to $703,671 in 2014, an increase of
      $542,751. In 2014 the Company wrotedown its net investment of $639,158 in
      the nanoparticle detector platform.                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (b) | Travel and entertainment expense increased to $329,779 in
      2014 from $210,852 in 2013. The Company incurred significantly more travel
      related costs in 2014 relating to the increased level of activity that it
      was engaged in with its current clients.                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (c) | Other expenses increased to $769,519 in 2014 from
      $197,522 in 2013. Included in other expenses are amortization costs of
      $7,357 ($24,341 in 2013), foreign exchange expenses of $58,491 ($12,261 in
      2013) and research and development expenses of $703,671 ($160,920 in
      2013). Included in this total in 2014 was the writedown of development
      cost incurred on one project for which it had completed the staged
      development phases for that contract. The Company recovered $300,000 from
      the development partner on this project, $125,000 of which was received in
      2014. The net writedown was $645,528 for this project.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (d) | Stock compensation expense, calculated in accordance with
      the Black Scholes option pricing model, was $379,253 in 2014 relating to
      the issuance of 630,000 stock options awarded to directors, officers and
      staff (2013: expense of $368,790 relating to the issuance of 2,170,000
      stock options).                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (e) | Administration costs include rent, communication costs,
      insurance, filing fees and costs associated with the Annual General
      meeting. These costs were comparable in 2014 and 2013. The Company
      reported nil accretion expense in 2014 ($19,381 in 2013) and interest
      expense of $28,640 ($78,677 in 2013) on convertible
  debentures.                                                                                                                                                                                                                                                                                                                

At October 31, 2014, the Company had working capital of
$1,034,921 compared to $425,888 at October 31, 2013. Included in deposits and
other receivables at October 31, 2014 is a $244,074 advance provided to Mr.
Steven Van Fleet, the President of MAST Inc., the Companys active U.S.
subsidiary. This advance was authorized by the Companys Compensation Committee
in May 2014 and is recoverable by the Company against future compensation.

The Companys investment in deferred development costs
increased to $3,525,456 at October 31, 2014 from $928,077 in 2013, an increase
of $2,597,379. The Companys activities with its customers increased and
progressed on multiple fronts in 2014 as described in Item 4 of this Annual
Report. A reconciliation of the increase in the Companys investment in its
deferred development costs in 2014 is provided above in the table in Item 4.B.
above.

23

---

Unaudited quarterly financial information

Three months ended
      (unaudited)
    Revenues $
    Expenses $
    Loss in period $
    Loss per share $January 31, 2014
    -
    552,123
    (552,123)
    -April 30, 2014
    -
    922,183
    (922,183)
    -July 31, 2014
    125,000
    1,727,411
    (1,602,411)
    (0.01)October 31, 2014
    (125,000)
    963,154
    (1,088,154)
    (0.01)January 31, 2015
    -
    638,088
    (638,088)
    -April 30, 2015
    -
    1,102,664
    (1,102,664)
    (0.01)July 31, 2015
    
    1,175,706
    (1,175,706)
    (0.01)October 31, 2015
    
    3,600,152
    (3,600,152)
    (0.01)


B. Liquidity and Capital Resources:

Liquidity

We have not yet realized commercial revenues from the
exploitation of our technology platforms. We currently do not have positive cash
flow from operations and will not realize positive cash flow until we license or
directly produce and sell products utilizing our technology platforms.

We currently have no lines of credit available. We have, to
date, relied on obtaining equity financing from investors through private
placements, through the exercise by shareholders of common share purchase
warrants, through the exercise of common stock options by officers and
directors, and through bridge loans that the Company has secured in order to
meet our cash flow needs until we can generate sustainable revenues. At October
31, 2015 we had a working capital deficiency of $2,049,302 (2014: $1,034,921)
including cash on hand of $158,568 (2014: $935,987) and our monthly overhead
cash expenses approximate $175,000. Since October 31, 2015 we have raised an
additional $1,401,280 of bridge loan financing. We have also received $443,750
of additional funding from our development partners.

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 made $1,287 of capital expenditures in 2015; in 2014 we made
$16,508 of capital expenditures; and in 2013 we made $14,839 of capital
expenditures.

C. Research and Development:

Under IFRS, research costs are expensed in the period incurred.
Development expenses are expensed as incurred unless they meet the criteria for
deferral and amortization under IFRS, which criteria is the translation of
research findings or other knowledge into a plan for the technology prior to
commercial production or use.

24

---

D. Trend Information:

The market applications for smart sensors are expanding;
  there are potential applications that could be utilized in virtually every
  industry vertical.

Our prospects for commercial revenues are dependent upon the
successful completion of all milestones in the development contracts that we
have renewed to date, obtaining additional development contracts with new
customers and upon the customers deciding to proceed with commercial orders once
these development contracts are successfully completed.

E. Off-Balance Sheet Arrangements:

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

F. Tabular Disclosure of Contractual Obligations:

A summary of our financial commitments as of October 31, 2015
is as below:

|                            | Payments due by period
|--------------------------- | ----------------------
|                            | Total                 
|                            |                       
|Operating lease obligations | 62,188                
|                            |                       
|Purchase obligations        | 3,756,000             
|                            |                       
|Total:                      | 3,818,188             

In addition to these financial commitments, the Company has
management agreements with its senior executives which are operative on a month
to month basis. At October 31, 2015 these agreements stipulate the following
monthly obligations for the Companys senior management team:

Chairman
    $
    12,500CDN ($8,750 US)President
    $
    21,333CDN ($15,145 US)President, MAST
    $
    19,000 USCFO
    $
    12,500CDN($8,750 US)


Critical Accounting Policies:

Our significant accounting policies are set forth in 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 consolidated financial statements for the period have been
prepared in accordance with IFRS which, in our case conforms in all material
respects with U.S. GAAP except for the accounting for development expenditures
reported, for intangible assets, warrant modification and modification of the
conversion feature of bridge loans reported in the fiscal years ended October
31, 2015, 2014 and 2013.

We have not yet realized commercial revenues from the
exploitation of our technology. Under IFRS, research costs are expensed in the
period incurred. Development expenses are expensed as incurred unless they meet
the criteria for deferral and amortization under IFRS which is the translation
of research findings or other knowledge into a plan for the technology prior to
commercial production or use. Under U.S. GAAP all development expenditures are
expensed as incurred. As at October 31, 2015, the Company
capitalized $3,070,299 (2014: $3,525,456) of development costs and capitalized
$58,057 (2014: $77,409) as intangible assets under IFRS.

25

---

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 three month average monthly
exchange rate per quarter which rate approximates the rate of exchange
prevailing at the transaction dates; and gains and losses resulting from the
fluctuation of foreign exchange rates are included in the determination of
income.

G. 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. | In 2013 the Company recovered $181,780 of accounts
      payable balances, recorded in previous years, relating to third party
      vendors whose accounts the Company has disputed. The Company has concluded
      that these amounts are not payable. In the event it is determined that
      these amounts are payable the Company would incur these costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|C. | On November 17, 2014, Micromem and MAST (Plaintiffs)
      commenced a lawsuit in the United States District Court for the Southern
      District of New York against Dreifus Associates Limited and Henry Dreifus
      (Defendants). Plaintiffs original complaint contained five causes of
      action by which they sought money damages, declaratory relief and specific
      performance relating to certain contracts. On February 24, 2015,
      Plaintiffs filed an amended complaint to add a claim for declaratory
      relief relating to a patent held by Plaintiffs. In March 2015, the
      Defendants responded to the allegations filed by Plaintiffs. The
      Defendants have denied the substantive allegations in the complaints filed
      by Plaintiffs and sought to have the action transferred to Florida where
      the Defendants reside. Additionally, the Defendants have counterclaimed
      seeking approximately $270,000 of disputed charges for services allegedly
      rendered and also seeking inventorship status on one of the Companys
      patents.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|D. | In addition to the above, the Company may be subject to
      litigation, claims and governmental and regulatory proceedings arising in
      the ordinary course of business. In such cases, the Company would accrue a
      loss contingency for these matters when it is probable that a loss has
      been incurred and the amount of the loss can be reasonably
    estimated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

H. 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 three month average rate
of exchange per quarter, which rate approximates the rate of exchange prevailing
at the transaction dates; and gains and losses resulting from the translation
are included in the determination of net loss for the period.

|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND
      EMPLOYEES
|------- | ------------------------------------------------

|A. | Directors and Executive
Officers
|-- | --------------------------------

26

---

The Directors and Executive Officers of Micromem as at February
29, 2016 are set forth below:

|Name              | Age | Position                                       
|----------------- | --- | -----------------------------------------------
|                  |     |                                                
|Salvatore Fuda    | 80  | Chairman of the Board of
      Directors       
|Joseph Fuda       | 54  | President, Chief Executive Officer and Director
|Dan Amadori       | 64  | Chief Financial Officer                        
|Steven Van Fleet  | 61  | Director and President of MAST, Inc.           
|David Sharpless   | 65  | Director                                       
|Larry Blue        | 59  | Director                                       
|Oliver Nepomuceno | 46  | Director                                       
|Alex Dey          | 72  | Director                                       
|Brian Von Herzen  | 56  | Director                                       

Salvatore Fuda 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 until 2008. He has served as Chairman of the Board of
Directors and as a director of Echo Energy Canada Inc. from 2002 - 2009. He also
served as Chairman of the Board of Leader Capital Corp. He is the father of
Joseph Fuda.

Joseph Fuda 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 also served as a director
of Echo Energy Canada Inc, and of Echo Power Generational Inc until June
2004.

Dan Amadorihasserved as Chief Financial Officer
of Micromem since June 2004. He has also served as Chief Financial Officer of
Leader Capital from June 2004  March 2009. He served as a Director and Chair of
the Audit Committee of Ontex Resources between September 2003 and March 2005. He
served as CFO of Echo Power Generation Inc. from June 2004 - March 2008. He
served as a director of Hydrive Technologies Inc. from 2004-2008 and as Chair of
the Audit Committee of Hydrive from 2006-2008. He served as a Director and CFO
of XGEN Ventures Inc. between November 2005 and September 2009. He was appointed
as Chairman of Kingsway Arms Retirement Residences in August 2011. He is
President of Lamerac Financial Corp., a financial advisory firm and has held
that position since October 1988. Mr. Amadori is a Chartered Professional
Accountant and holds an MBA from the Ivey School of Business.

Steven Van Fleethas been President of MAST since 2008
and a director of Micromem since 2002. He is a 1976 graduate of Miami University
with a BSc. in Applied Science and held several technical positions in the pulp
and paper industry including Reed Paper, MacMillan Bloedel, Weyerhaeuser, Boise
Cascade and International Paper. While at International Paper, he managed the
corporate research and development group responsible for applying emerging
technology to business issues. Mr. Van Fleet was one of the founding directors
for the MIT Auto ID group that was charged with creation of the Internet of
Things and the emergence of a global standard for the application of RFID. He
held business development positions with Sentrol System, a supplier of paper
machine quality systems and the R&V Group, a startup RFID manufacturing
company. For six years he was the owner of a company that served IBM with a
focus on semiconductor clean room tool analytics and automation.

David Sharpless is the Chairman and CEO of Maverick
Inc., a private consulting and investment firm and the Chairman and CEO of New
Carbon Economy Venture Management Inc., a private company which manages a number
of investments in green technology companies. He was the Chairman and CEO of
TrustMark Auto Group Inc. a CNSX listed company and the Chairman of Hunter
Keilty Muntz and Beatty Limited, a firm of international insurance brokers based
in Toronto and the Vice Chairman of its successor, HKMB Hub International Ltd.
Prior to joining Hunter Keilty Muntz and Beatty Limited in 2001, his career
spanned more than 25 years as a business lawyer with Blake, Cassels & Graydon and as a senior leader
in international finance. He has served as a director of Micromem since 2001.

27

---

Larry Blueis an independent consultant on emerging
technologies. Currently he serves as Executive Vice President and Chief
Operating Officer of Bell and Howell Ltd. Previously he was the President of New
Vision Display, Inc., responsible for Global Sales and Marketing. NVD was spun
out of Multek Technologies Inc., a subsidiary of Flextronics, where he was a
Vice President and General Manager of their Printed Electronics business.
Previously he was 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. Previously Mr. Blue had senior management roles with
Hughes Network Systems and with IBM in Research Triangle Park. He has served as
a Director of the Company since 2005.

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

Alex Deyisa retired business man and was
elected as a director on September 24, 2010. He was the sole proprietor of Alex
Dey, Chartered Accountants until July 31, 2004.

BrianVonHerzenSince 1993, Dr. Von Herzen has served as
Chief Executive Officer at Rapid Protoypes, Inc. providing turnkey electronic
product design services, including commercial product specifications and fully
functional engineering product prototypes, frequently using programmable logic
devices. Rapid Prototypes is expert in electronic engineering design
technologies designed to minimize time to market for new electronic products in
networking, consumer electronics and other commercial products. The company has
developed some of the worlds fastest commercial FPGA applications. Dr. Von
Herzen also serves on the board of directors of the Climate Foundation and
Bright Energy Storage Technologies, LLP. Dr. Von Herzen has also developed
software and hadware systems ranging from apps on smartphones to multi-GHz
correlating spectrometers for the Caltech Submillimeter Observatory. He has
extensive experience with electronic and optical system development for
commercial electronic products.

Craig Carlson was appointed to the Board of Directors on
December 1, 2013. He resigned as a director of the Company on April 15, 2015.

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

Business Corporations Act (Ontario).

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

|B. | Compensation
|-- | ------------

28

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|                              |  | Annual
      Compensation |  |  | Long-Term
      Compensation | 
|----------------------------- |  | ------------------------- |  |  | ---------------------------- | 
|                              |  |                           |  |  |                              | 
|                              |  | Fiscal                    |  |  | Salary                       | 
|Name
      and                |  | Year                      |  |  | (US$)                        | 
|Principal Position            |  |                           |  |  |                              | 
|Joseph
      Fuda             |  | 2012                      |  |  | 190,000                      | 
|Chief
      Executive Officer |  | 2013                      |  |  | 318,000                      | 
|                              |  | 2014                      |  |  | 234,107                      | 
|                              |  | 2015                      |  |  | 150,786                      | 
|Salvatore Fuda,               |  | 2012                      |  |  | 150,000                      | 
|Chairman of the Board of      |  | 2013                      |  |  | 146,599                      | 
|Directors                     |  | 2014                      |  |  | 137,172                      | 
|                              |  | 2015                      |  |  | 119,707                      | 
|David
      Sharpless         |  | 2012                      |  |  | -                            | 
|Director                      |  | 2013                      |  |  | -                            | 
|                              |  | 2014                      |  |  | -                            | 
|                              |  | 2015                      |  |  | -                            | 
|Steven
      Van Fleet        |  | 2012                      |  |  | 261,000                      | 
|Director and President of     |  | 2013                      |  |  | 231,000                      | 
|                              |  | 2014                      |  |  | 230,193                      | 
|                              |  | 2015                      |  |  | 227,648                      | 
|Dan
      Amadori             |  | 2012                      |  |  | 175,000                      | 
|Chief
      Financial Officer |  | 2013                      |  |  | 146,649                      | 
|                              |  | 2014                      |  |  | 151,063                      | 
|                              |  | 2015                      |  |  | 119,707                      | 
|Larry
      Blue              |  | 2012                      |  |  | -                            | 
|Director                      |  | 2013                      |  |  | -                            | 
|                              |  | 2014                      |  |  | 23,877                       | 
|                              |  | 2015                      |  |  |                              | 
|Oliver
      Nepomuceno       |  | 2012                      |  |  | -                            | 
|Director                      |  | 2013                      |  |  | -                            | 
|                              |  | 2014                      |  |  | -                            | 
|                              |  | 2015                      |  |  | -                            | 
|Alex
      Dey                |  | 2012                      |  |  | -                            | 
|Director                      |  | 2013                      |  |  | -                            | 
|                              |  | 2014                      |  |  | -                            | 
|                              |  | 2015                      |  |  |                              | 
|Craig
      Carlson           |  | 2012                      |  |  | -                            | 
|Director                      |  | 2013                      |  |  | -                            | 
|                              |  | 2014                      |  |  | 14,866                       | 
|                              |  | 2015                      |  |  | 34,705                       | 
|Brian
      Von Herzen        |  | 2012                      |  |  | -                            | 
|Director                      |  | 2013                      |  |  | -                            | 
|                              |  | 2014                      |  |  | * 5                          | 
|                              |  | 2015                      |  |  | * 5                          | 

29

---

Notes:

|1. | Each option entitles the holder to purchase one common
      shares at a price of $0.35 per share prior to expiration in April
    2017.                                                                                                                                                                                                                                        
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|2. | Each option entitles the holder to purchase one common
      share at a price of $0.30-$0.27 CDN per share prior to expiration between
      January and September 2018.                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|3. | Each option entitles the holder to purchase one common
      share at a price of $0.35 per share prior to expiration in October
      2018.                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|4. | Each option entitles the holder to purchase one common
      share at a price of $0.64 per share prior to expiration in April
    2019.                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|5  | Brian Von Herzen became a director in February 2014.
      Rapid Prototypes, Inc, a company whose major shareholder is Mr.Von Herzen,
      invoices the Company for engineering, product development and design
      services. In 2015 the total charges invoiced to the Company by Rapid
      Prototypes was $1,049,524; in 2014 Rapid Prototypes invoiced
      $1,843,643.
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|6. | Each option entitles the holder to purchase one common
      share at a price of $0.46 per share prior to expiration in August
    2020.                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|7. | Each option entitles the holder to purchase one common
      share at a price of $0.49 per share prior to expiration in June
    2020.                                                                                                                                                                                                                                          

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.
These options are approved by the Compensation Committee. None of the directors
have agreements that provide for benefits upon termination of service.

In 2015 a total of 2,165,000 stock options were granted to
officers, directors, employees and outside consultants. The exercise price for
975,000 options granted in January 2015 was $0.49 per share; the exercise price
for 940,000 options issued in August 2015 was $0.46 per share; the exercise
price for 250,000 options issued in September 2015 was $0.40.

In 2014 a total of 630,000 stock options were granted to
officers, directors, employees and outside consultants. The exercise price for
350,000 options granted in February 2014 was $0.85 per share; the exercise price
for 280,000 options issued in April 2014 was $0.64 per share.

In 2013, a total of 610,000 options were forfeited and
cancelled. In 2013 options were granted to directors, officers and employees as
follows: in January 2013, 1,090,000 options were granted at an exercise price of
$0.30 per share; in September 2013, 780,000 options were granted at an exercise
price of $0.27 per share; in October 2013, 300,000 options were granted to a
consultant at an exercise price of $0.35 per share.

30

---

|C. | Board Practices:
|-- | ----------------

All matters pertaining to our financing, contractual
  arrangements and Management and Director compensation are approved by the Board
  of Directors. The members of the Board of Directors are appointed to a one-year
  term at our Annual General Meeting.

Our Board of Directors meets on an as required basis during the
fiscal year. Our Board of Directors met formally in February 2015. The Board was
also convened informally as of each quarter end.

Our Audit Committee regularly during fiscal 2015 for the
purpose of approving and recommending to the Board the quarterly financial
statements and our yearend financial statements. In addition, our Audit
Committee receives regular periodic reports from management.

Our Compensation Committee met regularly in 2015 and
additionally receive regular reports from management. Our Compensation Committee
approves Management and Director Compensation and all stock option grants for
recommendation to the Board of Directors.

Our Disclosure Committee met as required in 2015 to review our
various press release disclosures and to monitor our general practices relating
to our disclosure requirements.

Audit Committee

The Board of Directors has appointed an Audit Committee
consisting of three independent directors. The members of the Audit Committee
are Alex Dey, Oliver Nepomuceno and David Sharpless (Chairman), each of whom
serves in such capacity until the Board of Directors next annual meeting. The
Audit Committee is responsible for the integrity of our internal accounting and
control systems. The committee receives and reviews our financial statements and
makes recommendations thereon to the Board of Directors prior to its approval by
the full Board of Directors. The Audit Committee communicates directly with our
external auditors in order to discuss audit and related matters whenever
appropriate. In 2015 the Audit Committee met formally in January, February
March, June, September and October.

Compensation Committee

The Board of Directors has appointed a Compensation Committee
which meets on executive compensation matters as and when required. Our
Compensation Committee includes Oliver Nepomuceno and Alex Dey as outside
directors. The Compensation committee met on a quarterly basis in 2015.

Disclosure Committee

The Board of Directors has appointed a Disclosure Committee
whose primary responsibility is to ensure timely and accurate disclosure of all
relevant information in accordance with the various securities regulations. Our
Disclosure Committee includes Salvatore Fuda, the Companys Chairman, and Alex
Dey, an outside director.

|D. | Employees
|-- | ---------

We have six employees, three of which serve in a management
capacity and three of which serve in an administrative capacity. This includes
the Chief Executive Officer and President, the Chief Financial Officer and the
President of MAST and three support staff, all (except for the President of
MAST) of whom work from our executive offices in Toronto, Canada. All research
and development is outsourced to third parties. We consider our relations with
our employees to be satisfactory.

|E. | Share Ownership
|-- | ---------------

31

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NAME
    SHARES
      OWNED
    OPTIONS
      HELD
    OPTION
      EXERCISE PRICE
    EXPIRATIONDATE
    **% OF TOTAL**1Joseph Fuda Chief Executive Officer and Director
    406,447
    1,622,000 22,500
    $0.20 $0.46
    10/31/2016 08/20/2020
    1.04% (2,050,947)Salvatore Fuda Chairman of the Board of Directors
      and Director
    4,898,5012
    700,000 187,500
    $0.20 $0.46
    10/31/2016 08/20/2020
    2.93% (5,786,001)David Sharpless Director
    325,000
    375,000
    $0.49
    06/04/2020
    0.36 % (700,000)Steven Van Fleet Director and President of MAST, Inc.
    -
    1,000,000 500,000 75,000
      65,000 35,000
    $0.20 $0.35 $0.30 $0.27
      $0.64
    10/31/2016 4/15/2012 01/22/2.18
      09/16/2018 04/25/2019
    0.85 % (1,675,000)Dan Amadori Chief Financial Officer
    612,5173
    1,000,000 75,000 65,000 20,000
    $0.20 $0.30 $0.27 $0.64
    10/31/2016 01/22/2018 09/16/2018
      04/25/2019
    0.90 % (1,772,517)Larry Blue Director
    193,600
    25,000 300,000
    $0.64 $0.49
    04/25/2019 06/04/2020
    0.26% (518,600)Oliver Nepomuceno Director
    1,078,572
    350,000 190,000
      75,000 65,000 25,000
    $0.20 $0.35 $0.30
      $0.27 $0.64
    10/31/2016 04/10/2017
      01/22/2018 09/16/2018 04/25/2019
    0.90% (1,783,572)Alex Dey Director
    776,3734
    125,000 100,000 75,000
      65,000 30,000
    $0.35 $0.20 $0.30 $0.27
      $0.64
    04/5/2016 10/31/2016
      01/22/2018 09/16/2018 04/25/2019
    0.59% (1,171,373)Craig Carlson
    -
    -
    -
    -
    0.0% (0)Brian Von Herzen
    -
    300,000 25,000
    $0.85 $0.64
    02/10/2019 04/25/2019
    0.16% (325,000)


|1 | Calculated based on shares owned plus options held as a
      percentage total of shares outstanding as of October 31, 2015, plus
      options held.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|2 | 4,803,611 shares are held by a corporation wholly owned
      by a trust established for the benefit of members of Salvatore Fuda's
      family.    
|3 | 215,716 shares are held by a corporation controlled by
      Mr. Amadori.                                                                            
|4 | 254,863 shares are held by a corporation wholly owned by
      Mr. Dey.                                                                              

32

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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 Annual Report approximately 58% of the
issued and outstanding common shares are held by Canadian investors;
approximately 21% of the issued and outstanding shares are held by U.S.
investors; and approximately 21% are held by investors outside of Canada and the
U.S.

|B. | Other Related Party
Transactions:
|-- | ---------------------------------

The Company reports the following
related party transactions:

| | (a) | Mr. Salvatore Fuda: Our Chairman of the Board receives
      cash compensation on a month to month basis calculated at an annual rate
      of $150,000 CDN ($104,000 US at current exchange rates).                                                                                                                                                                                                          
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In 2015 Mr. Fuda was granted 187,500 stock options at an
      average exercise price of $0.46; he was not granted any stock options in
      2014. In 2013 Mr. Fuda was awarded a total of 140,000 stock options at an
      average exercise price of $0.29 CDN per share.                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The total compensation paid to our Chairman of the Board
      during the year ended October 31, 2015 was $119,707 of cash compensation
      and $64,271 of stock based compensation (2014 - $137,172 of cash
      compensation and nil stock based compensation; 2013 - $146,599 of cash
      compensation and $21,163 of stock based compensation).                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In 2014 the Company provided a short term non-interest
      bearing advance of $38,084 against monthly compensation due to the
      Chairman. This advance was repaid subsequent to October 31, 2014. The
      Company provided short term non-interest bearing advances of $198,673 to
      the Chairman during 2015 and the Chairman made repayments of the total
      outstanding balance of $236,757.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| | (b) | Management and consulting fees and advances:                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Included in professional fees, other fees and salaries as
      reported are management fees and consulting fees paid or payable to
      individuals (or Companies controlled by such individuals) who served as
      officers, directors and employees of the Company. The total compensation
      paid to such parties is summarized as:                                                                 

|                                                             |   | 2015      |   |   | 2014      |   |   | 2013     |  
|------------------------------------------------------------ | - | --------- | - | - | --------- | - | - | -------- | -
|Cash compensation                                            | $ | 936,199   |   | $ | 1,482,153 |   | $ | 805,574  |  
|Less portion capitalized to deferred
      development costs |   | (122,804  | ) |   | (169,664  | ) |   | (202,820 | )
|                                                             |   | 813,395   |   |   | 1,312,489 |   |   | 602,754  |  
|                                                             |   |           |   |   |           |   |   |          |  
|Share compensation                                           |   | 220,500   |   |   | -         |   |   | -        |  
|Stock based compensation                                     |   | 524,583   |   |   | 325,074   |   |   | 195,720  |  
|                                                             |   |           |   |   |           |   |   |          |  
|                                                             | $ | 1,558,478 |   | $ | 1,637,563 |   | $ | 798,474  |  

In 2015 these parties were awarded a total of 975,000 stock
options at an average exercise price of $0.49 per share and 412,500 stock
options at an average price of $0.46 per share (2014  540,000 stock options at
an average price of $0.76CDN per share; 2013  1,292,500 stock options at an
average exercise price of $0.29 per share).

33

---

In 2015 the Company was invoiced $1,049,524 (2014-$1,843,634;
2013- $391,192) by Rapid Prototypes, Inc (RPI), a company whose major
shareholder is Brian Von Herzen, who has served as a director of the Company
since February 2014 and who also serves as our Chief Technology Officer. These
charges have been capitalized as deferred development costs. Included in
accounts payable at October 31, 2015 is $227,215 owing to RPI.

In 2015, 450,000 common shares were issued to three directors
as compensation for services provided. These common shares were valued at
$220,500.

In 2015 officers, directors and a senior employee exercised
4,088,000 options resulting in proceeds to the Company of $1,055,491.

The CEO was provided short term non-interest bearing advances
of $550,972 during the year and made repayments totaling $542,615 and the
remaining $8,357 was settled through the allocation of compensation due to the
CEO. There are no advances receivable from the CEO as at October 31, 2015.

The President of MAST met performance targets in February 2015
settling his advances receivable from 2014. The advance receivable was converted
to salaries at that time. There were no advances to the President of MAST during
2015.

A senior employee was provided short term non-interest bearing
advances of $166,366 during the year and made repayments totaling $247,252
resulting in no outstanding advances receivable as at October 31, 2015.

In all cases the advances were provided as advances against
expenses incurred or compensation due to these individuals.

In February to March 2014, Mr. Amadori was provided with an
advance of $119,757 against monthly compensation due to him. Interest on the
advance was charged at a rate of 1% per month on the opening monthly balance
outstanding. Mr. Amadori repaid $78,036 through October 31, 2014 and was awarded
a performance based bonus at October 31, 2014 which was applied to the repayment
of the remaining balance of the advance.

In May 2014, Mr. Van Fleet was provided with an advance of
$244,074 against monthly compensation due to him. No interest was charged on the
advance and this balance remained outstanding at October 31, 2014. In February
2015, Mr. Van Fleet was awarded a performance based bonus which was applied to
and eliminated the total amount of the outstanding advance.

In 2014, a senior employee was provided with an advance of
$80,916 against monthly compensation due to the employee. This advance was
non-interest bearing. The advance was repaid in December 2104.

|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

|A. | Consolidated Statements and Other Financial
      Information
|-- | -------------------------------------------------------------

Our consolidated financial statements for the years ended
October 31, 2015, 2014 and 2013 have been prepared in accordance with IFRS.

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

In November 2014 the Company commenced an action against a
contractor claiming multiple causes of action and is seeking damages relating to
services provided by the contractor between 2008-2011. At February 25, 2015, the
contractor has denied the allegations and is seeking dismissal of the Companys
claims. As of October 31, 2015 there were no other legal proceedings
outstanding.

34

---

|B. | Significant Changes
|-- | -------------------

Significant Changes since October 31, 2015 are as presented in
Note 23 to the Companys Consolidated Financial Statements. See ITEM 18 
Financial Statements.

|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

Our common shares are traded in the United States and are
quoted on the OTC QX. The common shares are quoted under the symbol MMTIF. Our
common shares are traded in Canada on the CSE under the symbol MRM.

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 end October 31.

Period
    High
    LowLast six months:February 2016
    0.36
    0.24January 2016
    0.38
    0.25December 2015
    0.42
    0.22November 2015
    0.45
    0.30October 2015
    0.45
    0.34September 2015
    0.50
    0.37Last eight quarters:Q1 2016Q4 2015
    0.55
    0.34Q3 2015
    0.64
    0.41Q2 2015
    0.60
    0.41Q1 2015
    0.80
    0.47Q4 2014
    0.70
    043Q3 2014
    0.67
    0.52Q2 2014
    0.78
    0.59Last five years:2015
    0.80
    0.342014
    1.50
    0.402013
    1.33
    0.162012
    0.49
    0.102011
    0.34
    0.07


On February 29, 2016, the last reported sale price for our
common shares on the OTC QX was $0.28.

|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------

|A. | Share Capital
|-- | -------------

Our authorized capital consists of an unlimited number of
common shares, of which 197,176,368 shares were issued and outstanding as of
October 31, 2015, and 2,000,000 special, redeemable, voting preference shares,
referred to herein as special shares, none of which were outstanding, as of
October 31, 2015.

Additionally the Company has 9,817,000 stock options
outstanding with a weighted average exercise price of $0.31 (2014: 12,105,000
options outstanding with a weighted average exercise price of $0.27) There are
no remaining warrants outstanding at 2015 (2014:4,485,463 outstanding warrants
with a weighted average exercise price of $0.37).

35

---

|B. | Memorandum and Articles of
  Incorporation
|-- | ------------------------------------------

Articles of IncorporationIncorporation 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,
at least twenty five percent (25%), or if they are less than 4, at least one of
whom are Canadian residents and at least one third of whom are not officers or
employees of us or our affiliates. The Board of Directors may, between annual
shareholders meetings, appoint one or more additional directors to serve until
the next annual shareholders meeting provided that the number of directors so
added may not exceed by one-third (1/3) the number of directors required to have
been elected at the last annual meeting of shareholders.

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

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

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

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.

36

---

Securities of Micromem

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

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

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
|-- | ------------------

In 2010 the Company entered into a month to month contract with
Mr. Dan Amadori, its CFO, at the expiration of the employment agreement signed
in 2008. These month to month arrangements continue at October 31, 2015. Under
the terms of the contract, Mr. Amadori receives $12,500 CDN ($10,000 US) in
monthly compensation and additional compensation at the discretion of the
Compensation Committee.

In 2010 the Company entered into a month to month contract with
Mr. Joseph Fuda, its President and CEO, at the expiration of the employment
agreement signed in 2008. These month to month arrangements continue at October
31, 2015. Under the terms of the contract, Mr. Fuda receives
$13,333CDN ($10,666US) and additional compensation at the discretion of the
Compensation Committee.

37

---

In 2011 the Company entered into a month to month contract with
Mr. Steven Van Fleet, the President of MAST at the expiration of the employment
agreement signed in 2008. This month to month arrangement continues at October
31, 2015. Under the terms of the contract, Mr. Van Fleet receives $15,000US in
monthly compensation and additional compensation at the discretion of the
Compensation Committee.

In 2011 the Company entered into a month to month contract with
its Chairman of the Board, Mr. Salvatore Fuda, at the expiration of the
employment agreement signed in 2005. This month to month arrangement continues
at October 31, 2015. Under the terms of the contract, Mr. Fuda receives
$12,500CDN ($10,000US) in monthly compensation.

The total monthly commitment under these month to month
arrangements is $45,666 at October 31, 2015.

In 2011-2012 the Company, through its wholly-owned subsidiary,
Micromem Applied Sensor Technologies, Inc. entered into consulting and product
development agreements with Rapid Prototypes, Inc. (RPI) whose major shareholder
is Mr. Brian Von Herzen. Mr.Von Herzen was appointed to the Board of Directors
of the Company in February 2014. He also serves as the Companys Chief
Technology Officer. RPI has invoiced the Company for professional engineering
design and product development services since 2011; since becoming a director of
the Company, RPI has invoiced the Company total fees of $2893,167.

|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 there under 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.

38

---

Dividends on common shares and Other Income

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

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

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

Dispositions of Common Shares

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

The Canada-United States Income Tax Convention (1980) relieves
United States residents from liability for Canadian tax on capital gains derived
on a disposition of shares unless:

the value of the shares is derived principally from "real
property" in Canada, including the right to explore for or exploit natural
resources and rights to amounts computed by reference to production, the
shareholder was resident in Canada for 120 months during any period of 20
consecutive years preceding, and at any time 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, nor any U.S. federal gift, estate or
generation-skipping transfer tax consequences. (Certain, but not all, foreign
tax consequences are described above under Taxation - Certain Canadian Income
Tax Consequences.)

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

39

---

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

CIRCULAR 230 DISCLOSURE

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

US Holders

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

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,
2013, 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.

40

---

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% in taxable years
beginning on or before December 31, 2013. 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).

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

41

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Foreign Tax Credit

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

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

Currency Fluctuations

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

|F. | Dividends and Paying
Agents
|-- | ---------------------------

Not applicable.

|G. | Statement by Experts
|-- | --------------------

Not applicable.

|H. | Documents on Display
|-- | --------------------

We have filed the documents referred to herein and other
information with the SEC, the Ontario Securities Commission and the Alberta
Securities Commission. You may inspect and copy such material at the public
reference facilities maintained by the SEC at 100 F 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 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms.

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

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

42

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|I. | Subsidiary Information
|-- | ----------------------

Not Applicable.

|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT MARKET RISK
|-------- | ----------------------------------------------------------------

We are exposed to market risks in the ordinary course of our
business. Market risk represents the risk of loss that may impact our financial
position due to adverse changes in financial market prices and rates. Our market
risk exposure is primarily a result of fluctuations in interest rates and
foreign currency exchange rates. We do not hold or issue financial instruments
for trading purposes. See Note 21 to our consolidated financial statements for
our quantitative and qualitative disclosures about market risk.

|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES
|-------- | ------------------------------------------------------------

Not Applicable.

PART II

|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND
      DELINQUENCIES
|-------- | -----------------------------------------------------

None.

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

None.

|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, referred to herein as the
Exchange Act) as of October 31, 2015. Based on management's evaluation in
2015, our Chief Executive Officer and Chief Financial Officer concluded that, as
of October 31, 2015, our disclosure controls and procedures were effective in
that they were designed to 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. Disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company in our reports that we
file or submit under the Exchange Act are recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms. Exchange
Act Rule 13a-15(e) also states that disclosure controls and procedures are
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Act is accumulated and communicated
to the issuers management, including its principal executive and principal
financial officers, or person performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.

Managements Annual Report on Internal Control over
Financial Reporting

Micromems Board of Directors and executive management are
responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation and fair presentation of its published consolidated financial
statements.

43

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All internal control systems no matter how well designed have
inherent limitations. Therefore, even those systems determined to be effective
may not prevent or detect misstatements and can provide only reasonable
assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Our Chief Executive Officer and Chief Financial Officer
assessed the effectiveness of Micromems internal control over financial
reporting as of October 31, 2015. In making this assessment, they used the
criteria established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this assessment the Chief Executive Officer and Chief Financial Officer have
concluded that, as of October 31, 2015, our internal control over financial
reporting were effective.

Attestation Report of the Registered Public Accounting
Firm.

Micromems internal control over financial reporting as of
October 31, 2015 has been audited by Collins Barrow Toronto LLP, an independent
registered public accounting firm in Toronto, Canada, as stated in their report
which is included under Item 18Financial Statements of this Annual
Report.

Changes in Internal Control Over Financial Reporting

No changes in our internal controls over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, occurred
during the fiscal year ended October 31, 2015 that has materially affected or is
reasonable likely to materially affect, our internal controls over financial
reporting.

|ITEM 15T. | Controls and Procedures
|--------- | -----------------------

Not applicable.

|ITEM 16. | [Reserved]
|-------- | ----------

Not applicable.

|ITEM 16A. | Audit Committee Financial Expert
|--------- | --------------------------------

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

|ITEM 16B. | Code of Ethics
|--------- | --------------

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

|ITEM 16C. | Principal Accountant Fees and Services
|--------- | --------------------------------------

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, 2015 and 2014, and fees billed for
other services rendered by our auditors including our offerings of securities
and tax services.

44

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Fiscal 2015
    
    
    Fiscal 2014Audit Fees
    $
    150,133
    
    $
    118,371Audit Related Fees
    
    -
    
    
    -Tax Fees
    $
    4,000
    
    $
    5,000All Other Fees
    
    -
    
    
    -


Audit Fees

In 2015, we paid a total of $150,133 to Collins Barrow Toronto
LLP for audit services; in 2014 we paid a total of $118,371 to Collins Barrow
Toronto LLP for audit services.

Audit Related Fees

None

Tax Fees

We paid $4,000 of tax-related fees for services in 2015 and
$5,000 of tax related fees in 2014 to Chiampou Travis LLP.

All Other Fees

None

Pre-approval policies

The Audit Committee assesses and pre-approves all audit and
non-audit services.

|ITEM 16D. | Exemptions from the Listing Standards for
      Audit Committees
|--------- | ----------------------------------------------------------------

Not applicable.

|ITEM 16E. | Purchases of Equity by the Issuer and
      Affiliated Purchasers.
|--------- | ------------------------------------------------------------------

None.

|ITEM 16F. | Change in Registrants Certifying
      Accountant.
|--------- | --------------------------------------------------

None.

|ITEM 16G. | Corporate Governance
|--------- | --------------------

Not applicable.

|ITEM 16H. | Mine Safety Disclosure
|--------- | ----------------------

Not applicable.

|ITEM 17. | Financial Statements
|-------- | --------------------

Not applicable, see Item 18.

45

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|**ITEM 18.** | Financial
Statements
|------------ | --------------------

Consolidated Financial Statements of

MICROMEM TECHNOLOGIES INC.

For the years ended October 31, 2015 and 2014

(Expressed in United States Dollars)

---



| | Collins Barrow Toronto LLP
| | --------------------------
| | Collins Barrow Place      
| | 11 King Street West       
| | Suite 700, PO Box 27      
| | Toronto, Ontario          
| | M5H 4C7 Canada            
| |                           
| | T. 416.480.0160           
| | F. 416.480.2646           
| |                           
| | www.collinsbarrow.com     

INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM

To the Shareholders of Micromem Technologies Inc.:

We have audited the accompanying consolidated financial
statements of Micromem Technologies Inc. and its subsidiaries, which comprise
the consolidated statements of financial position as at October 31, 2015 and
October 31, 2014 and the consolidated statements of loss and comprehensive loss,
changes in shareholders equity and cash flows for the years ended October 31,
2015, October 31, 2014 and October 31, 2013 and notes comprising a summary of
significant accounting policies and other explanatory information.

Managements Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.

Auditors Responsibility

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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances. An
audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Micromem Technologies Inc. and its subsidiaries as at October 31, 2015 and
October 31, 2014, and its consolidated financial performance and its
consolidated cash flows for the years ended October 31, 2015, October 31, 2014
and October 31, 2013 in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 2 in
the consolidated financial statements which describes the material uncertainties
that cast significant doubt about Micromem Technologies Inc.s ability to
continue as a going concern.

|This office is independently owned and
      operated by Collins Barrow Toronto LLP | 
|----------------------------------------------------------------------------------- | 
|The Collins Barrow trademarks are used
      under License.                        
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---

Other Matter

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of October 31, 2015, based on the
criteria established in Internal Control  Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated March 2, 2016 expressed an unmodified (unqualified) opinion on
the effectiveness of the Companys internal control over financial reporting.



Chartered Professional Accountants Licensed Public
Accountants Toronto, Canada March 2, 2016



---



|                                                                  | Collins Barrow Toronto LLP
|----------------------------------------------------------------- | --------------------------
|                                                                  | Collins Barrow Place      
|                                                                  | 11 King Street West       
|                                                                  | Suite 700, PO Box 27      
|                                                                  | Toronto, Ontario          
|                                                                  | M5H 4C7 Canada            
|                                                                  |                           
|**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM** | T. 416.480.0160           
|                                                                  | F. 416.480.2646           
|                                                                  |                           
|**To the Shareholders of Micromem Technologies
      Inc.:**      | www.collinsbarrow.com     

We have audited the internal control over financial reporting
of Micromem Technologies Inc. and subsidiaries (the "Company") as of October 31,
2015, based on criteria established in the Internal ControlIntegrated Framework
(2013)issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included under the heading Disclosure Controls/Internal Controls under the
title Compliance Related Reporting Matters in the accompanying Managements
Discussion and Analysis. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.

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

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

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

In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of October 31,
2015, based on criteria established in the Internal Control  Integrated
Framework (2013) issued by Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statements of financial
position of the Company as at October 31, 2015 and 2014 and the consolidated
statements of loss and comprehensive loss, changes in shareholders equity and
cash flows for the years ended October 31, 2015, October 31, 2014 and October
31, 2013, and notes comprising a summary of significant accounting policies and
other explanatory information and our report dated March 2, 2016 expressed an
unqualified audit opinion on those consolidated financial statements.



Chartered Professional Accountants Licensed Public
Accountants Toronto, Canada March 2, 2016

---

MICROMEM TECHNOLOGIES INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|TABLE OF CONTENTS
|-----------------
|                 

|1. Reporting Entity and
      Nature of Business                                                   
|---------------------------------------------------------------------------------------------------
|                                                                                                   
|2. Going
      Concern                                                                             
|                                                                                                   
|3.
      Basis of Presentation                                                                     
|                                                                                                   
|4. Summary of
      Significant Accounting Policies                                                
|                                                                                                   
|5. New
      Standards and Interpretations Issued but not yet Adopted                              
|                                                                                                   
|6.
      Fair Value Disclosures                                                                    
|                                                                                                   
|7.
      Capital Risk Management                                                                   
|                                                                                                   
|8. Deposits and Other
      Receivables                                                            
|                                                                                                   
|9.
      Property and Equipment                                                                    
|                                                                                                   
|10. Deferred Development Costs                                                                     
|                                                                                                   
|11. Intangible Assets and
      Patents                                                            
|                                                                                                   
|12. Share
      Capital, Stock Options and Loss per Share                                          
|                                                                                                   
|13.
      Private Placements, Derivative Warrant Liability and Common Share Purchase
      Warrants
|                                                                                                   
|14. Bridge
      Loans                                                                             
|                                                                                                   
|15.
      Contributed Surplus                                                                      
|                                                                                                   
|16. Income
      Taxes                                                                             
|                                                                                                   
|17. Expenses                                                                                       
|                                                                                                   
|18.
      Management Compensation and Related Party Transactions                                   
|                                                                                                   
|19.
      Commitments                                                                              
|                                                                                                   
|20.
      Contingencies                                                                            
|                                                                                                   
|21. Financial Risk Management                                                                      
|                                                                                                   
|22.
      Segmented Information                                                                    
|                                                                                                   
|23.
      Subsequent Events                                                                        

1

---

MICROMEM TECHNOLOGIES INC.CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION(Expressed in United States dollars)

|                                                                                                                                                |   | October 31, |   |   | October 31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                                                                                |   | 2015        |   |   | 2014        |  
|Assets                                                                                                                                          |   |             |   |   |             |  
|Current assets:                                                                                                                                 |   |             |   |   |             |  
|Cash                                                                                                                                            | $ | 158,568     |   | $ | 935,987     |  
|Deposits and other
      receivables (Note 8)                                                                                                   |   | 56,108      |   |   | 872,766     |  
|                                                                                                                                                |   | 214,676     |   |   | 1,808,753   |  
|                                                                                                                                                |   |             |   |   |             |  
|Property and equipment, net
      (Note 9)                                                                                                      |   | 15,592      |   |   | 21,483      |  
|Deferred development costs (Note 10)                                                                                                            |   | 3,070,299   |   |   | 3,525,456   |  
|Intangible assets, net (Note
      11)                                                                                                          |   | 58,057      |   |   | 77,409      |  
|Patents, net (Note 11)                                                                                                                          |   | 309,242     |   |   | 203,504     |  
|                                                                                                                                                | $ | 3,667,866   |   | $ | 5,636,605   |  
|                                                                                                                                                |   |             |   |   |             |  
|Liabilities and
      Shareholders' Equity (Deficiency)                                                                                         |   |             |   |   |             |  
|Current liabilities:                                                                                                                            |   |             |   |   |             |  
|Bridge loans (Note 14)                                                                                                                          | $ | 966,588     |   | $ | -           |  
|Accounts payable
      and accrued liabilities                                                                                                  |   | 1,297,390   |   |   | 773,832     |  
|                                                                                                                                                | $ | 2,263,978   |   | $ | 773,832     |  
|Shareholders' Equity (Deficiency)                                                                                                               |   |             |   |   |             |  
|Share capital: (Note 12)                                                                                                                        |   |             |   |   |             |  
|Authorized:                      
      2,000,000 special preference shares, redeemable, voting Unlimited common
      shares without par value |   |             |   |   |             |  
|Issued
      and
      outstanding:                      
      197,176,368 common shares (2014: 188,436,724) (Note 12)                         | $ | 74,083,975  |   | $ | 70,802,776  |  
|Contributed
      surplus (Note 15)                                                                                                             |   | 27,213,204  |   |   | 27,436,678  |  
|Deficit                                                                                                                                         |   | (99,893,291 | ) |   | (93,376,681 | )
|                                                                                                                                                |   | 1,403,888   |   |   | 4,862,773   |  
|                                                                                                                                                |   |             |   |   |             |  
|                                                                                                                                                | $ | 3,667,866   |   | $ | 5,636,605   |  

Going Concern (Note 2)Management Compensation and Related
Party Transactions (Note 18) Commitments (Note 19) Contingencies (Note
20) Subsequent Events (Note 23)

Approved by:"Joseph Fuda"
      (Signed)Joseph Fuda, Director"David Sharpless"
      (Signed)David Sharpless, Director


See accompanying notes.

2

---

MICROMEM TECHNOLOGIES INC.STATEMENTS OF
CONSOLIDATED LOSS AND COMPREHENSIVE LOSS(Expressed in United States
dollars)

For the years ended October 31,

|                                                                     |   | 2015        |   |   | 2014        |   |   | 2013        |  
|-------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                     |   |             |   |   |             |   |   |             |  
|Costs and expenses
      :                                           |   |             |   |   |             |   |   |             |  
|Administration (Note 17)                                             | $ | 426,361     |   | $ | 325,453     |   | $ | 378,497     |  
|Professional, other
      fees and salaries (Note 17)                |   | 1,952,302   |   |   | 2,360,867   |   |   | 1,572,515   |  
|Stock based compensation (Note 12)                                   |   | 1,163,941   |   |   | 379,253     |   |   | 368,790     |  
|Development costs (Note
      17)                                    |   | 2,646,019   |   |   | 703,671     |   |   | 160,920     |  
|Travel and entertainment                                             |   | 193,861     |   |   | 329,779     |   |   | 210,852     |  
|Amortization of
      property and equipment (Note 9)                |   | 7,177       |   |   | 7,357       |   |   | 4,989       |  
|Amortization of intangible assets (Note
      11)                    |   | -           |   |   | -           |   |   | 19,352      |  
|Write-down of patents
      (Note 11)                                |   | 67,262      |   |   | -           |   |   | -           |  
|Foreign exchange loss                                                |   | 59,687      |   |   | 58,491      |   |   | 12,261      |  
|Loss from
      operations                                           |   | 6,516,610   |   |   | 4,164,871   |   |   | 2,728,176   |  
|                                                                     |   |             |   |   |             |   |   |             |  
|Other Income and
      Expenses                                      |   |             |   |   |             |   |   |             |  
|Gain on revaluation of embedded
      derivatives (Note 14)          |   | -           |   |   | -           |   |   | (40,750     | )
|Loss on revaluation of
      derivative warrants liability (Note 13) |   | -           |   |   | -           |   |   | 3,246,502   |  
|                                                                     |   |             |   |   |             |   |   |             |  
|Net loss before income
      taxes                                   |   | (6,516,610  | ) |   | (4,164,871  | ) |   | (5,933,928  | )
|                                                                     |   |             |   |   |             |   |   |             |  
|Income taxes (Note 16)                                               |   | -           |   |   | -           |   |   | -           |  
|                                                                     |   |             |   |   |             |   |   |             |  
|Net loss and
      comprehensive loss                                | $ | (6,516,610  | ) | $ | (4,164,871  | ) | $ | (5,933,928  | )
|                                                                     |   |             |   |   |             |   |   |             |  
|Loss per share - basic and
      diluted (Note 12)                   | $ | (0.03       | ) | $ | (0.02       | ) | $ | (0.04       | )
|                                                                     |   |             |   |   |             |   |   |             |  
|Weighted average number of
      shares (Note 12)                    |   | 192,629,666 |   |   | 171,534,969 |   |   | 146,814,466 |  

See accompanying notes.

3

---

MICROMEM TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF
CASH FLOWS(Expressed in United States dollars)

For the years ended October 31,

|                                                                                             |   | 2015       |   |   | 2014       |   |   | 2013       |  
|-------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|Cash flows from operating
      activities:                                                  |   |            |   |   |            |   |   |            |  
|Net loss                                                                                     | $ | (6,516,610 | ) | $ | (4,164,871 | ) | $ | (5,933,928 | )
|Adjustments to
      reconcile loss for the period to net cash used in operating activities: |   |            |   |   |            |   |   |            |  
|Amortization of intangible assets                                                            |   | -          |   |   | -          |   |   | 19,352     |  
|Amortization of property and equipment                                                       |   | 7,177      |   |   | 7,357      |   |   | 4,989      |  
|Development costs                                                                            |   | 2,395,425  |   |   | 676,790    |   |   | 52,461     |  
|Accretion expense                                                                            |   | -          |   |   | -          |   |   | 19,381     |  
|Bridge loan interest accrued                                                                 |   | 19,361     |   |   | -          |   |   | -          |  
|Stock based compensation                                                                     |   | 1,163,941  |   |   | 379,253    |   |   | 368,790    |  
|Write down of patents                                                                        |   | 67,262     |   |   | -          |   |   | -          |  
|Reversal of patent provision                                                                 |   | (19,598    | ) |   | -          |   |   | -          |  
|Conversion of advances receivable to salaries                                                |   | 263,819    |   |   | -          |   |   | -          |  
|Increase (decrease) in deposits and other receivables                                        |   | 455,265    |   |   | (235,757   | ) |   | (188,679   | )
|Increase (decrease) in accounts payable and accrued
      liabilities                        |   | 523,558    |   |   | 454,149    |   |   | (63,433    | )
|Loss on revaluation of derivative warrant liability                                          |   | -          |   |   | -          |   |   | 3,246,502  |  
|(Gain) on revaluation of embedded derivatives                                                |   | -          |   |   | -          |   |   | (40,750    | )
|Net cash used in operating activities                                                        |   | (1,640,400 | ) |   | (2,883,079 | ) |   | (2,515,315 | )
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash flows from investing activities:                                                        |   |            |   |   |            |   |   |            |  
|Purchase
      of property and equipment                                                     |   | (1,286     | ) |   | (14,842    | ) |   | (13,200    | )
|Patents                                                                                      |   | (213,820   | ) |   | (176,381   | ) |   | (44,825    | )
|Deferred
      development costs                                                             |   | (3,662,271 | ) |   | (3,872,635 | ) |   | (655,093   | )
|Recovery of deferred
      development costs                                                 |   | 1,783,632  |   |   | 662,290    |   |   | 233,290    |  
|Recovery
      of patent costs                                                               |   | 18,140     |   |   | -          |   |   | -          |  
|Net cash used in investing activities                                                        |   | (2,075,605 | ) |   | (3,401,568 | ) |   | (479,828   | )
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash flows from financing activities:                                                        |   |            |   |   |            |   |   |            |  
|Issue of
      common shares                                                                 |   | 1,893,784  |   |   | 6,801,619  |   |   | 3,697,441  |  
|Bridge loans advances                                                                        |   | 1,176,673  |   |   | -          |   |   | -          |  
|Bridge
      loan repayments                                                                 |   | (229,446   | ) |   | -          |   |   | (126,044   | )
|Advances to related
      parties                                                            |   | (981,395   | ) |   | (480,304   | ) |   | -          |  
|Repayments from related parties                                                              |   | 1,078,970  |   |   | 78,036     |   |   | -          |  
|Net cash provided by financing
      activities                                              |   | 2,938,586  |   |   | 6,399,351  |   |   | 3,571,397  |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|(Decrease) increase in cash                                                                  |   | (777,419   | ) |   | 114,704    |   |   | 576,254    |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash, beginning of year                                                                      |   | 935,987    |   |   | 821,283    |   |   | 245,029    |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash, end of year                                                                            | $ | 158,568    |   | $ | 935,987    |   | $ | 821,283    |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|Supplemental cash flow information:                                                          |   |            |   |   |            |   |   |            |  
|Interest
      paid (classified in operating activities)                                     |   | 17,354     |   |   | 17,071     |   |   | 83,493     |  
|Income taxes paid                                                                            |   | -          |   |   | -          |   |   | -          |  

See accompanying notes.

4

---

MICROMEM TECHNOLOGIES INC.Consolidated Statements
of Changes in Shareholders' Equity (Expressed in United States
dollars)

Number of
    
    
    Share capital
    
    
    Contributed surplus
    
    
    **Equity component**
    
    
    Deficit
    
    
    TotalShares
    
    
    
    
    
    
    
    
    Of Bridge loanBalance as at November 01,
      2012
    
    136,430,555
    
    $
    54,728,239
    
    $
    26,634,177
    
    $
    1,557
    
    $
    (82,268,003
    **)**
    **$**
    (904,030
    )Private placement of units
      for cash
    
    16,106,957
    
    
    2,910,532
    
    
    -
    
    
    -
    
    
    -
    
    
    2,910,532Financing costs
    
    -
    
    
    (35,482
    )
    
    -
    
    
    -
    
    
    -
    
    
    (35,482
    )Stock based compensation
    
    -
    
    
    -
    
    
    368,790
    
    
    -
    
    
    -
    
    
    368,790Warrants issued on private placements
    
    -
    
    
    (863,863
    )
    
    377,234
    
    
    -
    
    
    -
    
    
    (486,629
    )Warrants extended
    
    -
    
    
    -
    
    
    264,938
    
    
    -
    
    
    (841,247
    )
    
    (576,309
    )Warrants exercised
    
    5,953,913
    
    
    822,391
    
    
    -
    
    
    -
    
    
    -
    
    
    822,391Fair value of warrants
      exercised
    
    -
    
    
    193,796
    
    
    (47,675
    )
    
    -
    
    
    -
    
    
    146,121Warrants modified (Note 13)
    
    -
    
    
    -
    
    
    5,224,863
    
    
    -
    
    
    -
    
    
    5,224,863Net loss and comprehensive
      loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (5,933,928
    )
    
    (5,933,928
    )Balance at October 31, 2013
    
    158,491,425
    
    $
    57,755,613
    
    $
    32,822,327
    
    $
    1,557
    
    $
    (89,043,178
    )
    $
    1,536,319Stock based compensation
      (Note 12)
    
    -
    
    
    -
    
    
    379,253
    
    
    -
    
    
    -
    
    
    379,253Warrants extended (Note 13)
    
    -
    
    
    -
    
    
    168,632
    
    
    -
    
    
    (168,632
    )
    
    -Warrants exercised (Note 13)
    
    27,410,717
    
    
    6,801,619
    
    
    -
    
    
    -
    
    
    -
    
    
    6,801,619Fair value of warrants exercised
    
    -
    
    
    6,078,497
    
    
    (6,078,497
    )
    
    -
    
    
    -
    
    
    -Bridge loan converted (Note
      14)
    
    2,517,501
    
    
    302,100
    
    
    1,557
    
    
    (1,557
    )
    
    -
    
    
    302,100Warrants issued on conversion of bridge loan
      (Note 14)
    
    -
    
    
    (143,406
    )
    
    143,406
    
    
    -
    
    
    -
    
    
    -Shares issued on settlement
      of accounts payable
    
    17,081
    
    
    8,353
    
    
    -
    
    
    -
    
    
    -
    
    
    8,353Net loss and comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (4,164,871
    )
    
    (4,164,871
    )Balance at October 31,
      2014
    
    188,436,724
    
    $
    70,802,776
    
    $
    27,436,678
    
    $
    -
    
    $
    (93,376,681
    )
    $
    4,862,773Private placement of units for cash (Note 13)
    
    422,768
    
    
    175,000
    
    
    -
    
    
    -
    
    
    -
    
    
    175,000Share compensation (Note 12)
    
    900,000
    
    
    387,000
    
    
    -
    
    
    -
    
    
    -
    
    
    387,000Warrants exercised (Note 13)
    
    2,988,876
    
    
    565,777
    
    
    -
    
    
    -
    
    
    -
    
    
    565,777Fair value of warrants
      exercised
    
    -
    
    
    271,553
    
    
    (271,553
    )
    
    -
    
    
    -
    
    
    -Options exercised (Note 12)
    
    4,428,000
    
    
    1,153,007
    
    
    
    
    
    -
    
    
    -
    
    
    1,153,007Fair value of options
      exercised
    
    -
    
    
    728,862
    
    
    (728,862
    )
    
    -
    
    
    -
    
    
    -Stock based compesation (Note 12)
    
    -
    
    
    -
    
    
    776,941
    
    
    -
    
    
    -
    
    
    776,941Net loss and comprehensive
      loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (6,516,610
    )
    
    (6,516,610
    )Balance at October 31, 2015
    
    197,176,368
    
    $
    74,083,975
    
    $
    27,213,204
    
    
    -
    
    $
    (99,893,291
    )
    $
    1,403,888


5

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|1. | REPORTING ENTITY AND NATURE OF
  BUSINESS
|-- | -----------------------------------------

Micromem Technologies Inc. (Micromem
or the Company) is incorporated under the laws of the Province of Ontario,
Canada. The principal business address of the Company is 121 Richmond Street
West, Suite 304, Toronto, Ontario, Canada.

The Company develops, based upon
proprietary technology, customized magnetic sensor applications for companies
(referred to as development partners) operating internationally in various
industry segments. The Company has not generated commercial revenues through
October 31, 2015 and is devoting substantially all its efforts to securing
commercial revenue opportunities.

These consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries:

| | (i)   | Micromem Applied Sensors Technology, Inc. (MAST)
      incorporated in November 2007 and domiciled in Delaware, United States.
      MAST has the primary responsibility for the exploitation of the Companys
      technologies in conjunction with various strategic partners and
      customers.             
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                     
| | (ii)  | 7070179 Canada Inc., incorporated in October 2008 under
      the Canada Business Corporations Act in Ontario, Canada. The Company has
      assigned to this entity its rights, title and interests in certain patents
      which it previously held, directly in exchange for common shares of this
      entity.
| |       |                                                                                                                                                                                                                                                                                                                     
| | (iii) | Memtech International Inc., Bahamas; Memtech
      International (USA) Inc., Delaware, United States; Pageant Technologies
      (USA) Inc., United States; Pageant Technologies Inc., Barbados; and
      Micromem Holdings (Barbados) Inc., Barbados. All of these entities are
      inactive.                   

These consolidated financial statements
were authorized for issuance and release by the Companys Board of Directors on
March 2, 2016.

6

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|2. | GOING CONCERN
|-- | -------------

These consolidated financial statements
have been prepared on the going concern basis in accordance with International
Financial Reporting Standards (IFRS), 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.

There are material uncertainties
related to conditions and events that cast significant doubt about the Companys
ability to continue as a going concern for a reasonable period of time in
future. During the year ended October 31, 2015, the Company reported a net loss
and comprehensive loss of $6,516,610 (2014 - $4,164,871; 2013 - $5,933,928) and
negative cash flow from operations of $1,640,400 (2014 - $2,883,079; 2013 -
$2,515,315). The Companys working capital deficiency as at October 31, 2015 is
$2,049,302 (2014 surplus  $1,034,921).

The Companys success depends on the
profitable commercialization of its proprietary magnetic sensor technology.
There is no assurance that the Company will be successful in the profitable
commercialization of its technology. Based upon its current operating and
financial plans, management of the Company believes that it will have sufficient
access to financial resources to fund the Companys planned operations through
fiscal 2016; however, the ability of the Company to continue as a going concern
is dependent upon its ability to secure additional financing and/or profitably
commercialize its technology. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the possible inability of the Company to continue as a going
concern.

If the going concern assumption were
not appropriate for these consolidated financial statements then adjustments
would be necessary to the carrying value of assets and liabilities, the reported
expenses and the balance sheet classifications used; in such cases, these
adjustments would be material.

7

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|3. | BASIS OF PRESENTATION
|-- | ---------------------

| | a) | Statement of compliance:                                                                                                                                                                                                         
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                  
| |    | These consolidated financial statements have been
      prepared in accordance with IFRS and its interpretations adopted by
      International Accounting Standards Board (IASB).                                             
| |    |                                                                                                                                                                                                                                  
| | b) | Basis of measurement:                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                  
| |    | The consolidated financial statements have been prepared
      on the historical cost basis, except for financial instruments designated
      at fair value through profit and loss, which are stated at their fair
      value.
| |    |                                                                                                                                                                                                                                  
| | c) | Functional and presentation currency:                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                  
| |    | These consolidated financial statements are presented in
      United States dollars (U.S. dollars), which is also the Companys
      functional currency.                                                                    
| |    |                                                                                                                                                                                                                                  
| | d) | Use of estimates and judgments:                                                                                                                                                                                                  

The preparation of the consolidated
financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.

Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future
periods affected.

Information about assumptions and
estimation uncertainties that have a significant risk of resulting in a material
adjustment are as follows:

| | i) | The Company makes estimates and utilizes assumptions in
      determining the fair value for stock based compensation expense, warrants,
      the (gain) loss on the revaluation of the derivative warrant liability,
      the (gain) loss on the revaluation of the embedded derivatives relating to
      bridge loans and the bifurcation of convertible
debt.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|3. | BASIS OF PRESENTATION
(Contd)
|-- | ------------------------------

| | d) | Use of estimates and judgments:
(Contd)
| | -- | ----------------------------------------

| | ii)   | The Company makes estimates related to the recovery of
      deferred development costs based on the expectation and assumption of
      realizing revenues from future commercial agreements that it anticipates
      will develop with the companies for whom these projects have been
      undertaken. Changes in these expectations and assumptions could result in
      a change in the recoverable amount calculated.                                                                                                                                                                                                                                                                                                                                                          
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iii)  | The Company applies judgment when establishing whether
      the capitalization criteria under IAS 38, Intangible Assets, for
      internally developed intangible assets, have been met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iv)   | Long-lived assets are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset exceeds its recoverable amount or if the long-lived assets are not
      yet in use. The recoverable amount is determined with reference to the
      fair value of the long-lived assets less costs to sell or the value-in-use
      calculations. Where recoverable amount is determined to be less than the
      carrying amount, an impairment loss may arise. An impairment loss is
      measured as the difference between the asset's carrying amount and the
      recoverable amount. Management exercises significant judgment and
      assumptions when determining the recoverable amount of long-lived
      assets
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | v)    | Deferred income tax assets are recognized for all
      deductible temporary differences, carry-forward of unused tax assets and
      unused tax losses, to the extent that it is probable that future taxable
      profit will be available against which the deductible temporary
      differences and carry-forward of unused tax assets and unused tax losses
      can be utilized. At October 31, 2015, the Company has assessed that it is
      not probable that sufficient taxable profit will be available to use
      deferred income tax assets based on operating losses in prior years,
      therefore, there are no balances carried in the consolidated statements of
      financial position for such assets.                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | vi)   | The Company applies judgment in assessing whether
      material uncertainties exist that would cause doubt as to the whether the
      Company could continue as a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | vii)  | The Company applies judgment in assessing the functional
      currency of each entity consolidated in these financial
  statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | viii) | The Company applied judgement in determining whether a
      joint arrangement exists and is classified as a joint operation or joint
      venture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

9

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES
|-- | --------------------------------------------

| | a) | Basis of consolidation:
| | -- | -----------------------

Subsidiaries are legal entities
controlled by the Company. Control exists when the Company is exposed, or has
rights to variable returns from an investee and has the ability to affect those
returns through its power over the investee. The financial statements of the
subsidiaries are included in the consolidated financial statements from the date
that control commences until the date control ceases.

These consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
inter-company transactions and balances have been eliminated. The accounting
policies have been consistently applied by the Companys subsidiaries.

| | b) | Foreign currency translation:
| | -- | -----------------------------

IFRS requires that the functional
currency of each entity in the consolidated entity be determined separately in
accordance with specific indicators and should be measured using the currency of
the primary economic environment in which the entity operates (the functional
currency). As a result of an assessment of the primary indicators, management
assessed the functional currency of the Company and its subsidiaries to be U.S.
dollar (USD). The consolidated financial statements of the Company are
prepared and presented using the USD.

Foreign currency transactions
denominated in other than U.S. dollars are translated into the functional
currency on the following basis:

| | i)   | Monetary assets and liabilities are translated at the
      rates of exchange prevailing at the statement of financial position
      date.                            
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                        
| | ii)  | Non-monetary assets and liabilities that are measured at
      historical cost are translated using the exchange rate at the date of the
      transaction.            
| |      |                                                                                                                                                                        
| | iii) | Income and expenses for each income statement line item
      presented are translated at average exchange rates during the quarter in
      which they are recognized.

Exchange differences resulting from
the settlement of foreign currency transactions are recognized directly in the
consolidated statement of loss and comprehensive loss in the period in which
incurred.

10

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd
|-- | --------------------------------------------------------

| | c) | Financial Instruments: Recognition, Measurement,
      Disclosure and Presentation:
| | -- | -----------------------------------------------------------------------------------

The Company initially recognizes loans
and receivables and deposits on the date that they are originated. All other
financial assets including assets designated at fair value through profit or
loss (FVTPL) are recognized initially on the trade date at which the Company
becomes a party to the contractual provisions of the instrument.

The Company derecognizes a financial
asset when the contractual rights to the cash flows from the asset expire.

Financial assets and liabilities are
offset and the net amount presented in the statement of financial position only
when the Company has the legal right to offset the amounts and intends either to
settle on a net basis or to realize the asset and settle the liability
simultaneously.

The Companys financial assets consist
of cash and deposits and other receivables and the Companys financial
liabilities consist of accounts payable and accrued liabilities and bridge
loans.

The Company classifies cash as FVTPL.
Deposits and other receivables are classified as loans and receivables, and are
initially measured at fair value and subsequently at amortized cost using the
effective interest rate method. Accounts payable and accrued liabilities and
bridge loans are classified as other liabilities, and initially measured at fair
value and subsequently at amortized cost using the effective interest rate
method. The derivative warrant liability and embedded derivatives in bridge
loans are classified at FVTPL and are measured at fair value with unrealized
gains or losses reported in the consolidated statement of loss and comprehensive
loss.

| | d) | Compound Financial Instruments:
| | -- | -------------------------------

Compound financial instruments issued
by the Company comprise convertible notes that can be converted to share capital
at the option of the holder and the number of shares to be issued does not vary
with changes in their fair value.

The liability component of a compound
financial instrument is recognized initially at the fair value of a similar
liability that does not have an equity conversion option.

11

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | d) | Compound Financial Instruments:
(Contd)
| | -- | ----------------------------------------

The equity component, if the
conversion feature of the convertible note is in US dollars, is recognized
initially as the difference between the fair value of the compound financial
instrument as a whole and the fair value of the liability component. Any
directly attributable transaction costs are allocated to the liability and
equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the
liability component of a compound financial instrument is measured at amortized
cost using the effective interest rate method. The equity component of a
compound financial instrument is not remeasured subsequent to initial
recognition.

Interest, dividends, losses and gains
relating to the financial liability are recognized in profit or loss except for
borrowing costs on qualifying assets which are added to asset cost.
Distributions to the equity holders are recognized in equity, net of any tax
effect.

| | e) | Hybrid Financial Instruments:
| | -- | -----------------------------

Financial instruments with embedded
derivative liabilities are accounted for as hybrid financial instruments. The
Company has hybrid financial instruments when the embedded derivative conversion
option right of the convertible notes gives the right to the holder to convert
into common shares in Canadian dollars (CDN).

An embedded derivative is a feature
within a contract, such that the cash flows associated with that feature behave
in a similar fashion to a stand-alone derivative. An embedded derivative is
separated from its host contract and accounted for as a derivative only when
three criteria are satisfied:

| |  | When the economic risks and characteristics of
      the embedded derivatives are not closely related to those of the host
      contract;                         
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A separate instrument with the same terms as
      the embedded derivative would meet the definition of a derivative; and                                          
| |  | The entire instrument is not measured at fair
      value with changes in fair value recognized in the consolidated statement
      of loss and comprehensive loss.

Subsequent to initial recognition, the
embedded derivative component is re-measured each reporting period using the
Black Scholes option-pricing model with the change in fair value recognized in
statement of loss and comprehensive loss.

12

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | f) | Derivative Liability:
| | -- | ---------------------

The Companys derivative financial
instruments consist of derivative liabilities in relation to its share purchase
warrants.

| | i) | Derivative Warrant Liability:
| | -- | -----------------------------

The Company has issued share purchase
warrants in conjunction with private placements for the purchase of common
shares of the Company. Until October 2013 (Note 13(b)), a number of these share
purchase warrants were issued with an exercise price in CDN, rather than USD
(the reporting and functional currency of the Company). Such share purchase
warrants are considered to be derivative instruments and the Company is required
to re-measure the fair value of these at each reporting date. The fair value of
these CDN share purchase warrants are remeasured at each financial position date
using the Black Scholes option-pricing model using the exchange rates at the
financial position date and measured over their remaining life. Adjustments to
the fair value of the derivative warrant liability as at the financial position
date are recorded in the statement of loss and comprehensive loss as (gain) loss
on revaluation of derivative warrant liability. Share purchase warrants that
have expired or have been forfeited are adjusted to the statement of loss and
comprehensive loss as (gain) loss on revaluation of derivative warrant
liability.

Consideration received upon the
exercise of warrants is credited to share capital and the related amount is
transferred from contributed surplus (USD warrants) or derivative warrant
liability (CDN warrants) to share capital.

| | ii) | Conversion Feature of Bridge
Loans:
| | --- | -----------------------------------

The conversion feature on the bridge
loans allows the holder of the option to convert the outstanding principal and
interest from time to time to common equity. The Company, using the Black
Scholes option-pricing model, accounts for bridge loans as follows:

| | (ii.1) | At date of origination, the bifurcation of the total
      balance of the loan as debt and equity is calculated. If the conversion
      feature of the bridge loan is in CDN there is no equity component,
      resulting in an embedded derivative. Accretion expense is recorded over
      the term of the loan.
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | f) | Derivative Liability:
(Contd)
| | -- | ------------------------------

| | ii) | Conversion Feature of Bridge Loans:
  (Contd)
| | --- | ----------------------------------------------

| | (ii.2) | The total loan proceeds are allocated between
      the bridge loans and the related
| | ------ | ------------------------------------------------------------------------------------
| |        | embedded derivative based on their relative
      fair value. The embedded          
| |        | derivative conversion feature is included under
      the bridge loans in the       
| |        | statement of financial position.                                                    
| |        |                                                                                     
| | (ii.3) | The conversion feature is revalued at the end
      of the reporting period and any 
| |        | adjustment is reflected in the statement of
      loss and comprehensive loss if the
| |        | conversion feature is in CDN.                                                       

| | g) | Joint Arrangements:
| | -- | -------------------

Joint arrangements are classified as
either joint operations or joint ventures. The determination of whether an
arrangement is a joint operation or joint venture is based on the rights and
obligations arising from the contractual obligations between the parties to the
arrangement. Joint arrangements that provide a company with the rights to the
individual assets and obligations arising from the arrangement are classified as
joint operations and joint arrangements that provide an entity with rights to
the net assets of the arrangement are classified as joint ventures. A joint
arrangement that is not structured through a separate vehicle is a joint
operation.

The interests in joint arrangements
that are classified as joint operations are accounted for by the Company
recording its pro rata share of the assets, liabilities, revenues, costs and
cash flows.

The interests in joint arrangements
that are classified as joint ventures are accounted for using the equity method
and presented as an investment in the balance sheet.

14

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | h) | Intangible Assets:
| | -- | ------------------

Costs for the general development of
the Companys sensor technology are expensed unless they meet the criteria for
deferral. Expenditures are capitalized if the Company can demonstrate each of
the following criteria: (i) the technical feasibility of completing the
intangible asset so that it will be available for use or sale, (ii) its
intention to complete the intangible asset and use or sell it, (iii) its ability
to use or sell the intangible asset, (iv) how the intangible asset will generate
probable future economic benefits, (v) the availability of adequate technical,
financial and other resources to complete the development and to use or sell the
intangible asset, and (vi) its ability to measure reliably the expenditure
attributable to the intangible asset during its development; otherwise, they are
expensed as incurred. Commencing in 2011, the Company determined that these
costs met the criteria and, accordingly, these costs have been capitalized and
are tested in each reporting period for impairment. Amortization is provided on
a 7 year straight-line basis. Commencing in 2014 amortization expense of
intangible assets is capitalized as deferred development costs as these charges
are directly related to development.

| | i) | Property and Equipment:
| | -- | -----------------------

Property and equipment are recorded at
cost and are amortized over their estimated useful lives at the following annual
rates and methods:

| | Computers        | 30% declining balance basis
| | ---------------- | ---------------------------
| | Office equipment | 30% declining balance basis

| | j) | Impairment of Long-lived Assets:
| | -- | --------------------------------

Long-lived assets consist of property
and equipment, patents, intangible assets, and deferred development costs.

The carrying amounts of property and
equipment, patents, intangible assets and deferred development costs, are
reviewed for impairment when events or changes in circumstances indicate that
the carrying amounts may not be recoverable. When the carrying amount exceeds
the estimated recoverable amount, the assets are written down to their
recoverable amount.

15

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | j) | Impairment of Long-lived Assets:
  (Contd)
| | -- | -------------------------------------------

Internally generated intangible assets
that are under development are not amortized and are reviewed for impairment
annually by comparing the carrying amount with its recoverable amount. Any
impairment loss is recognized in profit or loss when their recoverable amount is
less than their net carrying amount.

The recoverable amount of long-lived
assets is the greater of fair value less costs of disposal and value in use. In
assessing value in use, estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Impairment losses are recognized in the consolidated statements of loss and
comprehensive loss.

An assessment is made at each
reporting date as to whether there is any indication that previously recognized
impairment losses may no longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously recognized impairment
loss is reversed only if there has been a change in the estimates used to
determine the assets recoverable amount since the last impairment loss was
recognized. If that is the case, the carrying amount of the asset is increased
to its recoverable amount. That increased amount cannot exceed the carrying
amount that would have been determined, net of amortization, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized
in the consolidated statements of loss and comprehensive loss. Following the
recognition or reversal of an impairment loss, the amortization charge
applicable to the asset is adjusted prospectively in order to systematically
allocate the revised carrying amount, net of any residual value, over the
estimated useful life.

Gains or losses on the disposal of
property and equipment, patents and intangible assets represent the difference
between the net proceeds and the carrying value at the date of sale.

16

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | k) | Research and Development Costs:
| | -- | -------------------------------

Research costs are expensed in the
period incurred. Development costs are expensed as incurred unless they meet the
criteria for deferral. Expenditures during the development phase are capitalized
if the Company can demonstrate each of the following criteria: (i) the technical
feasibility of completing the asset so that it will be available for use or
sale, (ii) its intention to complete the asset and use or sell it, (iii) its
ability to use or sell the asset, (iv) how the asset will generate probable
future economic benefits, (v) the availability of adequate technical, financial
and other resources to complete the development and to use or sell the asset,
and (vi) its ability to measure reliably the expenditure attributable to the
asset during its development; otherwise, these costs are expensed as incurred.
Development costs will be amortized on an appropriate basis at the time each of
the developed assets is available for use.

Payments received from development
partners on projects are recorded to deferred development costs as a recovery of
cost incurred.

| | l) | Patents:
| | -- | --------

Patents are recorded at cost and are
amortized on a straight line basis over their estimated useful lives of 5 years.
Patents are recorded net of accumulated amortization with amortization expense
capitalized as deferred development costs since the patents are directly related
to development.

| | m) | Unit Private Placements:
| | -- | ------------------------

The Company uses the relative fair
value approach in accounting for the value assigned to the common shares and the
common share purchase warrants which it had made available in the unit private
placement financings that it secured, calculated in accordance with the Black
Scholes option-pricing model.

17

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | n) | Stock based Compensation and Other Stock based
      Payments:
| | -- | --------------------------------------------------------------

The Company applies the fair value
based method of accounting for all stock based payments to employees and
non-employees and all direct awards of stock. Where share based payments are
issued to non-employees, they are recorded at the fair value of the goods or
services received in the statement of loss and comprehensive loss. If the fair
value is not readily determinable the amount is based on the fair value of the
equity instrument granted. Stock based compensation is charged to operations
over the vesting period and the offset is credited to contributed surplus.

Consideration received upon the
exercise of stock options is credited to share capital and the related amount is
transferred from contributed surplus.

The fair value of stock options and
warrants is determined by the Black Scholes option-pricing model with
assumptions for risk free interest rates, dividend yields, volatility factors of
the expected market price of the Companys common shares and an expected life of
the option or warrant issued. A forfeiture rate is estimated on the grant date
and is adjusted to reflect the actual number of options that vest. In the event
that vested stock options expire, previously recognized stock based compensation
is not reversed. In the event that stock options are forfeited, previously
recognized stock based compensation associated with the unvested portion of the
stock options forfeited is reversed. The fair value of direct awards of stock is
determined by the quoted market price of the Companys stock.

| | o) | Income Taxes:
| | -- | -------------

Income tax expense comprises current
and deferred tax. Current tax and deferred tax are recognized in profit or loss
except to the extent that it relates to a business combination, or items
recognized directly in equity or in other comprehensive income.

Current tax is the expected tax
payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the reporting date and any adjustment
to tax payable in respect of previous years.

18

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | o) | Income Taxes: (Contd)
| | -- | ----------------------

Deferred tax is recognized in respect
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences: the
initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable income or
loss and differences relating to investments in subsidiaries and jointly
controlled entities to the extent that it is probable that they will not reverse
in the foreseeable future. In addition, deferred tax is not recognized for
taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax
rates that are expected to be applied to temporary differences when they
reverse, based on the rates that have been enacted or substantively enacted by
the reporting date.

Deferred tax assets and liabilities
are offset if there is a legally enforceable right to offset current tax
liabilities and assets and they relate to income taxes levied by the same tax
authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for
unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.

| | p) | Earnings or Loss Per Share:
| | -- | ---------------------------

Basic earnings (loss) per share are
computed by dividing net earnings (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings (loss) per share is
computed by adjusting the weighted average number of number of common shares
outstanding for the effects of all dilutive potential common shares, which are
comprised of outstanding warrants, conversion options and vested stock options.
Diluted earnings (loss) per common share assume that any proceeds received for
in-the-money warrants and options would be used to buy common shares at the
average market price for the period.

19

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | q) | Changes in Accounting Standards:
| | -- | --------------------------------

On November 1, 2014, the Company
adopted the following amendments to standards and interpretations which are
effective for periods beginning on or after January 1, 2014:


    IFRS 2  Share based payments
    IAS 32  Financial instruments


The adoption of these accounting
amendment had no impact on the consolidated financial statements previously
filed by the Company. As a result no reconciliations are provided for the
adoption of these new standards.

|5. | NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET
      ADOPTED
|-- | ------------------------------------------------------------------

Certain new standards, interpretations,
amendments and improvements to existing standards were issued by the IASB or the
IFRS Interpretations Committee that are mandatory for future accounting periods.
The standards impacted that are applicable to the Company are as follows:

| | a) | IAS 1 - Presentation of Financial Statements, was
      amended in December 2014 in order to clarify, among other things, that
      information should not be obscured by aggregating or by providing
      immaterial information, that materiality consideration apply to all parts
      of the financial statements and that even when a standard requires a
      specific disclosure, materiality considerations do apply. The amendments
      are effective for annual periods beginning on or after January 1,
    2016.                                            
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | b) | IFRS 15  Revenue from Contracts with Customers,
      which will replace IAS 11  Construction Contracts, IAS 18 
      Revenue, IFRIC 13  Customer Loyalty Programmes, IFRIC 15 
      Agreements for the Construction of Real Estate, IFRIC 18 
      Transfer of Assets from Customers, and SIC 31 Revenue  Barter
      Transactions Involving Advertising Services.The new standard will be
      mandatorily effective for fiscal years beginning on or after January 1,
      2018, and interim periods within that year. Earlier application is
      permitted.

20

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|5. | NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET
      ADOPTED (Contd)
|-- | ---------------------------------------------------------------------------

| | b) | IFRS 15 (Contd)
| | -- | ----------------

The core principle of the new standard
is for companies to recognize revenue to depict the transfer of goods or
services to customers in amounts that reflect the consideration to which the
company expects to be entitled in exchange for those goods or services. The new
standard will also result in enhanced disclosures about revenue, provide
guidance for transactions that were not previously addressed comprehensively and
improve guidance for multiple deliverable arrangements. The Company is assessing
the new standard to determine its impact of the Companys financial statements.

| | c) | IFRS 9  Financial Instruments, was issued by the
      IASB in July 2014 and will replace IAS 39, Financial Instruments:
      recognition and measurement(IAS 39). IFRS 9 utilizes a single
      approach to determine whether a financial asset is measured at amortized
      cost or fair value and a new mixed measurement model for debt instruments
      having only two categories: amortized cost and fair value. The approach in
      IFRS 9 is based on how an entity manages its financial instruments in the
      context of its business model and the contractual cash flow
      characteristics of the financial assets. Final amendments released in July
      2014 also introduce a new expected loss impairment model and limited
      changes to the classification and measurement requirements for financial
      assets. IFRS 9 is effective for annual periods beginning on or after
      January 1, 2018.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company is currently assessing the
impact of the above standards.

21

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|6. | FAIR VALUE DISCLOSURES
|-- | ----------------------

The following summarizes the methods
and assumptions used in estimating the fair value of the Company's financial
instruments where measurement is required. The fair value of financial
instruments consisting of cash, deposits and other receivables, accounts payable
and accrued liabilities and bridge loans approximate their carrying amounts due
to the relatively short period to maturity. Fair value amounts represent
point-in-time estimates and may not reflect fair value in the future. The
measurements are subjective in nature, involve uncertainties and are a matter of
significant judgment. The methods and assumptions used to develop fair value
measurements, for those financial instruments where fair value is recognized in
the statement of financial position, have been prioritized into three levels of
the fair value hierarchy as follows:

Level 1: Values based on unadjusted
quoted prices in active markets that are accessible at the measurement date for
identical assets or liabilities.

Level 2: Values based on quoted prices
in markets that are not active or model inputs that are observable either
directly or indirectly for substantially the full term of the asset or
liability.

Level 3: Values based on prices or
valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement.

The Company's financial instruments on
the statement of financial position consisting of cash, deposits and other
receivables, accounts payable and accrued liabilities and bridge loans
approximate their fair value due to their short-term nature. Cash is measured at
Level 1 of the fair value hierarchy.

|7. | CAPITAL RISK MANAGEMENT
|-- | -----------------------

The Companys objective when managing
capital is to maintain its ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders. The
Company includes equity, comprised of issued share capital, equity component of
bridge loans, contributed surplus and deficit, in the definition of capital. The
Companys primary objective with respect to its capital management is to ensure
that it has sufficient cash resources to further develop and market its
technologies and to maintain its ongoing operations. To secure the additional
capital necessary to pursue these plans, the Company may attempt to raise
additional funds through the issuance of equity and warrants or by securing
strategic partners. The Company is not subject to externally imposed capital
requirements and there has been no change with respect to the overall capital
risk management strategy during the year ended October 31, 2015.

22

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|8. | DEPOSITS AND OTHER
RECEIVABLES
|-- | ------------------------------

The balance reported as Deposits and
Other Receivables consists of:

| |                                                         |  | 2015   |  |  | 2014    | 
| | ------------------------------------------------------- |  | ------ |  |  | ------- | 
| |                                                         |  |        |  |  |         | 
| | Amounts receivable (a)                                  |  | -      |  |  | 450,000 | 
| | Advances to Officers, Directors and Employees
      (b) |  | 26,060 |  |  | 386,031 | 
| | Prepaid Insurance and other                             |  | 30,048 |  |  | 36,735  | 
| |                                                         |  | 56,108 |  |  | 872,766 | 

| | (a) | Amounts receivable relate to milestones being met as at
      October 31, 2014 per terms stipulated in development contracts with
      development partners. These amounts are recorded as recoveries of deferred
      development costs (Note 10).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                      
| | (b) | At October 31, 2014 Advances to Officers, Directors and
      Employees consisted of:                                                                                                                                                                

| | (i)  | Advances to the Chairman of $38,084 and to a senior
      employee of $80,916. These advances were repaid in November and December
      2014.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                               
| | (ii) | An advance to the Controller of
$22,957.                                                                                                      

The advances in (i) and (ii) above are
non interest bearing, unsecured and due on demand.

| | (iii) | An advance of $244,074 to the President of MAST was
      settled in full through the meeting of performance targets in February
      2015.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------

As at October 31, 2015, advances to
Officers, Directors and Employees consisted of an advance to the Controller of
$15,296 and an advance to an employee of $10,764. These advances are
non-interest-bearing, unsecured and due on demand.

23

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|9. | PROPERTY AND EQUIPMENT
|-- | ----------------------

Computers
    
    
    Furniture and
    
    
    TotalEquipmentCostAt November 1, 2012
    $
    40,734
    
    $
    25,989
    
    $
    66,723Additions
    
    14,839
    
    
    -
    
    
    14,839Disposals
    
    (6,360
    )
    
    -
    
    
    (6,360
    )Year ended October 31,**2013**
    $
    49,213
    
    $
    25,989
    
    $
    75,202At November 1, 2013
    $
    49,213
    
    
    25,989
    
    $
    75,202Additions
    
    16,508
    
    
    -
    
    $
    16,508Disposals
    
    (13,436
    )
    
    -
    
    $
    (13,436
    )Year ended October 31,**2014**
    $
    52,285
    
    $
    25,989
    
    $
    78,274At November 1, 2014
    $
    52,285
    
    
    25,989
    
    $
    78,274Additions
    
    1,287
    
    
    -
    
    $
    1,287Disposals
    
    -
    
    
    -
    
    $
    -Year ended October 31,2015
    $
    53,572
    
    $
    25,989
    
    $
    79,561


| | Accumulated amortization                 |   | Computers |   |   | Furniture and |  |   | Total   |  
| | ---------------------------------------- | - | --------- | - | - | ------------- |  | - | ------- | -
| |                                          |   |           |   |   | Equipment     |  |   |         |  
| | At November 1, 2012                      | $ | 34,947    |   | $ | 25,989        |  | $ | 60,936  |  
| | Amortization for the year                |   | 4,989     |   |   | -             |  | $ | 4,989   |  
| | Amortization for the year                |   | (4,721    | ) |   | -             |  |   | (4,721  | )
| | Year ended October 31, 2013              | $ | 35,215    |   | $ | 25,989        |  | $ | 61,204  |  
| |                                          |   |           |   |   |               |  |   |         |  
| | At November 1, 2013                      | $ | 35,215    |   |   | 25,989        |  | $ | 61,204  |  
| | Amortization for the year                |   | 7,357     |   |   | -             |  |   | 7,357   |  
| | Adjustment for disposals                 |   | (11,770   | ) |   | -             |  |   | (11,770 | )
| | Year ended October 31, 2014              | $ | 30,802    |   | $ | 25,989        |  | $ | 56,791  |  
| |                                          |   |           |   |   |               |  |   |         |  
| | At November 1, 2014                      | $ | 30,802    |   |   | 25,989        |  | $ | 56,791  |  
| | Amortization for the year                |   | 7,177     |   |   | -             |  |   | 7,177   |  
| | Adjustment for disposals                 |   | -         |   |   | -             |  |   | -       |  
| | Year ended October 31, 2015              | $ | 37,979    |   | $ | 25,989        |  | $ | 63,968  |  
| |                                          |   |           |   |   |               |  |   |         |  
| | Net book value at November 1, 2013       | $ | 13,998    |   |   | -             |  | $ | 13,998  |  
| | Net book value at October
      31, 2014 | $ | 21,483    |   |   | -             |  | $ | 21,483  |  
| | Net book value at October 31, 2015       | $ | 15,593    |   |   | -             |  | $ | 15,592  |  

24

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|10. | DEFERRED DEVELOPMENT COSTS
|--- | --------------------------

The breakdown of development costs that
have been capitalized is as follows:

| |                                   |   | 2015       |   |   | 2014      |  
| | --------------------------------- | - | ---------- | - | - | --------- | -
| |                                   |   |            |   |   |           |  
| | Opening balance                   | $ | 3,525,456  |   | $ | 928,077   |  
| | Additional project costs incurred |   | 3,723,900  |   |   | 3,936,459 |  
| | Recovery of development costs     |   | (1,783,632 | ) |   | (662,290  | )
| | Writedown of project costs        |   | (2,395,425 | ) |   | (676,790  | )
| | Closing balance                   | $ | 3,070,299  |   | $ | 3,525,456 |  

Additions to deferred development costs
includes patent amortization of $58,105 (2014 - $44,472; 2013 - $22,354), and
also includes intangible asset amortization of $19,352 (2014 -$19,352; 2013 -
$nil).

To date, the Company has recovered from
its development partners a portion of the costs it has incurred as deferred
development costs coincident with meeting milestones as stipulated in
development contracts.

The Company provided reserves of
$2,395,425 in the fourth quarter of the year ended October 31, 2015 against
cumulative development costs incurred on development projects to reduce the
carrying value of those projects to nominal value. The reserves were recorded as
there are no formal commitments as of October 31, 2015 from development partners
to move forward with these projects.

In 2014, the Company provided a reserve
against cumulative development costs incurred on one development project in that
it completed the staged development phases for that contract and there was no
formal commitment as of October 31, 2014 from the development partner to move
forward with this project. In total, the Company recovered $300,000 from the
development partner on this project, $125,000 of which was received in 2014; the
net write-down in 2014 was $645,528 on this project, to reduce the carrying
value to a nominal amount.

In 2013, the Company provided a reserve
against deferred development costs previously incurred with respect to three
development projects, reducing the carrying value in each case to a nominal
amount. In each case, the Company had decided not to pursue these development
projects.

25

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|11. | INTANGIBLE ASSETS AND
PATENTS
|--- | -----------------------------

Intangible assets comprise the costs
which the Company has capitalized relating to the technical expertise and
know-how that the Company has developed with respect to the commercialization
efforts relating to its sensor technology. In 2011, the Company determined that
it had sufficiently advanced its expertise and product knowledge relating to the
general commercialization efforts for its sensor technology in multiple industry
vertical applications.

It anticipates that it will realize
commercial economic benefits from the exploitation of these intangible assets in
the future.

| | Intangible Assets                        |   |         | 
| | ---------------------------------------- | - | ------- | 
| |                                          |   |         | 
| | Cost                                     |   |         | 
| |                                          |   |         | 
| | At November 01, 2012                     | $ | 135,465 | 
| | Additions                                |   | -       | 
| | Year ended October 31, **2013**          | $ | 135,465 | 
| |                                          |   |         | 
| | At November 01, 2013                     | $ | 135,465 | 
| | Additions                                |   | -       | 
| | Year ended October 31, **2014**          | $ | 135,465 | 
| |                                          |   |         | 
| | At November 01, 2014                     | $ | 135,465 | 
| | Additions                                |   | -       | 
| | Year ended October 31, **2015**          | $ | 135,465 | 
| |                                          |   |         | 
| | Accumulated
      amortization           |   |         | 
| |                                          |   |         | 
| | At November 01, 2012                     | $ | 19,352  | 
| | Amortization for the year                |   | 19,352  | 
| | Year ended October 31, **2013**          | $ | 38,704  | 
| |                                          |   |         | 
| | At November 01, 2013                     | $ | 38,704  | 
| | Amortization for the year                |   | 19,352  | 
| | Year ended October 31, **2014**          | $ | 58,056  | 
| |                                          |   |         | 
| | At November 01, 2014                     | $ | 58,056  | 
| | Amortization for the year                |   | 19,352  | 
| | Year ended October 31, **2015**          | $ | 77,408  | 
| |                                          |   |         | 
| | Net book value at October
      31, 2013 | $ | 96,761  | 
| | Net book value at October 31, 2014       | $ | 77,409  | 
| | Net book value at October
      31, 2015 | $ | 58,057  | 

26

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|11. | INTANGIBLE ASSETS AND PATENTS
  (contd)
|--- | ----------------------------------------

Amortization of intangible assets for
the year ended October 31, 2015 and 2014 was capitalized to deferred development
costs.

| | Patents                                  |   |         |  
| | ---------------------------------------- | - | ------- | -
| |                                          |   |         |  
| | Cost                                     |   |         |  
| |                                          |   |         |  
| | At November 1, 2012                      | $ | 89,347  |  
| | Additions                                |   | 44,825  |  
| | Year ended October 31, 2013              | $ | 134,172 |  
| |                                          |   |         |  
| | At November 1, 2013                      | $ | 134,172 |  
| | Additions                                |   | 176,381 |  
| | Year ended October 31, 2014              | $ | 310,553 |  
| |                                          |   |         |  
| | At November 1, 2014                      | $ | 310,553 |  
| | Additions                                | $ | 213,820 |  
| | Writedown of costs incurred              | $ | (77,925 | )
| | Recovered from development partner       | $ | (18,140 | )
| | Year ended October 31, 2015              | $ | 428,308 |  
| |                                          |   |         |  
| | Amortization                             |   |         |  
| |                                          |   |         |  
| | At November 1, 2012                      | $ | 40,223  |  
| | Amortization for the year                |   | 22,354  |  
| | Year ended October 31, 2013              | $ | 62,577  |  
| |                                          |   |         |  
| | At November 1, 2013                      | $ | 62,577  |  
| | Amortization for the year                |   | 44,472  |  
| | Year ended October 31, 2014              | $ | 107,049 |  
| |                                          |   |         |  
| | At November 1, 2014                      | $ | 107,049 |  
| | Adjust for writedown                     | $ | (46,088 | )
| | Amortization for the year                |   | 58,105  |  
| | Year ended October 31, 2015              | $ | 119,066 |  
| |                                          |   |         |  
| | Net book value at October 31, 2013       | $ | 71,595  |  
| | Net book value at October
      31, 2014 | $ | 203,504 |  
| | Net book value at October 31, 2015       | $ | 309,242 |  

Amortization of patents was capitalized
to deferred development costs for the above years.

In 2015, the Company wrote down $67,262
of its original memory related patents to a nominal value. The Company also
recovered $18,140 of patent expenditures from a development partner.

27

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|12. | SHARE CAPITAL, STOCK OPTIONS AND LOSS PER
    SHARE
|--- | ---------------------------------------------------

| | a) | Share Capital
| | -- | -------------

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.                                  

| |                                                              |  | Number of   |  |   | Amount     |  
| | ------------------------------------------------------------ |  | ----------- |  | - | ---------- | -
| |                                                              |  | Shares      |  |   | **$**      |  
| |                                                              |  |             |  |   |            |  
| | Balance at November 1,
      2013                            |  | 158,491,425 |  | $ | 57,755,613 |  
| |                                                              |  |             |  |   |            |  
| | Warrants exercised (Note 13)                                 |  | 27,410,717  |  |   | 6,801,619  |  
| | Fair value of warrants exercised                             |  | -           |  |   | 6,078,497  |  
| | Shares issued on conversion
      of bridge loans (Note 14)  |  | 2,517,501   |  |   | 302,100    |  
| | Warrants issued on conversion of bridge loan
      (Note 14) |  | -           |  |   | (143,406   | )
| | Shares issued on settlement of accounts payable              |  | 17,081      |  |   | 8,353      |  
| | Balance at October 31, 2014                                  |  | 188,436,724 |  | $ | 70,802,776 |  
| |                                                              |  |             |  |   |            |  
| | Private placement of units for cash (Note 13)                |  | 422,768     |  |   | 175,000    |  
| | Warrants exercised (Note 13)                                 |  | 2,988,876   |  |   | 565,777    |  
| | Fair value of warrants exercised                             |  | -           |  |   | 271,553    |  
| | Options exercised                                            |  | 4,428,000   |  |   | 1,153,007  |  
| | Fair value of options exercised                              |  | -           |  |   | 728,862    |  
| | Share compensation (i)                                       |  | 900,000     |  |   | 387,000    |  
| |                                                              |  |             |  |   |            |  
| | Balance at October 31, 2015                                  |  | 197,176,368 |  | $ | 74,083,975 |  

| | i. | In 2015, 450,000 common shares were issued to three
      directors as compensation for services provided, these common shares were
      valaued at $220,500. In addition, 450,000 common shares were issued to a
      consultant as compensation for services provided, these common shares were
      valued at $166,500. In the absence of a reliable measurement of the
      services received from the consultant, the services have been measured at
      the fair value of the shares granted.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|12. | SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
      (Contd)
|--- | --------------------------------------------------------------

| | b) | Stock Options
| | -- | -------------

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 18,840,000 shares of common stock to directors, officers,
employees or consultants of the Company and its subsidiaries. The exercise price
of each option is equal to or greater than the market price of the Companys
shares on the date of grant unless otherwise permitted by applicable securities
regulations. An options maximum term under the Plan is 10 years. Stock options
are fully vested upon issuance by the Company unless the Board of Directors
stipulates otherwise by Directors resolution.

In April 2015 the Company filed an S-8
Registration Statement with the U.S. Securities and Exchange Commission with
respect to its outstanding stock options, which registered up to 18,840,000
common shares issuable upon the exercise of options granted under the Companys
2014 Directors, Officers and Employees Stock Option Plan, and the resale of up
to 10,340,000 of such shares under the U.S. Securities Act of 1933. This filing
permits the holders of the securities registered for resale under the S-8 to
resell such securities without any required U.S. Federal holding period.

A summary of the status of the
Companys fixed stock option plan through October 31, 2015 and changes during
the periods is as follows:

| |                                      |  |         |   |  | Weighted |   |   |           | 
| | ------------------------------------ |  | ------- | - |  | -------- | - | - | --------- | 
| |                                      |  |         |   |  | average  |   |   |           | 
| |                                      |  |         |   |  | exercise |   |   | Proceeds  | 
| |                                      |  | Options |   |  | price    |   |   | realized  | 
| |                                      |  | (000    | ) |  | $        |   |   |           | 
| | Outstanding, November 01,
      2013 |  | 11,475  |   |  | 0.24     |   |   |           | 
| | Granted                              |  | 630     |   |  | 0.76     |   |   |           | 
| | Outstanding, October 31,
      2014  |  | 12,105  |   |  | 0.27     |   |   |           | 
| | Granted                              |  | 2,165   |   |  | 0.47     |   |   |           | 
| | Exercised                            |  | (4,428  | ) |  | (0.27    | ) | $ | 1,153,007 | 
| | Expired                              |  | (25     | ) |  | (0.64    | ) |   |           | 
| | Outstanding, October 31, 2015        |  | 9,817   |   |  | 0.31     |   |   |           | 

The weighted average share price on
the dates of exercise was $0.48.

29

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|12. | SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
      (Contd)
|--- | --------------------------------------------------------------

| | b) | Stock Options(Contd)
| | -- | ---------------------

During the year ended October 31, 2015
the Company issued a total of 2,165,000 stock options (2014  630,000). All
options vest immediately upon issuance. This total consisted of 1,185,000 stock
options issued to directors and officers (2014  520,000), 730,000 stock options
issued to employees (2014  110,000) and 250,000 stock options to a third party
advisor (2014  nil). The Company has the following stock options outstanding at
October 31, 2015:

| |                    |  |           |  |  |              |     |  | Weighted       |  |  |                          | 
| | ------------------ |  | --------- |  |  | ------------ | --- |  | -------------- |  |  | ------------------------ | 
| |                    |  |           |  |  |              |     |  | average        |  |  |                          | 
| |                    |  |           |  |  |              |     |  | remaining life |  |  |                          | 
| | Date of issue      |  | # Issued  |  |  | Strike Price |     |  | (in years)     |  |  | Expiry Date              | 
| |                    |  |           |  |  |              |     |  |                |  |  |                          | 
| | April 5, 2011      |  | 125,000   |  |  | 0.35         |     |  | 0.4            |  |  | April 5, 2016            | 
| | October 31, 2011   |  | 5,297,000 |  |  | 0.20         |     |  | 1.0            |  |  | October 31, 2016         | 
| | April 10, 2012     |  | 690,000   |  |  | 0.35         |     |  | 1.4            |  |  | April 10, 2017           | 
| | January 22, 2013   |  | 440,000   |  |  | 0.30         | CDN |  | 2.2            |  |  | January 22, 2018         | 
| | September 16, 2013 |  | 520,000   |  |  | 0.27         | CDN |  | 2.9            |  |  | September 16,
      2018 | 
| | February 10, 2014  |  | 350,000   |  |  | 0.85         |     |  | 3.3            |  |  | February 10, 2019        | 
| | April 25, 2014     |  | 230,000   |  |  | 0.64         |     |  | 3.5            |  |  | April 25, 2019           | 
| | June 4, 2015       |  | 975,000   |  |  | 0.49         |     |  | 4.6            |  |  | June 4, 2020             | 
| | August 20, 2015    |  | 940,000   |  |  | 0.46         |     |  | 4.8            |  |  | August 20, 2020          | 
| | September 30, 2015 |  | 250,000   |  |  | 0.40         |     |  | 4.9            |  |  | September 30, 2020       | 
| |                    |  | 9,817,000 |  |  |              |     |  |                |  |  |                          | 

All outstanding options at October 31,
2015 are exercisable. In 2015, the Company recorded a total expense of $776,941
(2014 - $379,253; 2013 - $368,790) with respect to the issuance of options
issued during the year, calculated in accordance with the Black Scholes
option-pricing model. Included in stock based compensation is $387,000 related
to shares issued to directors (Note 12(a)). Total stock based compensation
expense for the year is $1,163,941.

In the absence of a reliable
measurement of the services received from a consultant, the services have been
measured at the fair value of the options granted.

The underlying assumptions in the
Black Scholes option-pricing model were as follows:

| |                                             |   | 2015              |  |   | 2014              |  |   | 2013              | 
| | ------------------------------------------- | - | ----------------- |  | - | ----------------- |  | - | ----------------- | 
| | Share price                                 | $ | 0.37 -
      0.49 |  | $ | 0.63 -
      0.85 |  | $ | 0.20 -
      0.36 | 
| | Volatility factor (based on historical vola |   | 109% - 114%       |  |   | 112% - 113%       |  |   | 105% - 110%       | 
| | Risk free interest rate                     |   | 0.73% - 0.90%     |  |   | 1.60%             |  |   | 1.37% - 1.84%     | 
| | Expected life                               |   | 5 years           |  |   | 5 years           |  |   | 5 years           | 
| | Dividend yield                              |   | 0%                |  |   | 0%                |  |   | 0%                | 
| | Forfeiture rate                             |   | 0%                |  |   | 0%                |  |   | 0%                | 

30

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|12. | SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
      (Contd)
|--- | --------------------------------------------------------------

| | c) | Loss Per Share
| | -- | --------------

The calculation of basic and diluted
loss per share for the year ended October 31, 2015 was based on the loss
attributable to common shareholders of $6,516,610 (2014 - $4,164,871; 2013 -
$5,933,928) divided by the weighted average number of common shares outstanding
of 192,629,666 (2014  171,534,969; 2013 - 146,814,466).

Diluted loss per share did not include
the effect of 9,817,000 stock options outstanding as they are anti-dilutive.

|13. | PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
      COMMON SHARE PURCHASE WARRANTS
|--- | -----------------------------------------------------------------------------------------

| | a) | Private Placements
| | -- | ------------------

| | i)  | In 2013 the Company completed a series of private
      placement financings with investors pursuant to prospectus and
      registration exemptions set forth in applicable securities law. The
      Company received gross proceeds $2,910,532 and issued a total of
      16,106,957 (10,200,743 CDN; 5,906,214 US) common shares. 16,106,957 common
      share purchase warrants with an average strike price of $0.22 CDN; $0.27
      USD were attached to the private placement completed during 2013. All
      warrants issued in 2013 had a 12 month term from issue date.                             
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ii) | In 2013 the Company extended the expiry dates on a total
      of 11,829,029 (7,315,808 CDN; 4,513,221 US) common share purchase warrants
      which would have otherwise expired in 2013. These warrants were extended
      for a period of 12 months in each case. The Company changed the strike
      price of 3,673,032 CDN of these warrants from $0.205 CDN to $0.215 CDN and
      the strike price remained unchanged for the balance of these warrants. The
      strike price remained unchanged for all other warrants ranging from $0.20
      CDN to $0.80 CDN, $0.24 USD to $0.80 USD per
warrant.

31

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|13. | PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
      COMMON SHARE PURCHASE WARRANTS (Contd)
|--- | --------------------------------------------------------------------------------------------------

| | a) | Private Placements(Contd)
| | -- | --------------------------

| | iii) | In 2013 the Company calculated the relative fair value of
      the share purchase warrants issued in connection with private placements
      in accordance with the Black Scholes option-pricing model. The Company
      reported a total charge to share capital of $863,863 and an offsetting
      charge to contributed surplus of $377,234 for US dollar share purchase
      warrants issued and $486,629 to derivative warrant liability for CDN share
      purchase warrants issued.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

2013Share price
    $0.17 - $0.58Volatility factor (based on historical volality)
    75 - 136%Risk free interest rate
    0.97 - 1.09%Dividend yield
    0%Expected life
    1 year


| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | iv) | The Company did not complete any private placements in
      2014.                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | v)  | In 2014 the Company extended the expiry date on a total
      of 1,405,026 common share purchase warrants which would have otherwise
      expired in the period. These warrants were extended for a period of three
      to six months in each case. The strike price of 1,105,026 of these
      warrants was changed from $0.41 and $0.45 per warrant to $0.50 per
      warrant. The strike price remained unchanged for the balance of the
      warrants at $0.55 per warrant.

The Company calculated the charge
associated with the extension of warrants in accordance with the Black Scholes
option-pricing model. The Company reported a total charge to deficit of $168,632
(2013 - $841,247) and an offsetting charge to contributed surplus of $168,632
(2013 - $264,938) for US dollar warrants extended and $nil (2013 -$576,309) to
derivative warrant liability for Canadian warrants extended.

32

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

13.PRIVATE PLACEMENTS, DERIVATIVE WARRANT
LIABILITY AND COMMON SHARE PURCHASE WARRANTS (Contd)

| | a) | Private Placements(Contd)
| | -- | --------------------------

| | v) | (Contd)
| | -- | --------

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

| |                                                        |   | 2014           |  |   | 2013         | 
| | ------------------------------------------------------ | - | -------------- |  | - | ------------ | 
| | Share price                                            | $ | 0.50           |  | $ | 0.19 - $0.53 | 
| | Volatility factor (based on historical
      volality) |   | 124 - 157%     |  |   | 75 - 161%    | 
| | Risk free interest rate                                |   | 1.01 - 1.02%   |  |   | 1.00 - 1.11% | 
| | Dividend yield                                         |   | 0%             |  |   | 0%           | 
| | Expected life                                          |   | 0.25-0.53 year |  |   | 1 year       | 

In 2015, the Company completed two
private placements with investors consisting of common shares, with no warrants,
pursuant to prospectus and registration exemptions set forth on applicable
securities law. The Company received gross proceeds of $175,000 and issued a
total of 422,768 common shares.

| | b) | Derivative Warrant Liability
| | -- | ----------------------------

The following summarizes the change in
derivative warrant liability:

| |                                                                      |   | October 31, |  |   | October 31, |  |   | October 31, |  
| | -------------------------------------------------------------------- | - | ----------- |  | - | ----------- |  | - | ----------- | -
| |                                                                      |   | 2015        |  |   | 2014        |  |   | 2013        |  
| |                                                                      |   |             |  |   |             |  |   |             |  
| | Balance, beginning of year                                           | $ | -           |  | $ | -           |  | $ | 1,061,544   |  
| | Fair value assigned in warrants in units
      issuances             |   | -           |  |   | -           |  |   | 486,629     |  
| | Fair value assigned in
      warrants extended                       |   | -           |  |   | -           |  |   | 576,309     |  
| | Fair value transferred to share capital for
      warrants exercised |   | -           |  |   | -           |  |   | (146,121    | )
| | CDN warrants converted to USD                                        |   | -           |  |   | -           |  |   | (5,224,863  | )
| | (Gain) loss on revaluation of warrants                               |   | -           |  |   | -           |  |   | 3,246,502   |  
| |                                                                      | $ | -           |  | $ | -           |  | $ | -           |  

On October 28, 2013 the exercise price
of all outstanding Canadian denominated warrants was converted from CDN to USD.
As a result, these warrants are no longer considered a derivative warrants
liability. These warrants were revalued on October 28, 2013 in the amount of
$5,224,863 and this value was removed from derivative warrant liability and
recorded to contribute surplus. Until October 28, 2013, the difference between
the carrying amount of these CDN warrants and the revalued amount was recorded
as loss on revaluation of derivative warrants liability in the amount of
$3,246,502.

33

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|13. | PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
      COMMON SHARE PURCHASE WARRANTS (Contd)
|--- | --------------------------------------------------------------------------------------------------

| | b) | Derivative Warrant Liability(Contd)
| | -- | ------------------------------------

The derivative warrant liability was
revalued at October 28, 2013 using the Black Scholes option-pricing model with
the following assumptions:

| |                                                          |   | 2013             | 
| | -------------------------------------------------------- | - | ---------------- | 
| | Share price                                              | $ | 0.46             | 
| | Volatility factor (based on historical
      volality) 3 |   | 106 - 255%       | 
| | Risk free interest rate                                  |   | 1.03 - 1.09%     | 
| | Dividend yield                                           |   | 100%             | 
| | Expected life                                            |   | 0.14 - 1.13 year | 

| | c) | Share Purchase
Warrants
| | -- | -----------------------

| |                                               |  |             |   |   | Weighted         |     |  |                   | 
| | --------------------------------------------- |  | ----------- | - | - | ---------------- | --- |  | ----------------- | 
| |                                               |  |             |   |   | average exercise |     |  | Proceeds Realized | 
| |                                               |  | Warrants    |   |   | price            |     |  |                   | 
| |                                               |  |             |   |   |                  |     |  |                   | 
| | Balance outstanding at
      October 31, 2013 |  | 29,761,012  |   | $ | 0.27             |     |  |                   | 
| | Exercised                                     |  | (27,410,717 | ) |   | ($0.25           | ) $ |  | 6,801,619         | 
| | Expired                                       |  | (382,333    | ) |   | ($0.48           | )   |  |                   | 
| | Granted                                       |  | 2,517,501   |   | $ | 0.12             |     |  |                   | 
| | Balance outstanding at
      October 31, 2014 |  | 4,485,463   |   | $ | 0.37             |     |  | -                 | 
| | Exercised                                     |  | (2,988,876  | ) |   | ($0.19           | ) $ |  | 565,777           | 
| | Expired                                       |  | (1,496,587  | ) |   | ($0.73           | )   |  |                   | 
| | Granted                                       |  | -           |   |   | -                |     |  |                   | 
| | Balance at October 31, 2015                   |  | -           |   |   | -                |     |  |                   | 

The weighted average share price on
the date of exercise of the warrants was $0.60 (2014 - $0.71) .

34

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|14. | BRIDGE LOANS
|--- | ------------

2011-2012 bridge
loans:

| | a) | On December 2, 2011, the Company secured $285,000 CDN of
      bridge (Loan 1) from a group of arms length investors with maturities
      of six months. The loans were unsecured, bearing interest at a rate of 2%
      per month (effective interest rate  26%) and convertible at the holders
      option at $0.12 USD per unit. Each unit upon conversion included one
      common share and one common share purchase warrant with a one year expiry
      and an exercise price of $0.12 USD. The term of the loans were extended on
      a month to month basis in July 2012. In January 2014 these loans were
      converted to equity by the issuance of 2,517,501 common shares and
      2,517,501 common share purchase warrants. The common share purchase
      warrants had a one year term and an exercise price of $0.12 USD per
      warrant and were exercised in January 2015.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | b) | On September 4, 2012, the Company secured $125,000 CDN of
      bridge loans (Loan 2) from a group of arms length investors with
      maturities of six months. The loans were unsecured, bearing interest at a
      rate of 2% per month (effective interest rate  32%) and convertible at
      the holders option at $0.18 CDN per unit. Each unit, upon conversion,
      included one common share and one common share purchase warrant with a one
      year expiry and an exercise price of $0.22 CDN. This loan was repaid in
      the quarter ended April 30, 2013.                                                                                                                                                                                                                                                                                                                         

A breakdown of the outstanding bridge
loans at October 31, 2013 is summarized as follows:

| |                                                          |   | Loan 1   |   |   | Loan 2   |   |   | Total    |  
| | -------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                                          |   |          |   |   |          |   |   |          |  
| |                                                          |   |          |   |   |          |   |   |          |  
| | Loan (initial value)                                     | $ | 284,514  |   | $ | 81,194   |   | $ | 365,708  |  
| | Embedded derivative                                      |   | -        |   |   | 44,850   |   |   | 44,850   |  
| | Interest Accrued                                         |   | 130,686  |   |   | 15,209   |   |   | 145,895  |  
| | Interest Paid                                            |   | (125,186 | ) |   | (15,209  | ) |   | (140,395 | )
| | Accretion Expense                                        |   | 1,557    |   |   | 44,850   |   |   | 46,407   |  
| | Gain on revaluation of embedded derivative               |   | -        |   |   | (44,850  | ) |   | (44,850  | )
| | Equity Portion of Bridge Loan
      - Conversion Feature |   | (1,557   | ) |   | -        |   |   | (1,557   | )
| | Repayments                                               |   | -        |   |   | (126,044 | ) |   | (126,044 | )
| | Conversion                                               |   | -        |   |   | -        |   |   | -        |  
| | Carrying value @ October 31, 2013                        | $ | 290,014  |   | $ | -        |   | $ | 290,014  |  

In fiscal 2013 and 2014, no bridge
loans were issued.

35

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|14. | BRIDGE LOANS (Cont)
|--- | --------------------

2011-2012 bridge loans:(Contd)

| | b. | (Contd)
| | -- | --------

As Loan 2 was repaid during 2013 the
embedded derivative recognized in fiscal 2012 of $44,850 was revalued to be $nil
at the time of repayment and a gain on revaluation of $40,750 (2012  $176,899)
was recognized in the statements of consolidated loss and comprehensive loss in
2013.

A breakdown of the outstanding bridge
loan at October 31, 2014 is summarized as follows:

| |                                                          |   | Loan 1   |  
| | -------------------------------------------------------- | - | -------- | -
| |                                                          |   |          |  
| | Principal                                                | $ | 284,514  |  
| | Interest Paid                                            |   | 160,358  |  
| | Interest Accrued                                         |   | (142,772 | )
| | Accretion Expense                                        |   | 1,557    |  
| | Equity Portion of Bridge Loan
      - Conversion Feature |   | (1,557   | )
| | Conversion to equity in 2014                             |   | (302,100 | )
| | Carrying value at October 31,
      2014                 | $ | -        |  

During 2014, Loan 1 was settled by the
holder who converted the outstanding balance due; the Company issued 2,517,501
common shares with an assigned value of $302,100. As a result of the conversion,
the holder received 2,517,501 common shares purchase warrants exercisable at
$0.12 per warrant for a period of 12 months after the conversion date (January
23, 2015). The relative fair value of the common share purchase warrants of
$143,406 was calculated using the Black Scholes option pricing model with the
following assumptions:

| |                                                  |   | 2014   | 
| | ------------------------------------------------ | - | ------ | 
| | Share price                                      | $ | 1.18   | 
| | Volatility factor (based on historical volality) |   | 120%   | 
| | Risk free interest rate                          |   | 1.04%  | 
| | Dividend yield                                   |   | 0%     | 
| | Expected life                                    |   | 1 Year | 

36

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

14. BRIDGE LOANS (Contd)

2015 Bridge Loans:

| | c. | Between August - October 2015, the Company secured a
      series of bridge loans from investors totaling $1,287,500 CDN ($976,673
      USD). The loans are secured by a floating charge on the assets of the
      Company. The maturity dates of the bridge loans were originally set as 30
      days in each case and have been renewed by the investors through November
      2015. The interest rate on the bridge loans ranges from 2% to 3% per
      month. These bridge loans were not convertible into common shares as at
      October 31, 2015. One of the bridge loans obtained in the amount of
      $300,000 CDN ($229,446 USD), plus accrued interest of $6,000 CDN
      ($4,588USD), was repaid on September 4, 2015. The maturity dates on this
      series of bridge loans has since been extended (Note 23).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | d. | In August 2015, the Company secured a bridge loan of
      $200,000 from an investor. The loan is secured by a floating charge on the
      assets of the Company with a maturity date of November 1, 2015. The
      interest rate on the loan is calculated at 3% per month, payable monthly
      in arrears. This bridge loan was not convertible into common shares as at
      October 31, 2015. The maturity date of the bridge loan has since been
      extended (Note 23).                                                                                                                                                                                                                                                                                                                                                   

A breakdown of the outstanding bridge
loans as at October 31, 2015 is summarized as follows:

| | Principal                                | $ | 1,176,673 |  
| | ---------------------------------------- | - | --------- | -
| | Interest Accrued                         |   | 36,715    |  
| | Interest Paid                            |   | (17,354   | )
| | Repayments                               |   | (229,446  | )
| | Carrying value at October 31,
      2015 | $ | 966,588   |  

37

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|15. | CONTRIBUTED SURPLUS
|--- | -------------------

| |                                                                                      |   |            |  
| | ------------------------------------------------------------------------------------ | - | ---------- | -
| | Balance at November
      01, 2013                                                   | $ | 32,822,327 |  
| |                                                                                      |   |            |  
| | Stock based compensation
      expense relating to stock options issued (Note 12(b)) |   | 379,253    |  
| | Common share purchase warrants extended (Note
      13)                              |   | 168,632    |  
| | Transferred from equity
      component of bridge loan due to conversion             |   | 1,557      |  
| | Warrants issued on conversion of bridge loan
      (Note 14)                         |   | 143,406    |  
| | Fair value of warrants exercised                                                     |   | (6,078,497 | )
| | Balance at October 31, 2014                                                          | $ | 27,436,678 |  
| |                                                                                      |   |            |  
| | Stock based compensation expense relating to
      stock options issued (Note 12(b)) |   | 776,941    |  
| | Fair value of options
      exercised                                                |   | (728,862   | )
| | Fair
      value of warrants exercised                                               |   | (271,553   | )
| | Balance at October 31, 2015                                                          | $ | 27,213,204 |  

|16. | INCOME TAXES
|--- | ------------

| | (a) | The Company has non-capital losses of approximately $25.6
      million available to reduce future taxable income, the benefit of which
      has not been recognized in these consolidated financial statements. As of
      October 31, 2015 the tax losses expire as
follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      |   |            |  |   | Other     |  |   |            | 
| | ---- | - | ---------- |  | - | --------- |  | - | ---------- | 
| |      |   | Canada     |  |   | foreign   |  |   | Total      | 
| | 2022 |   | -          |  |   | 7,301     |  |   | 7,301      | 
| | 2023 |   | -          |  |   | 9,667     |  |   | 9,667      | 
| | 2025 |   | -          |  |   | 14,471    |  |   | 14,471     | 
| | 2026 |   | 1,837,460  |  |   | 5,254     |  |   | 1,842,714  | 
| | 2027 |   | 1,545,159  |  |   | 3,459     |  |   | 1,548,618  | 
| | 2028 |   | 8,012      |  |   | 55,519    |  |   | 63,531     | 
| | 2029 |   | 1,583,583  |  |   | 463,610   |  |   | 2,047,193  | 
| | 2030 |   | 2,136,667  |  |   | 1,886,778 |  |   | 4,023,445  | 
| | 2031 |   | 1,287,275  |  |   | 48,808    |  |   | 1,336,083  | 
| | 2032 |   | 1,426,636  |  |   | 333,962   |  |   | 1,760,598  | 
| | 2033 |   | 1,729,223  |  |   | 160,550   |  |   | 1,889,773  | 
| | 2034 |   | 2,501,599  |  |   | 3,206,975 |  |   | 5,708,574  | 
| | 2035 |   | 2,837,402  |  |   | 2,146,779 |  |   | 4,984,181  | 
| |      | $ | 16,893,016 |  | $ | 8,343,133 |  | $ | 25,236,149 | 

38

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|16. | INCOME TAXES (Contd)
|--- | ---------------------

| | (a) | (Contd)
| | --- | --------

In addition the Company has available
capital loss carry forwards of approximately $1.5 million to reduce future
taxable capital gains, the benefit of which has not been recognized in these
consolidated financial statements. These losses carry forward indefinitely.

| | (b) | Deferred 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 deferred tax assets and
      liabilities are as follows:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                    |   | October,31 |   |   | October,31 |   |   | October,31 |  
| | ------------------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                                    |   | 2015       |   |   | 2014       |   |   | 2013       |  
| | Non-capital losses and other                                       | $ | 7,963,343  |   | $ | 7,792,685  |   | $ | 6,334,982  |  
| | Capital losses                                                     |   | 169,395    |   |   | 196,505    |   |   | 212,386    |  
| | Property, equipment, intangibles, patents
      and deferred costs |   | 602,246    |   |   | 661,960    |   |   | 1,926,689  |  
| | Share issue costs                                                  |   | 4,633      |   |   | 9,095      |   |   | 15,641     |  
| |                                                                    | $ | 8,739,617  |   |   | 8,660,245  |   |   | 8,489,698  |  
| | Deferred tax
      assets not recognized                           |   | (8,739,617 | ) |   | (8,660,245 | ) |   | (8,489,698 | )
| |                                                                    | $ | -          |   | $ | -          |   | $ | -          |  

| | (c) | The reconciliation of income tax attributed to continuing
      operation computed at the statutory tax rates to income tax expense is as
      follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                             |   | October,31 |   |   | October,31 |   |   | October,31 |  
| | --------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                                                                                             |   | 2015       |   |   | 2014       |   |   | 2013       |  
| |                                                                                                                             |   |            |   |   |            |   |   |            |  
| | Loss before income
      taxes                                                                                              | $ | 6,516,610  |   | $ | 4,164,871  |   | $ | (5,933,928 | )
| | Statutory rate                                                                                                              |   | 26.50%     |   |   | 26.50%     |   |   | 26.50%     |  
| |                                                                                                                             |   |            |   |   |            |   |   |            |  
| | Expected income tax recovery                                                                                                |   | (1,726,901 | ) |   | (1,103,691 | ) |   | (1,572,491 | )
| | Effect on income taxes
      of unrecognized future income taxassets relating to deductible temporary
      differences on: |   |            |   |   |            |   |   |            |  
| | Non-deductible expenses and other
      items                                                                               |   | 270,214    |   |   | 112,727    |   |   | 888,558    |  
| | Share issue costs and
      other                                                                                           |   | -          |   |   | -          |   |   | (4,361     | )
| | Effect of exchange rate on future tax
      assets carried forward from previous years                                      |   | 978,598    |   |   | 572,542    |   |   | 324,881    |  
| | Expiry of non-capital
      losses                                                                                          |   | 755,041    |   |   | 259,122    |   |   | -          |  
| | Effect of higher tax rates in foreign
      jurisdiction                                                                    |   | (356,323   | ) |   | (11,247    | ) |   | -          |  
| | Change in deferred
      income tax rates and other                                                                         |   | -          |   |   | -          |   |   | (16,491    | )
| | Change in deferred tax assets not
      recognized                                                                          |   | 79,371     |   |   | 170,547    |   |   | 379,906    |  
| |                                                                                                                             | $ | -          |   | $ | -          |   | $ | -          |  

39

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|17. | EXPENSES
|--- | --------

Administration

The components of general and
administration expenses are as follows:

| |                                                    |   | 2015    |  |   | 2014    |   |   | 2013    | 
| | -------------------------------------------------- | - | ------- |  | - | ------- | - | - | ------- | 
| |                                                    |   |         |  |   |         |   |   |         | 
| | General and administrative                         | $ | 141,721 |  | $ | 69,122  |   | $ | 53,494  | 
| | Rent and occupancy
      cost                      |   | 74,524  |  |   | 84,816  |   |   | 84,179  | 
| | Interest income                                    |   | -       |  |   | (6,120  | ) |   | -       | 
| | Interest expense                                   |   | 36,714  |  |   | 28,640  |   |   | 78,677  | 
| | Accretion expense                                  |   | -       |  |   | -       |   |   | 19,381  | 
| | Office insurance                                   |   | 58,835  |  |   | 61,578  |   |   | 61,211  | 
| | Telephone                                          |   | 17,740  |  |   | 22,537  |   |   | 17,272  | 
| | Investor relations, listing and
      filling fees |   | 96,827  |  |   | 64,880  |   |   | 64,283  | 
| |                                                    | $ | 426,361 |  | $ | 325,453 |   | $ | 378,497 | 

Professional, Other Fees and
Salaries

The components of professional, other
fees and salaries expenses are as follows:

| |                       |   | 2015      |  |   | 2014      |  |   | 2013      | 
| | --------------------- | - | --------- |  | - | --------- |  | - | --------- | 
| |                       |   |           |  |   |           |  |   |           | 
| | Professional fees     | $ | 466,411   |  | $ | 420,902   |  | $ | 311,331   | 
| | Consulting fees       |   | 1,039,316 |  |   | 1,535,520 |  |   | 818,106   | 
| | Salaries and benefits |   | 446,575   |  |   | 404,445   |  |   | 443,078   | 
| |                       | $ | 1,952,302 |  | $ | 2,360,867 |  | $ | 1,572,515 | 

Development Costs

The components of development expenses
reported are as follows:

| |                                                                     |  | 2015      |  |  | 2014    |  |  | 2013    |  
| | ------------------------------------------------------------------- |  | --------- |  |  | ------- |  |  | ------- | -
| | Expenses incurred (recovered)                                       |  | 250,594   |  |  | 26,882  |  |  | (73,321 | )
| | Write-down of deferred development costs on
      specific projects |  | 2,395,425 |  |  | 676,789 |  |  | 234,241 |  
| |                                                                     |  | 2,646,019 |  |  | 703,671 |  |  | 160,920 |  

40

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|18. | MANAGEMENT COMPENSATION AND RELATED PARTY
      TRANSACTIONS
|--- | ------------------------------------------------------------

The Company reports the following
related party transactions:

| | (a) | Chairman: The Chairman receives cash compensation on a
      month to month basis calculated at an annual rate of $150,000
  CDN.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

In 2015 the Chairman was awarded a
total of 187,500 stock options an average price of $0.46 per share. In 2014 the
Chairman was not granted any stock options. In 2013 the Chairman was awarded a
total of 140,000 stock options at an average price of $0.29 CDN per share.

The total compensation paid to the
Chairman during the year ended October 31, 2015 was $119,707 of cash
compensation and $64,271 of stock based compensation (2014 - $137,172 of cash
compensation and $nil of stock based compensation; 2013 - $146,599 of cash
compensation and $21,163 of stock based compensation).

The Company provided a short term
non-interest bearing advance of $38,084 to the Chairman in 2014. This advance
was repaid to the Company in November 2014.

The Company provided short term
non-interest bearing advances of $198,673 to the Chairman during 2015 and the
Chairman made repayments totaling $236,757 to leave no outstanding advances
receivable as at October 31, 2015.

41

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|18. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
      (Contd)
|--- | ---------------------------------------------------------------------

| | (b) | Management and consulting fees:
| | --- | -------------------------------

Included in professional fees, other
fees and salaries as reported are management fees and consulting fees paid or
payable to individuals (or companies controlled by such individuals) who served
as officers, directors and employees of the Company. The total compensation paid
to such parties is summarized as:

| |                                                              |   | 2015      |   |   | 2014      |   |   | 2013     |  
| | ------------------------------------------------------------ | - | --------- | - | - | --------- | - | - | -------- | -
| | Cash compensation                                            | $ | 936,199   |   | $ | 1,482,153 |   | $ | 805,574  |  
| | Less portion capitalized to deferred
      development costs |   | (122,804  | ) |   | (169,664  | ) |   | (202,820 | )
| |                                                              |   | 813,395   |   |   | 1,312,489 |   |   | 602,754  |  
| |                                                              |   |           |   |   |           |   |   |          |  
| | Share compensation                                           |   | 220,500   |   |   | -         |   |   | -        |  
| | Stock based compensation                                     |   | 524,583   |   |   | 325,074   |   |   | 195,720  |  
| |                                                              |   |           |   |   |           |   |   |          |  
| |                                                              | $ | 1,558,478 |   | $ | 1,637,563 |   | $ | 798,474  |  

In 2015, these parties were awarded a
total of 975,000 options at an exercise price of $0.49 and 412,500 options at an
exercise price of $0.46 (2014: 540,000 options at an average exercise price of
$0.76 CDN per share ; 2013: 1,292,500 options at an average exercise price of
$0.29 per share).

In 2015, 450,000 common shares were
issued to three directors as compensation for services provided, these common
shares were valaued at $220,500.

In 2015, officers, directors and a
senior employee exercised 4,088,000 options resulting in proceeds to the Company
of $1,055,491.

42

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|18. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
      (Contd)
|--- | ---------------------------------------------------------------------

| | (c) | Related party deferred development
cost:
| | --- | ----------------------------------------

In 2015 the Company was invoiced
$1,049,524 (2014: $1,843,643) by a company whose major shareholder is a director
of the Company and who also serves as its Chief Technology Officer. This
individual was elected as a director on February 19, 2014 and these related
party transactions disclosed are transactions incurred from this date forward.
These charges have been capitalized as deferred development costs. As at October
31, 2015, included in accounts payable and accrued liabilities is $227,215 (2014
- $208,425) owing to this company.

| | (d) | Advances:
| | --- | ---------

In 2014 the following advances were
provided to officers, directors and employees of the Company:

| | (1) | The CFO was advanced $119,757 during February and March
      2014. The advance was settled through repayments of $78,036 and a
      performance bonus awarded at October 31, 2014. The advance was unsecured,
      due on demand with interest charged at a rate of 1% per month on the
      opening monthly balance outstanding.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                      
| | (2) | The President of MAST Inc was advanced $244,074 on May
      30, 2014. The advance was evidenced by a promissory note which included
      the following terms:                                                                                                                                                                      

| | a. | Non-interest bearing for the first twelve months and,
      thereafter, interest to be charged at a rate of 1% per month on the
      opening monthly balance.                                                                                               
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                              
| | b. | Unsecured for the first 12 months and, thereafter, an
      assignment of a security interest to the full amount of the outstanding
      balance in favor of the Company.                                                                                   
| |    |                                                                                                                                                                                                                                                              
| | c. | Open to full repayment at any time.                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                              
| | d. | Eligible for up to full offset against certain
      performance based incentive compensation within the first twelve months.
      In February 2015, the performance based incentives were met and the
      advance was converted to salaries at that
time.

| | (3) | A senior employee was advanced $80,916 during the year.
      This advance was non- interest bearing, unsecured, and due on demand. This
      advance was repaid to the Company in December
2014.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|18. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
      (Contd)
|--- | ---------------------------------------------------------------------

| | (d) | Advances: (Contd)
| | --- | ------------------

In 2015 the following advances were
provided to officers, directors and employees of the Company:

| | (1) | The CEO was provided short term non-interest bearing
      advances of $550,972 during the year and made repayments totaling $542,615
      and the remaining $8,357 was settled through the allocation of
      compensation due to the CEO. There are no advances receivable from the CEO
      as at October 31, 2015.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                          
| | (2) | The President of MAST met performance targets in February
      2015 settling his advances receivable from 2014, the advance receivable
      was converted to salaries at that time. There were no advances to the
      President of MAST during 2015.                                                                 
| |     |                                                                                                                                                                                                                                                                                                                          
| | (3) | A senior employee was provided short term non-interest
      bearing advances of $166,366 during the year and made repayments totaling
      $247,252 resulting in no outstanding advances receivable as at October 31,
      2015.                                                                                      

In all cases the advances were
provided as advances against expenses incurred or compensation due to these
individuals.

|19. | COMMITMENTS
|--- | -----------

The Company secured new leased premises
in June 2012. The lease term is for 5 years and stipulates base monthly rental
expenses of $3,800 CDN. Lease commitments are as follows  commitments less than
one year of $45,600 CDN; commitments in year 2 total $30,400 CDN.

The Company has certain outstanding
commitments to 3rd party subcontractors with respect to deferred
development costs. These commitments are as follows  commitments less than one
year of $2,653,000; commitments between years 2-5 total $1,103,000.

44

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|20. | CONTINGENCIES
|--- | -------------

| | (a) | Legal matters:
| | --- | --------------

On November 17, 2014, Micromem and
MAST (Plaintiffs) commenced a lawsuit in the United States District Court for
the Southern District of New York against Dreifus Associates Limited and Henry
Dreifus (Defendants). Plaintiffs original complaint contained five causes of
action by which they sought money damages, declaratory relief and specific
performance relating to certain contracts. On February 24, 2015, Plaintiffs
filed an amended complaint to add a claim for declaratory relief relating to a
patent held by Plaintiffs. In March 2015, the Defendants responded to the
allegations filed by the Company. The Defendants have denied the substantive
allegations in the complaints filed by the Company and sought to have the action
transferred to Florida where the Defendants reside. Additionally, the Defendants
have counterclaimed seeking approximately $270,000 of disputed charges for
services allegedly rendered and also seeking inventorship status on one of the
Companys patents (Note 23).

| | (b) | The Company has agreed to indemnify its directors and
      officers and certain of its employees in accordance with the Companys
      by-laws. The Company maintains insurance policies that may provide
      coverage against certain claims.                                                                                                                                                                                             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (c) | The Company has disputed amounts charged by certain third
      party vendors during previous fiscal years, one of which is the firm noted
      in (a) above, against which the Company has taken action (Note 23). The
      amount charged by the vendors exceeds the amount recorded as a provision
      by $181,780. No claims have been made by the vendors to date related to
      the disputed amounts other than noted in (a) above.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (d) | In addition to the above, the Company may be subject to
      litigation, claims and governmental and regulatory proceedings arising in
      the ordinary course of business. In such cases, the Company accrues a loss
      contingency for these matters when it is probable that a loss has been
      incurred and the amount of the loss can be reasonably
  estimated.                                                                 

45

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|21. | FINANCIAL RISK
MANAGEMENT
|--- | -------------------------

| | (a) | Financial Risk Management:
| | --- | --------------------------

The Company is exposed to a variety of
financial risks by virtue of its activities: market risk (including foreign
exchange risk and interest rate risk) and liquidity risk. The overall risk
management program focuses on the unpredictability of financial markets and
seeks to minimize potential adverse effects on financial performance. Risk
management is carried out under policies approved by the Board of Directors.
Management is charged with the responsibility of establishing controls and
procedures to ensure that financial risks are mitigated in accordance with the
approved policies.

| | (b) | Market Risk:
| | --- | ------------

| | i. | Foreign Exchange Risk:
| | -- | ----------------------

The Company currently incurs expenses
in Canadian dollars. Management monitors the Canadian position of these monetary
financial instruments on a periodic basis throughout the course of the year.

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

| |                                          |   | 2015      |  |   | 2014    | 
| | ---------------------------------------- | - | --------- |  | - | ------- | 
| |                                          |   |           |  |   |         | 
| | Cash                                     | $ | 148,767   |  | $ | 328,797 | 
| | Deposits and other receivables           |   | 73,361    |  |   | 201,403 | 
| | Bridge loans                             |   | 1,002,313 |  |   | -       | 
| | Accounts payable and accrued liabilities |   | 335,813   |  |   | 211,091 | 

A 10% strengthening of the US dollar
against the Canadian dollar would serve to decrease the loss by $132,652 at
October 31, 2015 (2014  decrease the loss by $31,910). A 10% weakening of the
US dollar against the Canadian dollar at October 31, 2014 would have had the
equal but opposite effect.

46

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|21. | FINANCIAL RISK MANAGEMENT
  (Contd)
|--- | ------------------------------------

| | (b) | Market Risk (Contd)
| | --- | --------------------

| | ii. | Interest Rate Risk:
| | --- | -------------------

Cash flow interest rate risk is the
risk that the future cash flow of a financial instrument will fluctuate because
of changes in market interest rates.

Financial assets and financial
liabilities with variable interest rates expose the Company to cash flow
interest rate risk. The Companys cash and promissory note receivable earn
interest at market rates. The Company manages its interest rate risk by
maximizing the interest income earned on excess funds while maintaining the
liquidity necessary to conduct operations on a day-to-day basis. Fluctuations in
market rates of interest may have an impact on the Companys results of
operations.

The Company is not exposed to interest
price risk on its interest bearing bridge loans and related party advances as
the interest rate is fixed.

| | (c) | Liquidity Risk:
| | --- | ---------------

Liquidity risk is the risk that the
Company will not be able to meet its obligations as they fall due.

The Company manages its liquidity risk
by forecasting cash flows from operations and anticipated investing and
financing activities. Senior management is actively involved in the review and
approval of planned expenditures.

All financial liabilities are due
within 1 year from the balance sheet at October 31, 2015.

As at October 31, 2015, the Company
reports a working capital deficiency of $2,049,302 and has certain financial
commitments (Note 19), the majority of which are due within one year. It must
continue to raise financing in order to meet its current obligations (Note 23).

47

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|21. | FINANCIAL RISK MANAGEMENT
  (Contd)
|--- | ------------------------------------

| | (d) | Credit Risk:
| | --- | ------------

Credit risk is the risk of financial
loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the
Companys cash and deposits and other receivables. The carrying amount of
financial assets represents maximum credit exposure. The Company reduces its
credit risk by maintaining its primary bank accounts at large financial
institutions and assesses the credit quality of counterparties, taking into
account their financial position, past experience and other factors.

|22. | SEGMENTED INFORMATION
|--- | ---------------------

There is one operating segment of the
business being the development and commercialization efforts with respect to the
Company's proprietary sensor applications. Currently, the predominant market
segment that the Company is pursuing is the North American market for such
technology.

Geographic information  Non-current
assets

| |               |   | October 31, |  |   | October 31, | 
| | ------------- | - | ----------- |  | - | ----------- | 
| |               |   | 2015        |  |   | 2014        | 
| |               |   |             |  |   |             | 
| | Canada        | $ | 784,713     |  | $ | 632,516     | 
| | United States |   | 2,668,477   |  |   | 3,195,336   | 
| |               | $ | 3,453,190   |  | $ | 3,827,852   | 

48

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|23. | SUBSEQUENT EVENTS
|--- | -----------------

| | 1. | With respect to the legal matter disclosed in Note
      20(a):
| | -- | ---------------------------------------------------------------

| | a) | The Defendants were successful in having the action
      transferred to Federal court in Orlando, Florida from Federal court in New
      York in December 2015.                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                             
| | b) | After transfer, the Defendants filed a separate answer to
      the complaint filed by the Plaintiffs denying the material allegations in
      the complaint and asserted a counterclaim that requests that Henry Dreifus
      be added as an inventor on a patent held by the Plaintiffs.
| |    |                                                                                                                                                                                                                                                                                             
| | c) | With respect to these counterclaims asserted by the
      Defendants, the Company has filed responses denying the material
      allegations of these counterclaims.                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                             
| | d) | The parties have recently submitted a case management
      report to the Federal court in Florida that contains a schedule for
      discoveries, dispositive motions and trials. The parties have also agreed
      to participate in mediation to attempt to resolve this
  dispute.     

The outcome of this matter cannot, as
yet, be determined.

| | 2. | The Company has received additional funding of a total of
      $443,901 from its development partners through March 2, 2016.                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                    
| | 3. | The Company completed a private placement with an
      investor pursuant to prospectus and registration exemptions set forth in
      applicable securities law. The Company received gross proceeds of $55,000
      and issued a total of 183,334 common shares.
| |    |                                                                                                                                                                                                                                                                    
| | 4. | Bridge Loans:                                                                                                                                                                                                                                                      

| | a) | The bridge loans provided by investors outstanding (Note
      14(c)(i)) as of October 31, 2015 have been extended on a month to month
      basis by the investors through April 1, 2016 on the same terms and
      conditions.                                                                                                                                                                                                              
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | This investor has since provided two additional bridge
      loans to the Company totaling $272,000 CDN ($201,280 USD) at an interest
      rate of 3% per month. These loans are secured by a floating charge on the
      assets of the Company. The maturity dates of these loans were originally
      set as 30 days and have been extended by the investor through March 11,
      2016 ($135,000 CDN) and March 17, 2016 ($137,000
CDN).

49

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|23. | SUBSEQUENT EVENTS
(Contd)
|--- | --------------------------

| | 4. | Bridge Loans: (Contd)
| | -- | ----------------------

| | b) | The investor who provided the $200,000 bridge loan in
      August 2015 ((Note 14(c)(ii)) has since extended that loan through May 2,
      2016. The terms of the original loan remain in place. In addition, on
      November 2, 2015 a conversion feature on the loan was added whereby the
      investor has the privilege but not the obligation to convert any part up
      to all of the debenture including accrued interest at a price not above
      $0.30 per share.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c) | A group of other investors provided the following bridge
      loans to the Company:                                                                                                                                                                                                                                                                                                                                                                                               

| | i.  | On November 30, 2016, certain of these investors provided
      $250,000 of unsecured convertible debentures due on March 31, 2016. The
      interest rate on these debentures is at a rate of 1% per month calculated
      on a daily basis. The investors have the privilege, but not the
      obligation, to convert up to 50% of the outstanding principal plus accrued
      interest at any time before the maturity date at a conversion price of
      $0.33 per share.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ii. | On December 2, 2015, certain of these investors provided
      $250,000 of unsecured debentures due on April 2, 2016. The interest rate
      on these debentures is at a rate of 2% per month calculated on a daily
      basis.                                                                                                                                                                                                                                                 

| | d) | On December 31, 2015, an investor provided an unsecured
      $100,000 convertible debentures due on July 1, 2016. The interest rate on
      this debenture is at a rate of 1% per month calculated on a daily basis.
      This investor has the privilege, but not the obligation, to convert the
      outstanding principal plus any accrued interest at any time before the
      maturity date at a conversion price of $0.30 per share.                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | e) | On January 8, 2016, an investor provided an unsecured
      $100,000 convertible debenture due on July 8, 2016. The interest rate on
      this debenture is at a rate of 1% per month calculated on a daily basis.
      The investor has the privilege, but not the obligation, to convert not
      less than the entire amount of the principal plus any accrued interest at
      any time before the maturity date at a conversion price of $0.30 per
      share.

50

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MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2015, 2014 and 2013
|---------------------------------------------------
|                                                   

|23. | SUBSEQUENT EVENTS
(Contd)
|--- | --------------------------

| | 4. | Bridge Loans: (Contd)
| | -- | ----------------------

| | f) | On February 12, 2016, an investor provided an unsecured
      $500,000 convertible debenture due on May 12, 2016. The interest rate on
      this debenture is at a rate of 1% per month calculated on a daily basis.
      This investor has the privilege, but not the obligation, to convert the
      outstanding principal plus any accrued interest at any time before the
      maturity date at a conversion price of $0.30 per
share.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The bridge loans described above in
4(c), 4(d), 4(e) and 4(f) can be prepaid, in whole or in part, at any time
before their respective maturity dates at the option of the Company.

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

51

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|**ITEM 19.** | Exhibits
|------------ | --------

The following exhibits are filed as part of this Annual Report:

|Exhibit No. 1.1  | Articles of Incorporation of
      Micromem Technologies Inc. and amendments thereto in effect as of January
      11, 2000, (Incorporated herein by reference to the Company's Form 20-F
  filed with the Commission on January 11, 2000).                                                                                                                                                   
|---------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.2  | Articles of Incorporation of
      Amendment of Micromem Technologies Inc. dated as of October 17, 2001
      amending the Articles of Incorporation of Micromem Technologies Inc. to
      increase the number of directors to a minimum of three and a maximum of
      ten (Incorporated herein by reference to the Company's Form 20-F filed
      with the Commission on March 26, 2003).
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.3  | Articles of Incorporation of
      Amendment of Micromem Technologies Inc. dated as of June 24, 2002 amending
      the Articles of Incorporation of Micromem Technologies Inc. to increase
      the number of directors to a minimum of 3 and a maximum of 12
      (Incorporated herein by reference to the Company's Form 20-F filed with
      the Commission on March 26, 2003).        
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.5  | By-Laws of Micromem
      Technologies Inc. in effect as of January 11, 2002, (Incorporated herein
      by reference to the Company's Form 20-F filed with the Commission on
      January 11, 2000).                                                                                                                                                                                        
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.6  | Amendment to the By-Laws of
      Micromem Technologies Inc. approved by shareholders on June 29, 2000,
      deleting the requirement from the By-Laws that the President shall be
      appointed from amongst the directors (Incorporated herein by reference to
      the Company's Form 20-F filed with the Commission on March 26, 2003).                                               
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.1  | Employment Agreement by and
      between Micromem Technologies, Inc. and Salvatore Fuda dated May 29, 2005.
      (Incorporated herein by reference to the Company's Form 20-F filed with
      the Commission on February 28, 2006).                                                                                                                                                        
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.2  | Employment Agreement by and
      between Micromem Technologies and Joseph Fuda dated May 28, 2008
      (Incorporated by reference to the Companys Form 20-F filed with the
      Commission on February 24, 2009).                                                                                                                                                                         
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.3  | Employment Agreement by and
      between Micromem Technologies and Dan Amadori dated May 28, 2008
      (Incorporated by reference to the Companys Form 20-F filed with the
      Commission on February 24, 2009).                                                                                                                                                                         
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.4  | Employment Agreement by and
      between Micromem Technologies and Steven Van Fleet dated May 28, 2008
      (Incorporated by reference to the Companys Form 20-F filed with the
      Commission on February 24, 2009).                                                                                                                                                                    
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 8.1  | List of Subsidiaries
      (Incorporated by reference to the Companys Annual Report on Form 20-F
      filed with the Commission on March 1, 2010)                                                                                                                                                                                                                                           
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|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).                                                                                                                                                                                                                                                                                       

46

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|Exhibit No. 13.2 | Officer's Certification
      pursuant to Section 906 of the Sarbanes Oxley Act, 2002 (filed
      herewith).
|---------------- | -------------------------------------------------------------------------------------------------------------
|                 |                                                                                                              
|Exhibit No. 15.1 | Consent of Collins Barrow LLP                                                                                

47

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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 FudaName:Joseph FudaTitle:
    Chief Executive OfficerBy:
    /s/
      Dan AmadoriName:Dan AmadoriTitle:
    Chief Financial Officer


Dated: March 14, 2016

48

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