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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, 2012

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, On M5H 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

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: 136,430,555 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 [_]

1

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

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 | Other [_]
|------------- | ----------------------------------------------------------- | ---------
|              | by the International Accounting Standards Board
      [X]   |          

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

|Part I         |                                                                                    |     
|-------------- | ---------------------------------------------------------------------------------- | ----
|               |                                                                                    | Page
|               |                                                                                    |     
|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                                                    | 18  
|Item
      5.  | Operating
      and Financial Review and Prospects                                 | 19  
|Item
      6.  | Directors,
      Senior Management and Employees                                   | 24  
|Item
      7.  | Major
      Shareholders and Related Party Transactions                            | 28  
|Item
      8.  | Financial
      Information                                                        | 30  
|Item
      9.  | The
      Offer and Listing                                                        | 30  
|Item
      10. | Additional
      Information                                                       | 31  
|Item
      11. | Quantitative
      and Qualitative Disclosures about Market Risk                   | 38  
|Item
      12. | Description
      of Securities Other Than Equity Securities                       | 38  
|               |                                                                                    |     
|Part II        |                                                                                    |     
|               |                                                                                    |     
|Item
      13. | Defaults,
      Dividend Arrearages and Delinquencies                              | 38  
|Item
      14. | Material
      Modifications to the Rights of Security Holders and Use of Proceeds | 38  
|Item
      15. | Controls
      and Procedures                                                      | 39  
|Item
      16. | Not
      Applicable                                                               | 39  
|Item
      16A | Audit
      Committee Financial Expert                                             | 39  
|Item
      16B | Code
      of Ethics                                                               | 39  
|Item
      16C | Principal
      Accountant Fees and Services                                       | 39  
|Item
      16D | Exemptions
      from the Listing Standards for Audit Committees                   | 40  
|Item
      16E | Purchases
      of Equity by the Issuer and Affiliated Purchasers                  | 40  
|Item
      16F | Changes
      in Registrants Certifying Accountant                                | 40  
|Item
      16G | Corporate
      Governance                                                         | 40  
|Item
      16H | Mine
      Safety Disclosure                                                       | 40  
|               |                                                                                    |     
|Part III       |                                                                                    |     
|               |                                                                                    |     
|Item
      17. | Financial
      Statements                                                         | 40  
|Item
      18  | Financial
      Statements                                                         | 40  
|Item
      19. | Exhibits                                                                           | 40  
|Signatures     |                                                                                    | 42  

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 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, 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 year ended
October 31, 2012 have been prepared in accordance with International Financial
Reporting Standards (IFRS). Previously the Company prepared consolidated
financial statements in accordance with Canadian generally accepted accounting
principles (Canadian GAAP). The Company has restated the comparative financial
statements at October 31, 2011 and the preparation of the opening statement of
financial position as at November 01, 2010 to IFRS.

International Financial Reporting Standards

|Selected balance sheet information 
|-----------------------------------
|(all
      amounts in U.S. dollars)
|                                   
|Working capital (deficiency)       
|Capital Assets                     
|Total Assets                       
|Capital Stock                      
|Shareholders' equity (deficiency)  

4

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Selected statement of operations and deficit information
(all amounts in U.S. dollars)

|                                                    |  | 2012        |   |   | 2011        |  
|--------------------------------------------------- |  | ----------- | - | - | ----------- | -
|Interest and other income                           |  | -           |   | $ | 963         |  
|Research and development expenses                   |  | 229,840     |   |   | (75,896     | )
|General and administrative and other
      expenses |  | 1,114,369   |   |   | 2,329,544   |  
|Stock compensation
      expense                    |  | 430,856     |   |   | 928,497     |  
|Loss before income taxes                            |  | (1,775,065  | ) |   | (3,181,182  | )
|Provision for
      income taxes (recovery)         |  |             |   |   | 1,205       |  
|Net loss                                            |  | (1,775,065  | ) |   | (3,182,387  | )
|Loss per share-basic and diluted                    |  | (0.01       | ) |   | (0.03       | )
|Weighted average number of basic and diluted shares |  | 123,375,510 |   |   | 102,301,168 |  
|Dividends                                           |  | -           |   |   | -           |  

Fiscal Years 2010, 2009 and 2008

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, 2010, October 31, 2009 and October 31, 2008. The selected
consolidated financial data has been derived from our audited consolidated
financial statements. These consolidated financial statements have been prepared
in accordance with Canadian GAAP which differ in certain respects from the
principles the Company would have followed had it consolidated financial
statements been prepared in accordance with U.S. GAAP. The selected consolidated
financial information in the IFRS chart above should not be compared to the
information in the Canadian GAAP table below as the information was prepared
using different financial reporting standards.

Canadian GAAP

|Selected balance sheet information 
|-----------------------------------
|(all
      amounts in U.S. dollars)
|                                   
|Working capital (deficiency)       
|Capital Assets                     
|Total Assets                       
|Capital Stock                      
|Shareholders' equity (deficiency)  

|Selected statement of operations and deficit
      information
|--------------------------------------------------------------
|(all amounts in U.S. dollars)                                 
|                                                              
|Interest and other income                                     
|Research and development expenses                             
|General and administrative and other
      expenses           
|Stock compensation
      expense                              
|Loss before income taxes                                      
|Provision for
      income taxes (recovery)                   
|Net loss                                                      
|Loss per share-basic and diluted                              
|Weighted average number of basic and diluted shares           
|Dividends                                                     

5

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Reconciliation between Canadian GAAP and U.S. GAAP:

Canadian GAAP conforms in all material respects with U.S. GAAP
except for how the Company has accounted for development expenditures reported
in the fiscal years ended October 31, 2010 and 2009 and the allocation of Unit
private placement proceeds using the relative fair value method of accounting
for the fiscal years through to October 31, 2008. Until October 31, 2008, for
all Unit private placement financings completed, the Company assigned 100% of
the proceeds from these financings to the common shares and no value to the
attached warrants. In the fiscal year ended October 31, 2009, the Company
changed the estimates that it used to value the common shares and warrants
included in the Unit private placement financings which it completed in the
fiscal year then ended. It assigned the value to the warrants which formed part
of these Unit private placements calculated in accordance with the Black Scholes
option-pricing model. Under U.S. GAAP, using standards which are analogous, the
valuation of the shares and warrants would be determined using the relative fair
value approach. There is no change in aggregate shareholders equity.

Currency and Exchange Rates

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

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

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

2012
    
    
    2011
    
    
    2010
    
    
    2009
    
    
    2008High for period
    
    1.0281
    
    
    1.0583
    
    
    1.0039
    
    
    0.9716
    
    
    1.0905Low for period
    
    0.9783
    
    
    0.9430
    
    
    0.9278
    
    
    0.7692
    
    
    0.7726End of period
    
    0.9872
    
    
    1.0079
    
    
    0.9885
    
    
    0.9334
    
    
    0.8374Average for period
    
    1.0046
    
    
    1.0139
    
    
    0.9640
    
    
    0.8587
    
    
    0.9761


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
    
    
    July2012
    
    
    2012
    
    
    2012
    
    
    2012
    
    
    2012
    
    
    2012High
    
    1.0016
    
    
    1.0015
    
    
    1.0039
    
    
    1.0349
    
    
    1.0418
    
    
    1.0214Low
    
    0.9866
    
    
    0.9849
    
    
    0.9807
    
    
    0.9839
    
    
    1.0178
    
    
    1.0014


August
    
    
    September
    
    
    October
    
    
    November
    
    
    December
    
    
    January2012
    
    
    2012
    
    
    2012
    
    
    2011
    
    
    2011
    
    
    2012High
    
    1.0062
    
    
    0.9902
    
    
    1.0004
    
    
    1.0487
    
    
    1.0406
    
    
    1.0272Low
    
    0.9863
    
    
    0.9710
    
    
    0.9763
    
    
    1.0126
    
    
    1.0105
    
    
    0.9986


On February 22, 2013 the noon buying rate for one Canadian
dollar, as quoted by the Bank of Canada, was CDN $0.9819 = U.S. $1.00.

B.Capitalization and Indebtedness

Not Applicable.

C.Reasons for the Offer and Use of Proceeds

Not Applicable.

6

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D.Risk Factors

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

Risk Factors Related to Our Business

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

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

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

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

At October 31, 2012 we had $245,029 cash on hand and our
current monthly cash expenses were approximately $150,000. Our working capital
deficiency is $731,673 at October 31, 2012. Subsequent to October 31, 2012,
through to the date of the filing of this annual report, we have raised an
additional $1,052,113 through private placements and through the exercise of
warrants.

We currently have no operating revenue.

At October 31, 2012 we have no revenues and there is no
certainty that we will generate revenues in the near future. If we fail to enter
into license agreements 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 get from each
licensee and the ability of each licensee to compete in their particular market.

Our magnetic sensor technology is under development.

We continued to develop prototypes of our magnetic sensor
technology in 2012 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.

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

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

Our success will be determined by the following factors which
have not yet been 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.

After completion of the development of our technology, our
ability to compete successfully will depend on elements outside of our control,
including the rate at which customers incorporate our technology into their
products, the success of such customers in selling those products, our
protection of our intellectual property, the number, nature and success of our
competitors and their product introductions and general market and economic
conditions. In addition, our success will depend on our ability 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.

7

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

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

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

If we did decide to further development our memory technology
in future our success would be determined by the following factors which have
not yet been tested or measured:

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

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

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

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

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

Our success will depend on our ability to protect our
intellectual property. We rely primarily on patent, copyright, trademark and
trade secret laws, as well as nondisclosure agreements and other methods to
protect our proprietary technology and processes. Despite our efforts to do so,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology, develop similar technology independently or design
around our patents. Policing unauthorized use of our products is expensive and
difficult, and we cannot be certain that 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 exclusive rights to our technology, including any
improvements that may be made on that technology from time to time by us or on
our behalf. While our technology is patented or is subject to pending patent
applications in the United States and we know of no challenge that has been made
either against our technology or our rights to it, and we have no reason to
believe that any such challenge might be made or that the grounds for any such
challenge exist, if any intellectual property litigation were to be commenced
against us, no matter how groundless, the result could be a significant expense
to us, adversely affecting further development, licensing and sales, diverting the efforts of our technical and management personnel and, in
the event of an adverse outcome, damages and possible restrictions on the
further development, licensing and use of our technology.

8

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

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

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

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

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

In addition to anticipated licensing fees and potential royalty
streams, the manufacturing and sale of technology product applications is part
of our go forward revenue model.

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

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

The range of products we intend to commercialize is currently
limited to applications of our sensor technology. If we are not successful in
developing this specific technology, or if there is not adequate demand for such
technology or the market for such technology develops less rapidly than we
anticipate, we may not have the capability to shift our resources to the
development of alternative products. As a result, the limited range of products
we intend to develop could limit our revenues and profitability.

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

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

9

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

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

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, MAST Inc. 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 and our ability to attract and
retain additional highly skilled personnel in the future.

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

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

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

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

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

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

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

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

We cannot provide any assurance that we will be able to
continue to develop new intellectual property or that we will continue to have
it developed for us. We rely on a combination of U.S. patent, copyright,
trademark, and trade secret laws to protect our intellectual property rights. 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.

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

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

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 to
offset potential currency rate fluctuations.

Risk Factors Related to Our Common Shares

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

Our common shares constitute penny stock under applicable
regulations of the Securities and Exchange Commission. 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:

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(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.

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

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

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

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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.

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 Bulletin Board 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 AvantiCorp
International Inc. on April 30, 1992 and to Micromem Technologies Inc. on
January 11, 1999 in connection with our acquisition of Pageant Technologies
Incorporated, also referred to herein as Pageant International. Our website
address is www.micromeminc.com. The
information on our website is not part of this annual report on Form 20-F. We
have included our website address in this document as an inactive textual
reference only.

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.
This 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.

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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.

In the early stages of the Company's development, it was
necessary to solicit client interest in our products through the generation of
exploratory business proposals. This proved to be a time consuming and difficult
effort. A pre-revenue company transitioning from public awareness of being a
memory development company to a sensor solution company was met with some
skepticism.

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 and deliver a
sensor platform for detecting 4 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. Ninesigma'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.

To date, Micromem has funded all research and development. At
MAST, our main priority is 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.

MAST intends 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.

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Competition-based strategy assumes that an industry's
structural conditions are given and that firms like MAST are forced to compete
with them, an assumption based on what the academics call the structuralist
view. In contrast, the value innovation that MAST is providing is based on the
view that market boundaries and industry structure are not given and can be
reconstructed. Here, the strategic choices for firms are to pursue either
differentiation or low cost. Our strategic aim, however, is to create new best
practice rules by breaking the existing value-cost trade-off.

The Companys significant current
project initiatives include the following:

GSI Westwind:Commercial
production is expected to begin in 2013. First articles of production have been
tested and approved by our client. We are shipping in the first quarter of 2013
the first tranche of volume production. We also plan to aggressively market our
speed control circuit board design to other high precision motor suppliers.

Oil Sensor: Our oil pan
plug sensor suite is currently being tested in a dynamometer environment. The
Company expects to enter into a production environment for this product in 2013.

International Energy
Company:The Company has worked with this customer since 2011 and
has developed sophisticated sensor measuring technology for use in oil and gas
wells. The beta version of this product is ready for shipping to the clients
facility. The delay in this milestone event has been the lack of availability of
suitable nanoparticles for full system testing of our device. The plan is to
complete the field trials at the clients facilities in the first half of 2013
and then begin deployment of our product onto field well sites.

Offshore Exploration/Gas and Oil
Well Monitoring: The Company has engaged two large international energy
companies in 2012 in discussions and negotiations for use of its sensor
technology for diagnostic/control and monitoring systems prototype units. The
Company expects to advance these discussions towards development prototypes in
2013 and anticipates commercial revenue in 2014.

Early Breast Cancer
Detection: We successfully demonstrated our product line in Europe
during our fourth fiscal quarter of 2012 and are currently negotiating the
franchising model for deployment of a business model, which will bring cost
effective services to women of all ages for early indication of breast cancer.
We anticipate commercial revenue in 2013.

Medical Nano-Weighing
Application:The Company is currently negotiating with a medical
production facility to design and build a weighing platform capable of measuring
less than 500 nanograms of product within 1 second. This is adjunct technology
that the Company developed on our oil sensor platform project. We anticipate
commercial revenue in 2013.

Early Detection of Incipient
Failure in High Voltage Transmission Lines:The Company has developed a
low cost platform that can be pervasively deployed over a companys high voltage
transmission network and will utilize cutting edge technology to alert potential
failure of sagging voltage lines before the failure occurs. The Company
anticipates revenue from this development in 2013.

Robust Business Development
Proposal Pipeline:The Company currently has an active business
development proposal backlog of $71M USD. Many of the proposals have made the
clients short list and one on one discussion under Non-Disclosure Agreements
are underway.

Intellectual Property

The Company presently is processing seven new patent
applications initiated in 2012. Our new business model of developing unique
sensor platforms for our clients allow for the Company to choose opportunities
that end up with both robust revenue projections and a strong intellectual
property position.

Changes to Our Board of Directors and Management

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At our Annual Meeting of Shareholders held on Friday, November
16, 2012, Salvatore Fuda, Andrew Brandt, Joseph Fuda, David Sharpless, Steven
Van Fleet, Oliver Nepomuceno, Larry Blue and Alex Dey were reelected to serve on
our Board of Directors. Messrs. Salvatore Fuda, Joseph Fuda, Dan Amadori and
Steven Van Fleet continue to serve as officers of the Company.

B.Business Overview

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

Beginning in 2007 we pursued the further development of our
memory and our sensor technology with the support of two U.S.-based foundries,
GCS in California and BAE in New Hampshire. We executed
development/manufacturing agreements with Unotron, NEMT and LMTI  see Item 10
-- Additional Information  C. Material Contracts beginning on page 33 of this
Annual Report.

Industry Background

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

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

Our Company's Technology

We have decided that we will not pursue the further development
of our memory technology because of the significant cost that would be required
to pursue the commercialization of our memory technology as a standalone
application. Competitors in the development of memory technology are much larger
and better financed international entities.

We have been aggressively developing our sensor technology
applications for multiple potential commercial applications since 2008.

Our technology combines the use of semi-conducting
ferromagnetic metals with a sensor. When the magnetization of the magnetic
material changes direction, the sensor senses the change in direction and
records a 0 or 1. In this fashion, a bit is created that is non-volatile and
based on magnetic properties.

Equity Financing Transactions

In the 2011 fiscal year, the Company completed a series of
private placement financings with arms length investors pursuant to prospectus
and registration exemptions set forth in applicable securities law. The Company
received gross proceeds of $2,478,681 and issued a total of 20,825,207 common
shares. In addition, a total of 20,825,207 common share purchase warrants with
an average price of $0.14 were attached to the private placements completed
during 2011. All warrants issued in 2011 have a 12 month term from issue date.

In 2011 the Company extended the expiration date on a total of
7,928,432 common share purchase warrants which would have otherwise expired
during the year. The expiration dates were extended for a period of 6 to 12
months in each case from the original expiration date. The exercise price in all
cases remained unchanged.

In 2011 the Company secured three additional bride loans
totaling $496,813; two of these loans were repaid during the year. At October
31, 2011, the balance outstanding on the remaining term loan was $120,042 and
this loan was repaid subsequent to year-end. The total interest paid or accrued on the bridge loans in
2011 was $139,625. A total of 55,000 common share purchase warrants were also
issued to the lenders in 2011.

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In 2012 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
$1,040,899 and issued a total of 6,344,899 common shares. Additionally,
6,344,899 common share purchase warrants with an average price of $0.17 were
attached to the private placements completed during 2012. All warrants issued in
2012 have a 12 month term from issue date.

The Company extended the expiration date on a total of
5,267,087 common share purchase warrants which would have otherwise expired in
2012. These warrants were extended for a period of 6 to 12 months in each case.
The exercise price remained unchanged in each case $0.12.

In 2012 the Company secured four additional bridge loans
totaling $714,359; two of these loans totaling $301,450 were converted into
common shares prior to October 31, 2012.

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. We anticipates that we will realize commercial economic
benefits from the exploitation of these intangible assets in future.
Accordingly, we reported $135,465 of intangible assets at October 31, 2011,
representing direct costs incurred with respect to such assets.

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.

Our IP portfolio comprises several different series of patents
and patent applications as follows:

| | (a) | our initial patents covering what is referred to as the
      Vemram and Hemram technologies which the Company has not further pursued
      since 2002;                                                                   
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                            
| | (b) | those covering technologies developed pursuant to
      research collaboration agreements with the University of Toronto between
      2004-2007;                                                                          
| |     |                                                                                                                                                                                                                            
| | (c) | those applications covering the technology developments
      that the Company has furthered since it began working with the US-based
      foundries in September, 2007;                                                  
| |     |                                                                                                                                                                                                                            
| | (d) | those applications covering the technology development
      that the Company has furthered in collaboration with outside consultants,
      under contract to provide technical design services to the Company;
      and,
| |     |                                                                                                                                                                                                                            
| | (e) | Provisional patent filings beginning in
  2011.                                                                                                                                                                            

The Company engaged Morgan Lewis as our patent attorneys in
2005. It has paid Morgan Lewis approximately $1 million in legal fees since
then. In 2012, we paid the remaining obligation due to Morgan Lewis and have
retained alternative counsel to provide ongoing assistance in this area.

In 2011, we wrote down our investment in patents by $129,033
relating to memory technology for which the Company has no immediate plans to
further develop.

In 2012, 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 $26,650 of legal fees associated with this work.

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With respect to our memory related patents for which we have no
immediate plans to further develop, we began in 2012 to attempt to monetize
these through the potential sale of such patents.

Environmental Matters

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

C.Organizational Structure

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.

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 no capital expenditures in 2012, no capital
expenditures in 2011 and $851 of capital expenditures in 2010.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

This section of the Form 20-F has been prepared to provide a
more substantive discussion of our business and to assist the reader in
analyzing the audited consolidated financial statements for the years ended
October 31, 2012 and October 21, 2011. 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.

I. OVERVIEW

We are a pre revenue stage company that currently operates in a
single segment as a developer of non-volatile magnetic memory and sensor
technology. Non-volatile memory implies the ability to retain information after
power has been shut off. Our technology is based on our ability to use magnetic
materials in combination with a sensor to record a state of magnetization as a
mechanism of data storage.

18

---

A.Operating Results

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

|Selected statement of operations and deficit
      information | 
|-------------------------------------------------------------- | 
|                                                               | 
|                                                               | 
|Interest and other income                                      | 
|Loss for the year                                              | 
|Loss per share-basic and diluted                               | 

|Selected balance sheet information      |  |           |   |   |             |  
|--------------------------------------- |  | --------- | - | - | ----------- | -
|                                        |  |           |   |   |             |  
|                                        |  | 2012      |   |   | 2011        |  
|Working capital (deficiency)            |  | (731,673  | ) | $ | (1,060,487  | )
|Property and equipment                  |  | 5,787     |   |   | 10,201      |  
|Total Assets                            |  | 1,180,278 |   |   | 906,346     |  
|Shareholders
      equity (deficiency) |  | (904,030  | ) |   | (1,1409,228 | )

Fiscal 2012 Compared to Fiscal 2011

The Company remained in pre revenue mode at October 31, 2012.
The Company reported no interest income in 2012 (2011: $963). It recorded, but
fully reserved a total of $20,300 (2011: $20,220) of interest income on a
secured promissory note outstanding.

The Company capitalized $263,133 of development costs relating
to several development projects in 2012 (2011: $554,685) and recovered $206,780
of costs previously reported (2011: $129,600) for a net increase in capitalized
development costs of $71,557 (2011: $425,085). At October 31, 2012 the Company
reported $718,163 of deferred development costs on its balance sheet (2011:
$646,606).

In the fiscal year ended October 31, 2012, the Company reported
$26,650 of additions to its patents (2011: $8,017); in 2011 the Company wrote
down the value of its patents by $129,033 which related to technology that the
Company had no further plans to develop. The Company reported $49,124 of patents
on its balance sheet at October 31, 2012 (2011: $37,678).

The Company reported no expenditures on intangible assets in
2012 (2011: an additional $135,465 relating to costs incurred with respect to
technical expertise for its sensor technology). At October 31, 2012, the Company
reported $116,113 of intangible assets on its balance sheet (2011: $135,465).

In 2012, the Company reported $694,617 of general and
administrative costs compared to $462,827 in 2011. These costs include office
rent, communication costs, insurance, filing fees, costs associated with the
annual general meeting. These specific costs were comparable between years. In
2012, the Company also incurred $72,756 of sponsorship costs (2011: nil) as it
began to explore upgrading its existing status on the Canadian stock exchanges
and reported approximately $188,000 (2011: $12,000) of non - cash accretion
expense relating to the convertible debentures.

Professional and other fees and salaries totaled $1,507,891 in
2012 (2011: $1,064,655). The Company reported the following costs: audit related
fees of $118,475 (2011: $88,937), legal expenses of $48,951 (2011: $64,919),
management fees of $514,262 paid to the Chairman, the CEO and the CFO (2011:
$467,132), staff salaries and benefits of $407,450 (2011: $424,306), other
expenses of $15,594 (2011: $19,114) and consulting fees of $403,158 (2011:
$571). The increase in consulting fees has several components: the Company paid
fees of $104,003 to third party advisors who assisted the Company in investor
relations in 2012 (2011: none); the Company paid the President of MAST a total
of $261,134 in 2012 (in 2011 $180,000 which was capitalized in intangible assets
and deferred development costs, thus no expense reported in 2011); and incurred
costs for assistance in conversion to IFRS reporting of $35,565 in 2012 (nil in
2011); and other of $2,456 (2011: $571).

Stock compensation expense, calculated in accordance with the
Black Scholes option pricing model was $430,856 in 2011 relating to the issuance
of 2 million stock options awarded to directors, officers and staff (2011:
expense of $928,497 relating to the issuance of 7,475,000 stock options).

19

---

In 2012 the Company expensed $229,840 of research and
development related costs whereas the Company recovered $75,896 of such costs in
2011 relating to the settlement of supplier invoices at a discount. It recovered
$42,004 of patent costs previously expensed relating to the settlement of legal
expenses settled at a discount (2011: nil).

Travel and entertainment costs increased to $150,924 in 2012
from $91,885 in 2011. The Company incurred higher costs associated with its
dealings with an increasing number of shareholders in 2012.

In 2012 the Company recovered $30,000 of the Unotron promissory
note that it had previously fully reserved (2011: recovery of $110,000). The
remaining balance outstanding on the promissory note at October 31, 2012 is
$101,853 (2011: $111,553) which balance is fully reserved.

In 2011 the Company reported a write down of its patents of
$129,033 and a charge of $185,564 relating to the modification of the conversion
features on several bridge loans that it had previously secured. It reported no
similar expenses in 2012.

Foreign exchange/transaction losses in 2012 were $7,537 (2011:
$43,215). The exchange rate between the U.S. and the Canadian dollar fluctuated
less in 2012 than in 2011.

Under IFRS, the Company accounts for the outstanding Canadian
dollar denominated warrants as a derivative warrant liability and measures them
using the Black Scholes option pricing model. This liability is revalued at each
quarter end. The Company reported a recovery on revaluation of derivative
warrant liability of $1,327,524 in 2012 (2011: expense of $410,584).

|Unaudited quarterly financial information    |  |          |  |  |                   |   |  |                   |  
|-------------------------------------------- |  | -------- |  |  | ----------------- | - |  | ----------------- | -
|(all amounts in
      United States dollars) |  |          |  |  |                   |   |  |                   |  
|Quarter ended                                |  | Total    |  |  | Net Income (Loss) |   |  | Loss Per share    |  
|                                             |  | Revenues |  |  |                   |   |  | Basic and diluted |  
|October 31, 2012                             |  | $-       |  |  | $1,606,176        |   |  | .01               |  
|July 31, 2012                                |  | -        |  |  | (507,079          | ) |  | -                 |  
|April 30, 2012                               |  | -        |  |  | (2,849,835        | ) |  | (0.02             | )
|January 31, 2012                             |  | -        |  |  | (24,327           | ) |  | -                 |  
|                                             |  |          |  |  |                   |   |  |                   |  
|October 31, 2011                             |  | $-       |  |  | $(1,854,751       | ) |  | (0.02             | )
|July 31, 2011                                |  | 585      |  |  | (237,795          | ) |  | -                 |  
|April 30, 2011                               |  | 39       |  |  | (507,225          | ) |  | (0.01             | )
|January 31, 2011                             |  | 339      |  |  | (582,616          | ) |  | (0.01             | )

The net income (loss) has varied significantly between quarters
in 2011 and in 2012, the result of the required re-measurement of derivative
warrant liability at each quarter end and under IFRS reporting.

B.Liquidity and Capital Resources

Liquidity

We are a pre-revenue stage company. We currently have no cash
flow from operations and will have none until we license or directly produce and
sell products utilizing our technology.

We currently have no lines of credit and must obtain equity
financing from investors and from persons who hold outstanding options and
warrants in order to meet our cash flow needs until we can generate revenues. At
October 31, 2012 we have approximately $245,000 cash on hand (2011: $44,000) and
our monthly cash expenses approximate $150,000 (2011: $150,000). Our working
capital deficiency at October 31, 2012 is $731,673 (2011: $1,060,487). Since
October 31, 2012 we have raised an additional $1,052,113 through unit private
placements and bridge loans.

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.

20

---

We have issued common share purchase warrants as part of the
Unit private placement financings that we have completed. None of the warrant
holders have any obligation to exercise their warrants which, in general, expire
12 months after issuance if unexercised. There can be no guarantee that we will
realize any funds from these outstanding warrants.

Capital Resources

We have no commitments for capital expenditures as of October
31, 2012 and made no expenditures on capital equipment during the 2012 fiscal
year.

C. Research and Development

We are a pre-revenue stage company. 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.

Investment tax credits (ITC) arising from research and
development are recognized when their realization is reasonably assured. The
ITCs are applied against the related costs and expenditures in the year that
they are recognized.

Our research and development activities have been related
primarily to research and development of a magnetic random access memory device
and the development of our magnetic sensor through research collaboration
agreements. Our research and development expenses totaled $229,840 in 2012
(2011: recovery of $75,896). We capitalized net development expenditures of
$71,557 in 2012 (2011: $425,085). We report $718,163 of deferred recovery of
development costs at October 31, 2012 (2011: $646,606).

D. Trend Information

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

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

E. Off-Balance Sheet Arrangements

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

F. Tabular Disclosure of Contractual Obligations

A summary of our financial commitments as of October 31, 2012
is as below:

Payments due by periodTotal
    Less than 1 year
    1-3 years
    3-5 years
    More than 5 yearsConvertible debt obligations
    442,934
    442,934
    -
    -
    -Capital Lease obligations
    -
    -
    -
    -
    -Operating lease obligations
    223,000
    47,000
    -
    176,000
    -Purchase obligations
    150,000
    150,000
    -
    -
    -Management agreements  Chairman 
      CFO 
     President 
     President MAST
      INC.
    - - 
    13,3331 
    -
    - - 
    13,333
    -
    - -
    -
    -
    - -
    - -Total:
    829,267
    653,267
    -
    176,000
    -


1 Monthly obligations, no contractual term.

21

---

Our significant accounting policies are set forth in Note 4 to
our consolidated financial statements, which should be read in conjunction with
management's discussion of our critical accounting policies and estimates set
forth below.

Our 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 in the fiscal years ended October 31, 2011 and 2012, and for intangible
assets, warrant modification and modification of the conversion feature of
bridge loans reported in the fiscal year ended October 31, 2011.

We are a pre-revenue stage company. 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. In 2012, the Company has
capitalized $718,163 (2011: $646,606) of development costs and capitalized
$116,113 (2011: $135,465) as intangible assets under IFRS.

In the year ended October 31, 2011, the Company modified the
expiration date of warrants which would have otherwise expired in 2011. Under
U.S. GAAP, this amount has been recorded as an increase in paid in capital and a
corresponding offset to retained earnings. Under IFRS, a charge of $293,020 is
included below net loss in the determination of shareholders equity.

In the year ended October 31, 2011, the Company modified the
conversion feature of two bridge loans. Under IFRS, the first loan was
considered an extinguishment and issuance of new debt but no gain or loss was
recognized as the carrying value of the extinguished debt was not materially
different from the modified debt instrument. The second loan did not meet the
criteria for extinguishment and as such was treated as a renegotiation. Under
U.S. GAAP, the Company evaluated whether the change in conversion feature
represented an embedded derivative that required separation. Under U.S. GAAP, no
beneficial conversion feature exists and under IFRS a $185,564 charge was
recorded to retained earnings with an offsetting charge to contributed surplus
to reflect the value of the more favorable conversion feature.

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.

Investment tax credits (ITC) arising from research and
development are recognized when their realization is reasonably assured. The
ITCs are applied against the related costs and expenditures in the year that
they are incurred.

22

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Summary of
      commitments:
    Date executed:A. Research collaboration agreements 
    (1) Revised
      Licensed Agreement  University of Toronto
    June
      2005B.
      Operating Leases
    June 2012C. Consulting and Employment Contracts(1) Chairman of the Board of Directors (a)
    May 29, 2005(2) President (a)
    May 18, 2007(3) President, MAST INC. (a)
    May 18, 2007(4) CFO(a)
    May 18, 2007D.
      Other Commitments
    None


(a) Month-to-month commitments at October 31, 2012.

A. Research Collaboration Agreements:

1. Revised License Agreement, June 2005. In June 2005, we
signed a revised license agreement with the University of Toronto and the
Ontario Centres of Excellence whereby: Ontario Centres of Excellence released us
and the University of Toronto from the commercialization obligations set forth
in all prior research collaboration agreements, and we acquired exclusive
worldwide rights to the technology and any technology or patent rights under the
agreement related to the MRAM technology developed at the University of Toronto.

We have agreed to royalties and payments as follows:

In consideration for the rights and licenses granted, we agreed
to pay to the University of Toronto: 4% of Net Sales until such time as the
University of Toronto has received from us an aggregate amount of CDN $500,000;
1% of Net Sales thereafter. If we sublicense any rights granted herein to any
non-affiliate: in combination or association, the University of Toronto shall
receive 10% of any Net Fees and/or Net Royalties in respect of any licenses
involving both the rights granted herein and such our intellectual property; for
all other sublicenses of the rights granted herein to a non-affiliate, the
University of Toronto shall receive 20% of any Net Fees and/or Net Royalties in
respect of such sublicenses; and Net Fees and/or Net Royalties shall be paid to
the University of Toronto until such time as it has received an aggregate amount
of CDN $500,000; thereafter we shall pay half of the amounts set forth above as
is applicable.

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

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

B. Operating leases:

We have operating lease commitments which expire in June 2017
for the real property lease of our corporate headquarters.

C. Consulting and employment contracts:

|1. | On May 29, 2005, we entered into an employment agreement
      with the Chairman of the Board of Directors. The agreement commenced on
      January 1, 2005 and expired on September 30, 2009. In 2010, the Company
      extended the agreement to December 31, 2010. Under the terms of the
      agreement, the Chairman of the Board of Directors has been retained to
      provide certain management services to us. This compensation is subject to
      a minimum annual amount of $150,000 (CDN) or (approximately $150,000 U.S.
      funds at the current exchange rates).
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

---

In 2011, the Company extended the
agreement on a month-to-month basis at a compensation rate of $150,000 (CDN) per
year ($U.S. $152,326).

|2. | In May, 2008, we entered into employment agreements
      with:
|-- | ---------------------------------------------------------------

| | (a) | Our President, Joseph Fuda, for a two-year term at an
      annual base compensation of $160,000 (CDN). The agreement was extended on
      a month-to-month basis in May 2010 at the same annual base
  amount.                                                                                                                         
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                          
| | (b) | Our Chief Financial Officer, Dan Amadori, for a two-year
      term at an annual base compensation of $150,000 (CDN). The agreement was
      extended on a month-to-month basis in May 2010 at the same annual base
      amount.                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                          
| | (c) | Steven Van Fleet, the President of our U.S. subsidiary,
      MAST INC. for a three year term at an annual base compensation of $180,000
      per year. The agreement was extended on a month-to-month basis in May 2011
      at the same annual base amount. In 2012, the annual base amount was
      increased to $22,000 per month.

D.Other commitments:

None.

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. | Certain interests under the Asset Purchase Agreement with
      Estancia Limited reverted to Estancia Limited on March 9, 2004. On this
      basis, to the extent that revenues are generated by us relating directly
      and specifically to the VEMRAM patents, we are obligated to pay Estancia
      Limited 32% of the gross profit realized less expenses agreed to by the
      parties and 32% of any unit royalties realized less direct expenses. We
      are no longer pursuing this technology and do not anticipate future
      revenue streams nor any payment obligations under this
  agreement.

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

The Directors and Executive Officers of Micromem as at October
31, 2012 are set forth below:

|Name              | Age | Position                                       
|----------------- | --- | -----------------------------------------------
|                  |     |                                                
|Salvatore Fuda    | 78  | Chairman of the Board of
      Directors       
|Joseph Fuda       | 51  | President, Chief Executive Officer and Director
|Dan Amadori       | 61  | Chief Financial Officer                        
|Steven Van Fleet  | 58  | Director and President of MAST, Inc.           
|Andrew Brandt     | 74  | Director                                       
|David Sharpless   | 62  | Director                                       
|Larry Blue        | 56  | Director                                       
|Oliver Nepomuceno | 43  | Director                                       
|Alex Dey          | 69  | Director                                       

24

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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 currently also serves as a
director of Echo Energy Canada Inc. until June 2009 and of Echo Power
Generational Inc.

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 Accountant and
holds an MBA from the Ivey School of Business.

Steven Van Fleet has served as a technology consultant
to a number of companies. He was the principal of the R&V Group LLC, an RFID
business consulting and technology development company until 1996. Between 1999
- 2003 he served as Program Director for the Silent Commerce/Smart Packaging
Initiative at International Paper Company. From January 1999 to November 1999,
he was Program Director for Process and Product Uniformity and from March 1996
to December 1998 he was the Director for Control Systems Development at
International Paper in Cincinnati, Ohio. He is also presently on the Board of
Overseers for the Massachusetts Institute of Technology Auto ID Center. Mr. Van
Fleet has been a director of Micromem since 2002 and has served as President of
MAST since 2008.

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

David Sharpless is 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 2000, 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.

Larry Blueis currently the President of New Vision
Display, Inc., responsible for Global Sales and Marketing. NVD was recently 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. and was appointed to the Micromem Board of Directors in 2005.
Previously Mr. Blue had senior management roles with Hughes Network Systems and
with IBM in Research Triangle Park.

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.

25

---

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

Business Corporations Act (Ontario).

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

B. Compensation

Annual Compensation
    Long-Term CompensationAwardsName and Principal Position
    Fiscal Year
    Salary (US$)
    Bonus (US$)
    Other Annual Compensation (US$)
    Securities Under Options Granted (#)Joseph Fuda Chief
      Executive Officer
    2011 2012
    160,000
      190,000
    -
    -
    2,000,000150,000 2Salvatore Fuda, Chairman of the Board of
      Directors
    2011 2012
    150,000 150,000
    - -
    - -
    1,000,0001110,000 2Andrew Brandt Director
    2011 2012
    - -
    - -
    - -
    350,0001125,000 2David Sharpless Director
    2011 2012
    - -
    - -
    - -
    450,0001190,000
      2Steven Van Fleet Director
      and President of MAST, Inc.
    2011 2012
    180,000
      261,000
    - -
    - -
    1,000,0001500,000 2Dan Amadori Chief Financial Officer
    2011 2012
    150,000 175,000
    - -
    - -
    1,000,0001190,0002Larry Blue Director
    2011 2012
    - -
    - -
    - -
    500,0001190,0002Oliver Nepomuceno Director
    2011 2012
    - -
    - -
    - -
    350,0001190,000
      2Alex Dey Director
    2011 2012
    - -
    - -
    - -
    225,0003-


Notes:

|1. | Each option entitles the holder to purchase one common
      shares at a price of $0.20 per share prior to expiration in October
      2016.                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Each option entitles the holder to purchase one common
      share at a price of $0.35 per share prior to expiration in April,
    2017.                                                                                              
|3. | We issued 125,000 options at $0.35 per share in April
      2011 and 100,000 options at $0.20 per share in October 2011. Each option
      entitles the holder to purchase one of our common shares prior to
      expiration in 2016.

Directors do not receive cash compensation for serving as
directors. Instead they have been awarded stock options over the years. These
options are typically set at each annual meeting and approved by the
Compensation Committee. None of the directors have agreements that provide for
benefits upon termination of service.

We have adopted a stock option plan. Options are offered to
directors, executive officers and employees to purchase our common shares at an
exercise price equal to or above the market price for the common shares at the
date that the options are granted.

26

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In March 2012, 2,720,000 options were cancelled. In April 2012,
a total of 2,000,000 options were granted to directors, officers and employees
at a exercise price of $.35 per share.

C.Board Practices

Our Board of Directors meets on an as required basis during the
fiscal year. In 2012 our Board of Directors met formally on October 1, 2012.

Our Audit Committee met on a quarterly basis during fiscal 2012
for the purpose of approving the quarterly financial statements and our yearend
financial statements. In addition, our Audit Committee receives regular periodic
reports from management.

All matters pertaining to our financing, contractual
arrangements and management and Director Compensation are approved by the Board
of Directors.

Our Compensation Committee met as required in 2012. 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 2012 to review our
various press release disclosures and to monitor our general practices relating
to our disclosure requirements.

The members of the Board of Directors are appointed to a
one-year term at our Annual General Meeting.

Audit Committee

The Board of Directors has appointed an Audit Committee
consisting of three independent directors. The members of the Audit Committee
are Andrew Brandt, Oliver Nepomuceno and David Sharpless (Chairman), each of
whom 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 2012 the Audit Committee met on January 23,
2012, February 24, 2012 and October 1, 2012.

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 Andrew Brandt, an outside director as Chairman,
Oliver Nepomuceno and Alex Dey, as outside directors.

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
President of our wholly-owned subsidiary MAST INC., and three support staff, all
(except for the President of MAST INC.) of whom work from our executive offices
in Toronto, Canada. All research and development is outsourced to third parties.
We consider our relations with our employees to be satisfactory.

E. Share Ownership

27

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NAME
    SHARES OWNED
    OPTIONS HELD
    OPTION EXERCISE
      PRICE
    EXPIRATION DATE
    % OF TOTAL1Joseph Fuda Chief Executive Officer and
      Director
    191,500
    2,000,000 30,000
    $0.20 $0.35
    10/31/2016 04/10/2017
    1.63% (2,221,500)Salvatore Fuda Chairman of the Board of Directors and
      Director
    6,564,1672
    1,000,000 110,000
    $0.20 $0.35
    10/31/2016 04/10/2017
    5.60% (7,674,167)Andrew Brandt Director
    110,000
    350,000 125,000
    $0.20 $0.35
    10/31/2016 04/10/2017
    0.43% (585,000)David Sharpless Director
    100,000
    450,000 190,000
    $0.20 $0.35
    10/31/2016 04/10/2017
    0.54 % (740,000)Steven Van Fleet Director and President
      of MAST, Inc.
    -
    1,000,000 500,000
    $0.20 $0.35
    10/31/2016 4/15/2012
    1.10 % (1,500,000)Dan Amadori Chief Financial Officer
    612,5173
    1,000,000 190,000
    $0.20 $0.35
    10/31/2016 04/10/2017
    1.32 % (1,802,517)Larry Blue Director
    193,600
    500,000 190,000
    $0.20 $0.35
    10/31/2016 04/10/2017
    0.06% (883,600)Oliver Nepomuceno Director
    953,572
    350,000 190,000
    $0.20 $0.35
    10/31/2016 04/10/2017 08/28/2013
      08/25/2014
    1.10% (1,493,572)Alex Dey Director
    699,8004
    125,000 100,000
    $0.35 $0.20
    04/5/2016 10/31/2016
    0.68% (924,800)


|1 | Calculated based on shares owned plus options held as a
      percentage total of shares outstanding as of October 31, 2012, plus
      options held.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|2 | 6,508,039 shares are held by a corporation wholly owned
      by a trust established for the benefit of members of Salvatore Fuda's
      family.    
|3 | 285,716 shares are held by a corporation controlled by
      Mr. Amadori.                                                                            
|4 | 332,387 shares are held by a corporation wholly owned by
      Mr. Dey.                                                                              

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 66% (76,660,647)
of the issued and outstanding common shares are held by Canadian investors;
approximately 25.5% (29,651,423) of the issued and outstanding shares are held
by U.S. investors; and approximately 8.5% (9,837,648) are held by investors
outside of Canada and the U.S.

28

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B. Other Related Party Transactions

The Company reports the following related party transactions:

(a)Chairman:

On May 29, 2005, the Company entered into a new employment
agreement with the Chairman, Salvatore Fuda, for a period from January 1, 2005
through September 30, 2009. In 2009, the Company extended the agreement to
December 31, 2010. In January 2011, the Board of Directors extended the
Chairmans contract on a month to month basis reflecting annual compensation
amount of $150,000 Canadian funds.

In 2012 the Chairman was awarded a total of 100,000 options at
a strike price of $.35 per share (2011: 1 million options at strike price of
$.20 per share).

The total compensation paid to the Chairman during the year
ended October 31 is summarized as follows:

|     |  |                   |  |  | Stock Compensation | 
|---- |  | ----------------- |  |  | ------------------ | 
|     |  | Cash Compensation |  |  | Expense            | 
|     |  | $                 |  |  | $                  | 
|2012 |  | 149,565           |  |  | 23,697             | 
|2011 |  | 152,326           |  |  | 118,038            | 

In March 2011 the Chairman provided a bridge loan to the
Company of $100,000, which loan plus interest was repaid in July 2011.

In August 2011 the Chairman, converted $112,500 of compensation
received under contract to a unit private placement consisting of one common
share and one common share purchase warrant. A total of 703,125 units were
issued under the private placement.

(b) Management and consulting fees:

Included in professional fees as reported are management and
consulting fees paid or payable to individuals (or companies controlled by such
individuals) who served as officers and directors of the Company. The total
compensation paid to such parties during the fiscal years ending October 31,
2012 and 2011is as follows.

|     |  |                   |  |  | Stock Compensation | 
|---- |  | ----------------- |  |  | ------------------ | 
|     |  | Cash Compensation |  |  | Expense            | 
|     |  | $                 |  |  | $                  | 
|2012 |  | 625,831           |  |  | 352,225            | 
|2011 |  | 647,132           |  |  | 590,191            | 

In 2011 the Company assigned the promissory note receivable to
the CFO of the Company, Dan Amadori, in conjunction with outstanding and unpaid
fees due to that officer. During the year a total of $30,000 (2011- $80,000)
received from the borrower was paid directly to that officer under the
assignment agreement. The balance owing to the officer of the Company at October
31, 2012 was $56,500 (2011:$102,512)

In February 2012 the CFO subscribed for $50,000 as a Unit
private placement consisting of one common share (at a price of $.35 per share)
and one common share purchase warrant (at a price of $.44 per share). A total of
143,000 Units were subscribed for.

29

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ITEM 8. FINANCIAL INFORMATION

A.Consolidated Statements and Other Financial
Information

Our consolidated financial statements for the year ended
October 31, 2012 have been prepared in accordance with IFRS. Previously the
Company prepared consolidated financial statements in accordance with Canadian
GAAP. The Company has restated the comparative financial statements at October
31, 2011 to IFRS. See Item 18  Financial Statements.

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

As of October 31, 2012 and as of February 22, 2013 there were
no legal proceedings.

B. Significant Changes

Since October 31, 2012 the Company has raised an additional $
1,055,113 through Unit private placement financings and through the exercise of
warrants. There has been no other significant change in our financial position
since October 31, 2012.

ITEM 9. THE OFFER AND LISTING

The table below sets forth the high and low sales prices for
common shares in U.S. Dollars as reported for the periods specified. Our fiscal
year ends October 31. Our common shares are traded in Canada on the CNSX under
the symbol MRM.

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

|Period               |  | High  |  |  | Low   | 
|-------------------- |  | ----- |  |  | ----- | 
|                     |  |       |  |  |       | 
|Last six months:     |  |       |  |  |       | 
|February 2013        |  | 0.25  |  |  | 0.19  | 
|January 2013         |  | 0.30  |  |  | 0.18  | 
|December 2012        |  | 0.247 |  |  | 0.14  | 
|November 2012        |  | 0.206 |  |  | 0.144 | 
|October 2012         |  | 0.21  |  |  | 0.14  | 
|September 2012       |  | 0.266 |  |  | 0.14  | 
|Last eight quarters: |  |       |  |  |       | 
|Q1 2013              |  | 0.20  |  |  | 0.14  | 
|Q4 2012              |  | 0.247 |  |  | 0.14  | 
|Q3 2012              |  | 0.332 |  |  | 0.14  | 
|Q2 2012              |  | 0.32  |  |  | 0.13  | 
|Q1 2012              |  | 0.49  |  |  | 0.133 | 
|Q4 2011              |  | 0.24  |  |  | 0.072 | 
|Q3 2011              |  | 0.22  |  |  | 0.111 | 
|Q2 2011              |  | 0.26  |  |  | 0.12  | 
|Last five years:     |  |       |  |  |       | 
|2012                 |  | 0.49  |  |  | 0.10  | 
|2011                 |  | 0.34  |  |  | 0.072 | 
|2010                 |  | 0.65  |  |  | 0.135 | 
|2009                 |  | 1.75  |  |  | 0.135 | 
|2008                 |  | 2.60  |  |  | 0.31  | 

On February 22, 2013, the last reported sale price for our
common shares on the OTC Bulletin Board was $0.20.

30

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Our authorized capital consists of an unlimited number of
common shares, of which 136,430,555 shares were issued and outstanding as of
October 31, 2012, and 2,000,000 special, redeemable, voting preference shares,
referred to herein as special shares, none of which were outstanding, as of
October 31, 2012.

Additionally the Company has 9,915,000 stock options
outstanding with a weighted average exercise price of $.24 (2011: 11,175,000
options outstanding with a weighted average exercise price of $.47) and a total
of 19,692,968 outstanding warrants to acquire common shares with a weighted
average exercise price of $.27 (2011: 26,672,637 outstanding warrants with a
weighted average exercise price of $.23).

B. Memorandum and Articles of Incorporation

Articles of Incorporation

Incorporation Details and Objects of Micromem Technologies
Inc.

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

Summary of Directors Powers and Authorities

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

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

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

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

- borrow money on the credit of Micromem;
- issue, re-issue, sell or pledge debt obligations of Micromem;

31

---

- 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.

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

|1. | On May 29, 2005, we entered into an employment agreement
      with Mr. Salvatore Fuda, the Chairman of the Board of Directors. The
      agreement commenced on January 1, 2005 and ended on September 30, 2009. In
      2009 the agreement was extended for an additional one year through
      December 2010. Under the terms of the agreement, the Chairman of the Board
      of Directors has been retained to provide certain management services. We
      have agreed to provide compensation based on a percentage of the increase
      of the market capitalization on a year-over-year basis commencing as of
      December 31, 2005 subject to a minimum annual compensation amount of $150,000
(CDN)  approximately $143,877 in U.S. dollars at average exchange rates. At our
option, we can pay either cash or issue common shares as compensation providing
that the cumulative maximum number of shares that we can issue under the
agreement is 2 million common shares. In January 2011, the Company extended the
agreement on a month to month basis at a rate of $12,500 Canadian funds per
month (approximately $12,500 in US dollars at current exchange rates) and has
eliminated the incentive based compensation component which was reflected in the
original agreement.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

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|   |                                                                                             
|-- | --------------------------------------------------------------------------------------------
|2. | In May 2008 the Company executed the following employment
      contracts with key officers:

| | 1. | A two-year agreement through May 2010 with its President,
      Mr. Joseph Fuda, stipulating annual base remuneration of $160,000 ($CDN)
      per year. The agreement was extended on a month-to-month basis in May 2010
      stipulating the same annual base remuneration amount.                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                 
| | 2. | A two-year agreement through May 2010 with its CFO, Mr.
      Dan Amadori, stipulating an annual base remuneration at $150,000 (CDN) per
      year. The agreement was extended on a month-to-month basis in May 2010
      stipulating the same annual base remuneration amount.                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                 
| | 3. | A three-year agreement through May 2011 with the
      President of its wholly-owned subsidiary, MAST INC., Mr. Steven Van Fleet,
      who is also a director of the Company, stipulating annual base
      remuneration of $180,000 per year. The agreement was extended on a
      month-to-month basis in May 2011. The base amount was increased to
      $240,000 in 2012.

|3. | In August 2009, Unotron Inc. executed a secured
      promissory note in favor of Micromem. The promissory note is in the
      principal amount of $200,000, bears interest at a rate of 10% payable
      quarterly and is secured by a first lien on the assets of Unotron. The
      promissory note matured on September 30, 2010 The Company negotiated a
      revised payment schedule in 2011. It received $110,000 of payments from
      Unotron during 2011 and $30,000 in 2012. The interest rate on outstanding
      balances was revised to 18% in July 2011. The balance outstanding at
      October 31, 2012 is $101,853, which balance is fully reserved by the
      Company.                                 
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4. | Unotron Inc. and Micromem entered into a manufacturing
      agreement in 2009 that requires Micromem to develop a magnetic sensor
      based keyboard substrate that is to be integrated into Unotrons
      waterproof and washable keyboards. These keyboards can be placed within a
      commercial dishwasher and cleaned to prevent diseases from being
      transmitted on the keyboard. In 2009, Micromem designed, manufactured,
      tested and delivered the initial volume of keyboards to Unotron in Hong
      Kong.                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5. | In 2009 Micromem and LifeMed Technologies Inc. entered a
      manufacturing agreement pursuant to which we received a $30 million
      purchase order. Under the terms of the agreement, Micromem would design
      and manufacture prototypes, submit and obtain FDA 510(K) approval and
      manufacture a medical device that incorporates our magnetic sensor
      technology. The medical device is designed to provide early detection of
      abnormalities in womens breasts. In mid-2011 we served notice to LMTI
      that given their inability or unwillingness to comply with the terms of
      the agreements that were executed with Micromem, we were cancelling our
      working arrangements with LMTI.

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.

33

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

Dividends on common shares and Other Income

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

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

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

Dispositions of Common Shares

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

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

the value of the shares is derived principally from "real
property" in Canada, including the right to explore for or exploit natural
resources and rights to amounts computed by reference to production, the
shareholder was resident in Canada for 120 months during any period of 20
consecutive years preceding, a and at anytime during the 10 years immediately
preceding, the disposition and the shares were owned by them when they ceased to
be resident in Canada, or the shares formed part of the business property of a
"permanent establishment" that the holder has or had in Canada within the 12
months preceding the disposition.

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.)

34

---

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

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

CIRCULAR 230 DISCLOSURE

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

US Holders

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

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,
2012, 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.

35

---

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, 2012.
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.

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.

36

---

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.

I. Subsidiary Information

Not Applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Not Applicable.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

Not Applicable.

PART II

37

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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES

Not Applicable.

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, 2011. Based on management's evaluation in
2012, our Chief Executive Officer and Chief Financial Officer concluded that, as
of October 31, 2012, 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.

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, 2012. 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, 2012, our internal control over financial
reporting were effective.

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, 2012 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.

38

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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, 2012 and 2011, and fees billed for
other services rendered by our auditors including our offerings of securities
and tax services.

|                   |  | Fiscal 2012 |  |  | Fiscal 2011 | 
|------------------ |  | ----------- |  |  | ----------- | 
|                   |  |             |  |  |             | 
|Audit Fees         |  | $90,000     |  |  | $89,000     | 
|Audit Related Fees |  | -           |  |  | -           | 
|Tax Fees           |  | 5,000       |  |  | 5,000       | 
|All Other Fees     |  | 28,000      |  |  | 10,000      | 

Audit Fees

In 2011, we paid a total of $89,000 to Collins Barrow Toronto
LLP for audit services; in 2012 we paid a total of $90,000 to Collins Barrow
Toronto LLP for audit services.

Audit Related Fees

None

Tax Fees

We paid $5,000 of tax-related fees for services in 2012 and
$5,000 of tax-related fees in 2011 to Chiampou Travis Besaw & Kershner LLP.

All other fees

We paid $28,000 in 2012 and $10,001 in 2011 to Collins Barrow
LLP with respect to our quarterly filings and our conversion to IFRS.

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.

39

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Not applicable.

ITEM 16F. Change in Registrants Certifying Accountant.

Not applicable.

ITEM 16G. Corporate Governance

Not applicable

ITEM 16H. Mine Safety Disclosure

Not applicable

ITEM 17. Financial Statements

We have elected to provide financial statements pursuant to
Item 18.

---

ITEM 18. Financial Statements

Consolidated Financial Statements of

MICROMEM TECHNOLOGIES INC.

For the years ended October 31, 2012 and 2011

(Expressed in United States Dollars)

---

|                                                   | Collins Barrow Toronto LLP
|-------------------------------------------------- | --------------------------
|11 King Street West                               
|Suite 700                                         
|Toronto, Ontario                                  
|M5H 4C7 Canada                                    
|                                                  
|                                                   | T. 416.480.0160           
|INDEPENDENT AUDITORS REPORT                       | F. 416.480.2646           
|                                                   |                           
|To the Shareholders of Micromem Technologies Inc.: | www.collinsbarrow.com     

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, 2012,
October 31, 2011 and November 1, 2010 and the consolidated statements of loss
and comprehensive loss, changes in shareholders equity and cash flows for the
years ended October 31, 2012 and October 31, 2011 and 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, but
not for the purpose of expressing an opinion on the effectiveness of the
entitys internal control. 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 financial position of Micromem
Technologies Inc. and its subsidiaries as at October 31, 2012, October 31, 2011
and November 1, 2010, and its financial performance and its cash flows for the
years ended October 31, 2012 and October 31, 2011 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 Techonologies Inc.s ability to
continue as a going concern.

Licensed Public Accountants Chartered Accountants
Toronto, Ontario February 21, 2013

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



1



---

|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. Conversion to International Financial Reporting
      Standards                            | 
|7. Restatement of Consolidated Financial
      Statements to IFRS                             | 
|8. Fair Value Disclosures                                                                     | 
|9. Capital Risk Management                                                                    | 
|10. Promissory Note Receivable                                                                | 
|11. Property and Equipment                                                                    | 
|12. Deferred Development Costs                                                                | 
|13. Intangible Assets and Patents                                                             | 
|14. Share Capital, Stock Options and Loss per Share                                           | 
|15. Private Placements, Derivative Warrant
      Liability and Common Share Purchase Warrants | 
|16. Bridge Loans                                                                              | 
|17. Contributed Surplus                                                                       | 
|18. Income Taxes                                                                              | 
|19. Expenses                                                                                  | 
|20. Management Compensation and Related Party Transactions                                    | 
|21. Commitments                                                                               | 
|22. Contingencies                                                                             | 
|23. Financial Risk Management                                                                 | 
|24. Segmented Information                                                                     | 
|25. Subsequent Events                                                                         | 

2

---

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

|                                                                                |   | October 31, |   |   | October 31, |   |   | November 1, |  
|------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                                |   | 2012        |   |   | 2011        |   |   | 2010        |  
|                                                                                |   |             |   |   | (Note 6     | ) |   | (Note 6     | )
|Assets                                                                          |   |             |   |   |             |   |   |             |  
|Current assets:                                                                 |   |             |   |   |             |   |   |             |  
|Cash                                                                            | $ | 245,029     |   | $ | 44,062      |   | $ | 26,039      |  
|Deposits and other receivables                                                  |   | 46,062      |   |   | 32,334      |   |   | 97,063      |  
|Promissory note
      receivable (Note 10)                                      |   | -           |   |   | -           |   |   | 5,000       |  
|                                                                                |   | 291,091     |   |   | 76,396      |   |   | 128,102     |  
|                                                                                |   |             |   |   |             |   |   |             |  
|Property and equipment, net (Note 11)                                           |   | 5,787       |   |   | 10,201      |   |   | 16,686      |  
|Deferred development costs (Note 12)                                            |   | 718,163     |   |   | 646,606     |   |   | 221,521     |  
|Intangible assets, net (Note 13)                                                |   | 116,113     |   |   | 135,465     |   |   | -           |  
|Patents, net (Note 13)                                                          |   | 49,124      |   |   | 37,678      |   |   | 202,027     |  
|                                                                                | $ | 1,180,278   |   | $ | 906,346     |   | $ | 568,336     |  
|                                                                                |   |             |   |   |             |   |   |             |  
|Liabilities and Shareholders' Equity (Deficiency)                               |   |             |   |   |             |   |   |             |  
|Current liabilities:                                                            |   |             |   |   |             |   |   |             |  
|Bridge loans (Note 16)                                                          | $ | 442,934     |   | $ | 120,042     |   | $ | 512,548     |  
|Accounts payable and
      accrued liabilities                                  |   | 579,830     |   |   | 1,016,841   |   |   | 1,075,014   |  
|Derivative warrant liability (Note 15)                                          |   | 1,061,544   |   |   | 1,178,691   |   |   | 68,207      |  
|                                                                                |   | 2,084,308   |   |   | 2,315,574   |   |   | 1,655,769   |  
|Shareholders' Equity (Deficiency)                                               |   |             |   |   |             |   |   |             |  
|Share capital: (Note
      14)                                                  |   |             |   |   |             |   |   |             |  
|Authorized:                                                                     |   |             |   |   |             |   |   |             |  
|2,000,000 special preference shares,
      redeemable, voting                   |   |             |   |   |             |   |   |             |  
|Unlimited common shares without par value                                       |   |             |   |   |             |   |   |             |  
|Issued
      and outstanding:                                                   |   |             |   |   |             |   |   |             |  
|136,430,555 common shares (2011: 116,149,718, 2010:
      95,324,511) (Note 14) |   | 54,728,239  |   |   | 51,774,555  |   |   | 50,102,699  |  
|Equity component of
      bridge loans (Note 16)                                |   | 1,557       |   |   | -           |   |   | 5,784       |  
|Contributed surplus (Note 17)                                                   |   | 26,634,177  |   |   | 25,986,276  |   |   | 24,498,736  |  
|Deficit                                                                         |   | (82,268,003 | ) |   | (79,170,059 | ) |   | (75,694,652 | )
|                                                                                |   | (904,030    | ) |   | (1,409,228  | ) |   | (1,087,433  | )
|                                                                                | $ | 1,180,278   |   | $ | 906,346     |   | $ | 568,336     |  

Going Concern (Note 2)Related Party Transactions (Note 20)
Commitments (Note 21) Contingencies (Note 22) Subsequent Events
(Note 25)

"Joseph Fuda"
(Signed)Joseph Fuda, Director

"David Sharpless"
(Signed)David Sharpless, Director

See accompanying notes.

3

---

|MICROMEM TECHNOLOGIES INC.                                  
|------------------------------------------------------------
|STATEMENTS OF CONSOLIDATED LOSS AND COMPREHENSIVE
      LOSS
|(Expressed in United States dollars)                        
|                                                            
|For the years ended October 31, 2012 and 2011               

|                                                                                  |   | 2012        |   |   | 2011        |  
|--------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                  |   |             |   |   | (Note 6     | )
|Costs and expenses (income):                                                      |   |             |   |   |             |  
|Administration (Note 19)                                                          | $ | 694,617     |   | $ | 462,827     |  
|Professional, other fees and
      salaries (Notes 19 and 20)                     |   | 1,507,891   |   |   | 1,064,655   |  
|Stock based compensation (Note 14)                                                |   | 430,856     |   |   | 928,497     |  
|Research and development
      (recovery)                                         |   | 229,840     |   |   | (75,896     | )
|Forgiveness of debt                                                               |   | (42,004     | ) |   | -           |  
|Travel and entertainment                                                          |   | 150,924     |   |   | 91,885      |  
|Amortization of property and equipment (Note
      11)                            |   | 4,414       |   |   | 6,469       |  
|Amortization of intangible
      assets and patents (Note 13)                     |   | 19,352      |   |   | 43,333      |  
|Foreign exchange loss                                                             |   | 7,537       |   |   | 43,215      |  
|Write-down of patents (Note
      13)                                             |   | -           |   |   | 129,033     |  
|Recovery of promissory note receivable (Note
      10)                            |   | (30,000     | ) |   | (110,000    | )
|Interest and other income                                                         |   | -           |   |   | (963        | )
|Loss from operations                                                              |   | 2,973,427   |   |   | 2,583,055   |  
|                                                                                  |   |             |   |   |             |  
|Other Expenses                                                                    |   |             |   |   |             |  
|Adjustment for modification of
      conversion feature of bridge loans (Note 16) |   | -           |   |   | 185,564     |  
|(Gain) loss on revaluation of embedded derivatives
      (Note 16)                |   | (176,899    | ) |   | 1,979       |  
|Warrants issued on debt settlement
      (Note 16)                                |   | 306,061     |   |   | -           |  
|(Gain) loss on revaluation of derivative warrant
      liability (Note 15)        |   | (1,327,524  | ) |   | 410,584     |  
|                                                                                  |   |             |   |   |             |  
|Net loss before income taxes                                                      |   | (1,775,065  | ) |   | (3,181,182  | )
|                                                                                  |   |             |   |   |             |  
|Income taxes (Note 18)                                                            |   | -           |   |   | 1,205       |  
|                                                                                  |   |             |   |   |             |  
|Net loss and comprehensive loss                                                   | $ | (1,775,065  | ) | $ | (3,182,387  | )
|                                                                                  |   |             |   |   | -           |  
|Loss per share - basic and diluted (Note 14)                                      | $ | (0.01       | ) | $ | (0.03       | )
|                                                                                  |   |             |   |   |             |  
|Weighted average number of shares                                                 |   | 123,375,510 |   |   | 102,301,168 |  

See accompanying notes.

4

---

|MICROMEM TECHNOLOGIES INC.                   
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS        
|(Expressed in United States dollars)         
|                                             
|For the years ended October 31, 2012 and 2011

|                                                                                             |   | 2012       |   |   | 2011       |  
|-------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                             |   |            |   |   | (Note 6    | )
|Cash flows from operating
      activities:                                                  |   |            |   |   |            |  
|Net loss                                                                                     | $ | (1,775,065 | ) | $ | (3,182,387 | )
|Adjustments to
      reconcile loss for the period to net cash used in operating activities: |   |            |   |   |            |  
|Amortization of intangible assets and patents                                                |   | 19,352     |   |   | 43,333     |  
|Amortization of property and equipment                                                       |   | 4,414      |   |   | 6,469      |  
|Research and development                                                                     |   | 206,780    |   |   | -          |  
|Accretion expense                                                                            |   | 187,671    |   |   | 12,447     |  
|Stock based compensation                                                                     |   | 430,856    |   |   | 928,497    |  
|Forgiveness of debt                                                                          |   | (42,004    | ) |   | -          |  
|(Decrease) increase in deposits and other receivables                                        |   | (13,728    | ) |   | 69,729     |  
|Decrease in accounts payable and accrued liabilities                                         |   | (393,896   | ) |   | (58,756    | )
|(Gain) loss on revaluation of derivative warrant liability                                   |   | (1,327,524 | ) |   | 410,584    |  
|Adjustment for modification of conversion feature of
      bridge loans                      |   | -          |   |   | 185,564    |  
|(Gain) loss on revaluation of embedded derivatives                                           |   | (176,899   | ) |   | 1,979      |  
|Warrants issued on settlement of debt                                                        |   | 306,061    |   |   | -          |  
|Write-down of patents                                                                        |   | -          |   |   | 129,033    |  
|Net cash used in operating
      activities                                                  |   | (2,573,982 | ) |   | (1,453,508 | )
|                                                                                             |   |            |   |   |            |  
|Cash flows from investing
      activities:                                                  |   |            |   |   |            |  
|Patents                                                                                      |   | (26,650    | ) |   | (8,017     | )
|Deferred
      development costs                                                             |   | (263,133   | ) |   | (425,085   | )
|Intangible assets                                                                            |   | -          |   |   | (135,465   | )
|Net cash used in investing
      activities                                                  |   | (289,783   | ) |   | (568,567   | )
|                                                                                             |   |            |   |   |            |  
|Cash flows from financing
      activities:                                                  |   |            |   |   |            |  
|Issuance of common shares                                                                    |   | 2,524,155  |   |   | 2,446,432  |  
|Bridge loan
      advances                                                                   |   | 714,359    |   |   | 496,813    |  
|Bridge loan repayments                                                                       |   | (173,782   | ) |   | (903,147   | )
|Net cash provided by financing
      activities                                              |   | 3,064,732  |   |   | 2,040,098  |  
|                                                                                             |   |            |   |   |            |  
|Increase in cash                                                                             |   | 200,967    |   |   | 18,023     |  
|                                                                                             |   |            |   |   |            |  
|Cash, beginning of year                                                                      |   | 44,062     |   |   | 26,039     |  
|                                                                                             |   |            |   |   |            |  
|Cash, end of year                                                                            | $ | 245,029    |   | $ | 44,062     |  
|                                                                                             |   |            |   |   |            |  
|Supplemental cash flow information:                                                          |   |            |   |   |            |  
|Interest paid (classified in
      operating activities)                                     |   | 75,142     |   |   | 211,264    |  
|Income taxes
      paid                                                                      |   | -          |   |   | 10,713     |  

See accompanying notes.

5

---

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

Number of
    
    
    Share
    
    
    **Contributed**
    
    
    Equity
    
    
    Deficit
    
    
    Totalshares
    
    
    **capital**
    
    
    **surplus**
    
    
    component ofBridge loan**(Note 14)**
    
    
    **(Note 17)**
    
    
    **(Note 16)**Balance as at November 01, 2010 (Note
      6)
    
    95,324,511
    
    $
    50,102,699
    
    $
    24,498,736
    
    $
    5,784
      $
    
    
    (75,694,652
    )
    $
    (1,087,433
    )Private placement of units for cash
    
    20,825,207
    
    
    2,478,681
    
    
    -
    
    
    -
    
    
    -
    
    
    2,478,681Financing costs
    
    -
    
    
    (32,247
    )
    
    -
    
    
    -
    
    
    -
    
    
    (32,247
    )Stock based compensation
    
    -
    
    
    -
    
    
    928,497
    
    
    -
    
    
    -
    
    
    928,497Warrants issued on private placements
    
    -
    
    
    (774,578
    )
    
    254,311
    
    
    -
    
    
    -
    
    
    (520,267
    )Warrants extended
    
    -
    
    
    -
    
    
    113,384
    
    
    -
    
    
    (293,020
    )
    
    (179,636
    )Modification of bridge loans
    
    -
    
    
    -
    
    
    185,564
    
    
    -
    
    
    -
    
    
    185,564Equity portion of bridge loans
    
    -
    
    
    -
    
    
    5,784
    
    
    (5,784
    )
    
    -
    
    
    -Net loss and comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,182,387
    )
    
    (3,182,387
    )Balance at October 31, 2011 (Note 6)
    
    116,149,718
    
    
    51,774,555
    
    
    25,986,276
    
    
    -
    
    
    (79,170,059
    )
    
    (1,409,228
    )Private placement of units for cash
    
    6,344,899
    
    
    1,040,899
    
    
    -
    
    
    -
    
    
    -
    
    
    1,040,899Financing costs
    
    -
    
    
    (16,457
    )
    
    -
    
    
    -
    
    
    -
    
    
    (16,457
    )Stock based compensation
    
    -
    
    
    -
    
    
    430,856
    
    
    -
    
    
    -
    
    
    430,856Warrants issued on private placements
    
    -
    
    
    (356,364
    )
    
    66,997
    
    
    -
    
    
    -
    
    
    (289,367
    )Warrants extended
    
    -
    
    
    -
    
    
    358,983
    
    
    -
    
    
    (1,322,879
    )
    
    (963,896
    )Warrants exercised
    
    12,075,858
    
    
    1,499,713
    
    
    -
    
    
    -
    
    
    -
    
    
    1,499,713Fair value of warrants exercised
    
    -
    
    
    558,993
    
    
    (208,935
    )
    
    -
    
    
    -
    
    
    350,058Equity portion of bridge loans
    
    -
    
    
    -
    
    
    -
    
    
    1,557
    
    
    -
    
    
    1,557Shares issued on conversion of bridge loans
    
    1,860,080
    
    
    226,900
    
    
    -
    
    
    -
    
    
    -
    
    
    226,900Net loss and comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,775,065
    )
    
    (1,775,065
    )Balance at October 31, 2012
    
    136,430,555
    
    $
    54,728,239
    
    $
    26,634,177
    
    $
    1,557 $
    
    
    (82,268,003
    )
    $
    (904,030
    )


6

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|1. | REPORTING ENTITY AND NATURE OF BUSINESS                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                           
|   | Micromem Technologies Inc. (Micromem or the Company)
      is a corporation 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 currently operates as a developer of magnetic
      sensor technology and applications of this technology. The Company has not
      generated revenue through October 31, 2012 and is devoting substantially
      all of its efforts to the development of its technologies.
|   |                                                                                                                                                                                                                                                                                           
|   | 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 further development of the
      Companys technologies in conjunction with various strategic development
      partners.        
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                     
| | (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
February 21, 2013.

7

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|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 adverse
      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, 2012, the Company reported a net
      loss and comprehensive loss of $1,775,065 (2011: $3,182,387) a working
      capital deficiency (current assets less current liabilities excluding
      derivative warrant liability) (Note 15) of $731,673 (2011: $1,060,487)
      (2010: $1,459,460) and negative cash flow from operations of $2,573,982
      (2011: $1,453,508).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company continues to focus its development efforts on
      existing projects in order to develop commercial applications for these
      projects. It will be necessary for the Company to raise additional funds
      for the continued development, testing and commercial exploitation of its
      technologies. To date, the Company has raised financing through successive
      unit private placements, through the exercise of common share stock
      options and through the exercise of common share purchase warrants. It has
      also secured periodic bridge loans.                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The consolidated financial statements do not include any
      adjustments to the amounts and classifications of the assets and
      liabilities that might be necessary should the Company be unable to
      continue in business. If the going concern assumption were not
      appropriate for these consolidated financial statements then adjustments
      would be necessary to the carrying value of assets and liabilities, the
      reported expenses and the balance sheet classifications used. Such
      adjustments may be material.                                                                                     

8

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | a) | Statement of compliance:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Effective January 1, 2011, all Canadian publicly
      accountable enterprises are required to prepare their financial statements
      using IFRS issued by the International Accounting Standards Board (IASB)
      and as adopted by the Accounting Standards Board of Canada
  (AcSB).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | These consolidated financial statements have been
      prepared in accordance with IFRS and its interpretations adopted by IASB.
      These are the Companys first annual consolidated financial statements
      prepared in accordance with IFRS and IFRS 1, First-time Adoption of
      International Financial Reporting Standards(IFRS
  1).                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | IFRS 1 requires that an entitys accounting policies used
      in its opening statement of financial position and throughout all periods
      presented in its first IFRS financial statements comply with IFRS
      effective at the end of its first IFRS reporting period. Accordingly the
      IFRS issued and effective as at October 31, 2012 have been applied in
      preparing the consolidated financial statements as at and for the year
      ended October 31, 2012, the comparative information presented as at and
      for the year ended October 31, 2011 and in the preparation of the opening
      IFRS statement of financial position as at November 1, 2010. The impact of
      the transition to IFRS for the comparative information is presented in
      notes 6 and 7.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The consolidated financial statements of the Company were
      prepared in accordance with Canadian generally accepted accounting
      principles (Canadian GAAP) until October 31, 2011. Canadian GAAP differs
      in some areas from IFRS standards. In preparing October 31, 2012,
      consolidated financial statements, management has amended certain
      accounting, recognition and measurement methods and disclosures applied in
      the previous Canadian GAAP financial statements to comply with IFRS
      standards.                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

9

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | 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.                                                                                                                            
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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 makes estimates related to the useful lives
      of property and equipment, patents and intangible assets and the related
      amortization. The Company also periodically assesses the recoverability of
      long-lived assets. The recoverability analysis requires the Company to
      make assumptions about future operations. Changes to one or more
      assumptions would result in a change in the recoverable amount calculated
      and/or amortization expensed.

10

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

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

| | iv)  | The Company maintains an allowance for doubtful accounts
      for estimated losses that may occur if parties are unable to pay balances
      owing to the Company. This allowance is determined based on a review of
      specific parties historical experience and economic
  circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 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, 2012, 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. In addition, the valuation of
      investment tax credits receivable requires management to make judgments on
      the amount and timing of recovery.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | vi)  | The Company applies judgment in assessing whether
      material uncertainties exist that would cause significant 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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

| | a) | Basis of consolidation:                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Subsidiaries are legal entities controlled by the
      Company. Control exists when the Company has the power, directly or
      indirectly to govern the financial and operating policies of an entity so
      as to obtain benefits from its activities. The financial statements of the
      subsidiaries are included in the consolidated financial statements from
      the date that control commences until the date control
  ceases.

11

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | a) | Basis of consolidation: (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries. All significant
      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.

12

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|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 has the following financial assets: cash,
      deposits and other receivables and promissory note receivable.                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | All financial assets and financial liabilities, including
      derivatives, are initially measured in the statement of financial position
      at fair value, except for loans and receivables, investments held-to
      maturity and other financial liabilities, which are measured at amortized
      cost. Measurement in subsequent periods depends on whether the financial
      instrument had been classified as FVTPL, available-for-sale,
      held-to-maturity, loans and receivables, or other liabilities.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | FVTPL financial assets are measured at fair value and all
      gains and losses are included in the statement of loss and comprehensive
      loss in the period in which they arise. Available- for-sale financial
      assets are measured at fair value with revaluation gains and losses
      included in other comprehensive income until the assets are removed from
      the statement of financial position.                                                                                                    

13

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | c) | Financial Instruments: Recognition, Measurement,
      Disclosure and Presentation: (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company classifies cash as FVTPL. Deposits and other
      receivables and promissory note receivable 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

14

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | 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 a common share 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 income statement.

| |    | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                               
| | f) | Derivative Liability                                                                                                                                                                                                                                          

The Companys derivative financial
instruments consist of derivative liabilities in relation to its share purchase
warrants and the conversion feature on its bridge loans.

15

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

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

| | i)  | Derivative Warrant Liability:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Company issues share purchase warrants in conjunction
      with private placements for the purchase of common shares of the Company.
      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 re-measured 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 to
      share capital (CDN warrants).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | (i)  | 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.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                     
| | (ii) | 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.                                      

16

---

|MICROMEM TECHNOLOGIES INC.                   
|---------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
|(Expressed in United States dollars)         
|                                             
|For the years ended October 31, 2012 and 2011

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

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

| | (iii) | 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) | Loan Impairment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Impaired loans are accounted for at their face amount net
      of the allowance for loan impairment. When a loan is deemed to be
      impaired, its carrying amount is reduced to its estimated realizable
      amount which is measured by discounting the expected future cash flows at
      the effective interest rate inherent in the loan. The amount initially
      recognized as an impairment loan, together with any subsequent change, is
      charged to the allowance as an adjustment. A write-off of the loan will
      occur when the loan is believed to have no reasonable expectation of
      collectability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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

17

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | 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 are
      reviewed for impairment when events or changes in circumstances indicate
      that the carrying amounts may not be recoverable. The carrying amount of
      patents, intangible assets and deferred development costs are tested for
      impairment annually. When the carrying amount exceeds the estimated
      recoverable amount, the assets are written down to their recoverable
      amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The recoverable amount of long-lived assets is the
      greater of fair value less costs to sell 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

18

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|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. Commencing in 2009, the
      Company determined that its continuing activities related to the
      application of its sensor technology met the deferral criteria and,
      accordingly, these costs have been capitalized and are tested in each
      reporting period for recoverability. Development costs will be amortized
      on an appropriate basis at the time the Company enters commercial
      production.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | Investment tax credits (ITCs) arising from research and
      development are recognized when their realization is reasonably assured.
      The ITCs are applied against the related deferred costs and expenditures
      in the year that they are 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

19

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|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. For non- employees, stock based payments are
      measured at the fair value of the services received or the fair value of
      the equity instruments issued or liabilities incurred, whichever is more
      reliably measurable. 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 as 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

20

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | o) | Income Taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | 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 is 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 assumes 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.                                                                                                                             

21

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|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
      International Financial Reporting Interpretations Committee (IFRIC) that
      are mandatory for future accounting periods. The standards impacted that
      are applicable to the Company are as follows:

| | a) | IFRS 9  Financial Instruments, was issued in November
      2009 and contained requirements for financial assets. This standard
      addresses classification and measurement of financial assets and replaces
      the multiple category and measurement models in IAS 39, Financial
      Instruments  Recognition and Measurement, for debt instruments with a new
      mixed measurement model having only two
categories:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- Amortized cost and
- Fair value through profit and loss

IFRS 9 also replaces the models for
measuring equity instruments, and such instruments are either recognized at fair
value through earnings or at fair value through other comprehensive income.
Where such equity instruments are measured at fair value through other
comprehensive income, dividends, to the extent not clearly representing a return
of investment, are recognized in earnings; however, other gains and losses
(including impairments) associated with such instruments remain in accumulated
other comprehensive income indefinitely.

Requirements for financial liabilities
were added in October 2010 and largely carried forward existing requirements in
IAS 39, Financial Instruments  Recognition and Measurement, except that fair
value changes due to credit risk for liabilities designated at fair value
through profit or loss would generally be recorded in other comprehensive
income.

This standard is required to be
applied for accounting periods beginning on or after January 1, 2015, with
earlier adoption permitted.

22

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | b) | IFRS 10  Consolidated Financial Statements, requires an
      entity to consolidate an investee when it is exposed, or has rights, to
      variable returns from its involvement with the investee and has the
      ability to affect those returns through its power over the investee. Under
      existing IFRS, consolidation is required when an entity has the power to
      govern the financial and operating policies of an entity so as to obtain
      live entertainment from its activities. IFRS 10 replaces SIC-12,
      Consolidation  Special Purpose Entities and parts of IAS 27, Consolidated
      and Separate Financial Statements.                            
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | This standard is required to be applied for accounting
      periods beginning on or after January 1, 2013, with earlier adoption
      permitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | c) | IFRS 11  Joint Arrangements, requires a venturer to
      classify its interest in a joint arrangement as a joint venture or joint
      operation. Joint ventures will be accounted for using the equity method of
      accounting whereas for a joint operation the venturer will recognize its
      share of the assets, liabilities, revenue and expenses of the joint
      operation. Under existing IFRS, entities have the choice to
      proportionately consolidate or equity account for interests in joint
      ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures and SIC-
      13, Jointly Controlled EntitiesNonmonetary Contributions by
    Venturers.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | This standard is effective for annual periods beginning
      on or after January 1, 2013 with early adoption permitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | d) | IFRS 12  Disclosure of Interests in Other Entities, such
      as joint arrangements, associates, special purpose vehicles and off
      balance sheet vehicles. The standard carries forward existing disclosures
      and also introduces significant additional disclosure requirements that
      address the nature of, and risks associated with, an entitys interests in
      other entities.                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | This standard is required to be applied for accounting
      periods beginning on or after January 1, 2013, with early adoption
      permitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

23

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

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

| | e) | IFRS 13  Fair Value Measurement, is a comprehensive
      standard for fair value measurement and disclosure requirements for use
      across all IFRS standards. The new standard clarifies that fair value is
      the price that would be received to sell an asset, or paid to transfer a
      liability in an orderly transaction between market participants, at the
      measurement date. It also establishes disclosures about fair value
      measurement. Under existing IFRS, guidance on measuring and disclosing
      fair value is dispersed among the specific standards requiring fair value
      measurements and in many cases does not reflect a clear measurement basis
      or consistent disclosures.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | This standard is required to be applied for accounting
      periods beginning on or after January 1, 2013, with earlier adoption
      permitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | f) | In addition, there have been amendments to existing
      standards including IAS 27, Separate Financial Statements, and IAS 28,
      Investments in Associates and Joint Ventures. IAS 27 addresses accounting
      for subsidiaries, jointly controlled entities and associates in non -
      consolidated financial statements. IAS 28 has been amended to include
      joint ventures in its scope and to address the changes in IFRS 10 to IFRS
      12.                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | This standard is required to be applied for accounting
      periods beginning on or after January 1, 2013, with earlier adoption
      permitted provided that IFRS 10, IFRS 11 and IFRS 12 are adopted at the
      same time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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

24

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|6. | CONVERSION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In February 2008, the AcSB confirmed that the use of IFRS
      will be required in 2011 for publicly accountable enterprises in Canada.
      In April, 2008, the AcSB issued an IFRS Omnibus Exposure Draft proposing
      that publicly accountable enterprises be required to apply IFRS, in full
      and without modification, on January 1, 2011. The adoption date of January
      1, 2011 requires the restatement, for comparative purposes, of amounts
      reported by the Company for its year ended October 31, 2011, and of the
      opening statement of financial position as at November 1, 2010.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The accounting policies disclosed in Note 4 have been
      applied in preparing the financial statements for the year ended October
      31, 2012, the comparative information presented in these financial
      statements as at October 31, 2011 and for the year then ended, and in the
      preparation of the opening IFRS statement of financial position at
      November 1, 2010.                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Elections on adoption:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | IFRS 1 allows first time adopters to IFRS to take
      advantage of a number of voluntary exemptions from the general principal
      of retrospective restatement. The Company has taken the following
      exemptions:                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | IFRS 2  Share-based payments (IFRS
2):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company elected not to apply IFRS 2 to equity
      instruments granted after November 7, 2002 which vested before the
      transition date. Accordingly, the Company has applied IFRS 2 only to
      unvested stock options outstanding as at November 1, 2010. All stock
      options outstanding as at November 1, 2010 were fully vested and no
      adjustment is required.                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | IAS 21  The effects of changes in foreign exchange
      rates (IAS 21):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company elected to deem the cumulative currency
      translation difference for all foreign operations to be zero at November
      1, 2010. As a result, no other comprehensive income is presented at
      November 1, 2010.                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | IFRS 3  Business Combinations (IFRS
  3):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company has elected to apply the exemption for
      retrospective application of IFRS 3 to business combinations that took
      place before the transition date. Accordingly, all business combinations
      after November 1, 2010 will be accounted in accordance with IFRS
  3.                                                                                                                                                                                                                                                                                                                              

25

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|6. | CONVERSION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Companys consolidated financial statements were
      previously prepared in accordance with Canadian GAAP. Under IFRS,
      hindsight is not used to create or revise estimates. The estimates
      previously made by the Company under Canadian GAAP were not revised for
      application of IFRS except where necessary to reflect any difference in
      accounting policies.                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Reconciliations from Canadian GAAP to
  IFRS:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In preparing its opening IFRS statement of financial
      position, statement of loss and comprehensive loss, statement of cash
      flows and statement of changes in shareholders equity, the Company has
      determined that adjustments were necessary to amounts reported previously
      in consolidated financial statements prepared in accordance with Canadian
      GAAP. Therefore, reconciliations of the consolidated financial statements
      prepared under Canadian GAAP to IFRS have been presented in Note 7. The
      first-time adoption of IFRS did not have a material impact on the
      Companys total operating, investing or financing cash flows.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In preparing the opening IFRS statement of financial
      position, the Company has adjusted amounts reported previously in
      financial statements prepared in accordance with Canadian GAAP. These
      adjustments relate to:                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| | a) | The accounting and measurement of the derivative warrant
      liability with respect to common share purchase warrants (Note 15) issued
      in conjunction with unit private placement financings which the Company
      has secured and which are not exercisable in the relevant entitys
      functional currency.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                           
| | b) | The accounting and measurement of the conversion feature
      of the bridge loans (Note 16) which the Company has secured which are not
      convertible in the relevant entitys functional
currency.                                                                                                                  

The illustration of how the transition
from Canadian GAAP to IFRS has affected the Companys financial position and
financial performance is set out in Note 7 below.

26

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|7. | RESTATEMENT OF FINANCIAL STATEMENTS TO IFRS
      Reconciliation of Consolidated Statements of Financial
  Position:
|-- | --------------------------------------------------------------------------------------------------------------------

| |                                                             |       | October 31,
      2011 |   |   | November 1,
      2010 |  
| | ----------------------------------------------------------- | ----- | ---------------------- | - | - | ---------------------- | -
| |                                                             |       |                        |   |   |                        |  
| |                                                             |       | Canadian               |   |   |                        |  
| |                                                             |       | GAAP                   |   |   | Adj                    |  
| | Assets                                                      |       |                        |   |   |                        |  
| | Current assets:                                             |       |                        |   |   |                        |  
| | Cash                                                        | $     | 44,062                 |   | $ | -                      |  
| | Deposits and other receivables                              |       | 32,334                 |   |   | -                      |  
| | Promissory note receivable                                  |       | -                      |   |   | -                      |  
| |                                                             |       | 76,396                 |   |   | -                      |  
| |                                                             |       |                        |   |   |                        |  
| | Property and equipment, net                                 |       | 10,201                 |   |   | -                      |  
| | Deferred development costs                                  |       | 646,606                |   |   | -                      |  
| | Intangible assets, net                                      |       | 135,465                |   |   | -                      |  
| | Patents, net                                                |       | 37,678                 |   |   | -                      |  
| |                                                             | **$** | **906,346**            |   | $ | -                      |  
| |                                                             |       |                        |   |   |                        |  
| | Liabilities and Shareholders' **Equity
      (Deficiency)** |       |                        |   |   |                        |  
| | Current liabilities:                                        |       |                        |   |   |                        |  
| | Bridge loans                                                | $     | 106,783                |   |   | 13,259                 |  
| | Accounts payable and
      accrued liabilities              |       | 1,016,841              |   |   | -                      |  
| | Derivative warrant liability                                |       | -                      |   |   | 1,178,691              |  
| |                                                             |       | 1,123,624              |   |   | 1,191,950              |  
| | Shareholders' Equity (Deficiency)                           |       |                        |   |   |                        |  
| | Share capital                                               |       | 51,774,555             |   |   | -                      |  
| | Equity component of bridge loans                            |       | 558                    |   |   | (558                   | )
| | Contributed surplus                                         |       | 26,851,850             |   |   | (865,574               | )
| | Deficit                                                     |       | (78,844,241            | ) |   | (325,818               | )
| |                                                             |       | (217,278               | ) |   | (1,191,950             | )
| |                                                             |       |                        |   |   |                        |  
| |                                                             | **$** | **906,346**            |   | $ | -                      |  

Summary of IFRS transition
adjustments:

| | Reconciliation of Bridge loans:             |   |                  | 
| | ------------------------------------------- | - | ---------------- | 
| |                                             |   | October 31, 2011 | 
| | Bridge loans under Canadian GAAP            | $ | 106,783          | 
| | Accretion expense                           |   | 11,280           | 
| | Loss on revaluation of embedded derivatives |   | 1,979            | 
| | Bridge loans under IFRS                     | $ | 120,042          | 

27

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|7. | RESTATEMENT OF FINANCIAL STATEMENTS TO IFRS
      (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Reconciliation of Bridge loans: (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Bridge loan 3 allowed the holder the option to convert
      the outstanding principal and interest into common equity in CDN. As a
      result bridge loan 3 has an embedded derivative. The principal amount of
      this loan previously reported was split between the principal and embedded
      derivative portions (Note 16). Due to the split, accretion expense on the
      principal portion increased by $11,280. The embedded derivative portion
      was revalued at October 31, 2011 resulting in a loss on revaluation of
      embedded derivative in the amount of $1,979. The equity portion of $558
      previously recognized for this loan and the fair value of CDN warrants
      recorded on this loan on the amount of $6 were reallocated to
      administration expense as their amount was nominal.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Reconciliation of derivative warrant
    liability:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                                               |   | October 31, 2011 |   |   | November 1, 2010 |  
| | ------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
| | Derivative warrant liability under Canadian
      GAAP        | $ | -                |   | $ | -                |  
| | Remove CDN warrant fair value from contributed surplus        |   | 865,568          |   |   | 165,668          |  
| | Gain on revaluation of CDN warrants at
      November 1, 2010 |   | (97,461          | ) |   | (97,461          | )
| | Loss on revaluation of CDN warrants at October 31, 2011       |   | 410,584          |   |   | -                |  
| | Derivative warrant liability under IFRS                       | $ | 1,178,691        |   | $ | 68,207           |  

Under IFRS, warrants with an exercise
price not in the functional currency of the Company are presented as a
derivative warrant liability and remeasured at each period end. At November 1,
2011, the Company reallocated the fair value of the CDN warrants of amount of
$165,668 from contributed surplus to derivative warrants liability. The Company
then revalued these CDN warrants at November 1, 2010 resulting in a gain on
revaluation of $97,461. At October 31, 2011, the Company reallocated the fair
value of the CDN warrants of $699,900 from contributed surplus to derivative
warrant liability. The Company then revalued these CDN warrants at October 31,
2011 resulting in a loss on revaluation of $410,584.

Reconciliation of equity component
of bridge loans:

| |                                                            |   | October 31, 2011 |   |   | November 1, 2010 | 
| | ---------------------------------------------------------- | - | ---------------- | - | - | ---------------- | 
| | Equity component of bridge loans under
      Canadian GAAP | $ | 558              |   | $ | 5,784            | 
| | Remove value previously recognized                         |   | (558             | ) |   | -                | 
| | Equity component of bridge loans under IFRS                | $ | -                |   | $ | 5,784            | 

28

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|7. | RESTATEMENT OF FINANCIAL STATEMENTS TO IFRS (Contd)
      Reconciliation of contributed surplus:
|-- | -------------------------------------------------------------------------------------------------

| |                                                                     |   | October 31, 2011 |   |   | November 1, 2010 |  
| | ------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
| | Contributed surplus under Canadian GAAP                             | $ | 26,851,850       |   | $ | 24,664,404       |  
| | Remove CDN warrant fair value to derivative warrant
      liability |   | (865,568         | ) |   | (165,668         | )
| | Remove nominal value previously assigned to
      CDN warrants      |   | (6               | ) |   | -                |  
| | Contributed surplus under IFRS                                      | $ | 25,986,276       |   | $ | 24,498,736       |  

Reconciliation of deficit:

| |                                                               |   | October 31, 2011 |   |   | November 1, 2010 |  
| | ------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
| | Deficit under Canadian GAAP                                   | $ | (78,844,241      | ) | $ | (75,792,113      | )
| | Gain on revaluation of CDN warrants at November 1, 2010       |   | 97,461           |   |   | 97,461           |  
| | Loss on revaluation of CDN warrants at
      October 31, 2011 |   | (410,584         | ) |   |                  |  
| | Accretion expense                                             |   | (11,280          | ) |   |                  |  
| | Remove value previously recognized                            |   | 558              |   |   | -                |  
| | Remove nominal value previously assigned to warrants          |   | 6                |   |   | -                |  
| | Loss on revaluation of embedded derivative                    |   | (1,979           | ) |   |                  |  
| | Deficit under IFRS                                            | $ | (79,170,059      | ) | $ | (75,694,652      | )

Reconciliation of Loss and
Comprehensive Loss:

| |                                                                         |   | Canadian    |   |   |                  |   |   | IFRS Transition |  |   |             |  
| | ----------------------------------------------------------------------- | - | ----------- | - | - | ---------------- | - | - | --------------- |  | - | ----------- | -
| |                                                                         |   | CGAAP       |   |   | Reclassification |   |   | **adjustments** |  |   | IFRS        |  
| |                                                                         |   |             |   |   |                  |   |   |                 |  |   |             |  
| | Costs and expenses (income):                                            |   |             |   |   |                  |   |   |                 |  |   |             |  
| | Administration                                                          | $ | 452,111     |   | $ | -                |   | $ | 10,716          |  | $ | 462,827     |  
| | Professional, other fees and salaries                                   |   | 1,993,152   |   |   | (928,497         | ) |   | -               |  |   | 1,064,655   |  
| | Stock based compensation                                                |   | -           |   |   | 928,497          |   |   | -               |  |   | 928,497     |  
| | Research and development                                                |   | (75,896     | ) |   | -                |   |   | -               |  |   | (75,896     | )
| | Travel and entertainment                                                |   | 91,885      |   |   | -                |   |   | -               |  |   | 91,885      |  
| | Amortization of property and equipment                                  |   | 6,469       |   |   | -                |   |   | -               |  |   | 6,469       |  
| | Amortization of intangible assets and patents                           |   | 43,333      |   |   | -                |   |   | -               |  |   | 43,333      |  
| | Foreign exchange loss                                                   |   | 43,215      |   |   | -                |   |   | -               |  |   | 43,215      |  
| | Write-down of patents                                                   |   | 129,033     |   |   | -                |   |   | -               |  |   | 129,033     |  
| | Recovery of promissory note receivable                                  |   | (110,000    | ) |   | -                |   |   | -               |  |   | (110,000    | )
| | Interest and other income                                               |   | (963        | ) |   | -                |   |   | -               |  |   | (963        | )
| | Loss from operations                                                    |   | 2,572,339   |   |   | -                |   |   | 10,716          |  |   | 2,583,055   |  
| |                                                                         |   |             |   |   |                  |   |   |                 |  |   |             |  
| | Adjustment for modification of conversion
      feature of bridge loans |   | -           |   |   | -                |   |   | 185,564         |  |   | 185,564     |  
| | Loss on revaluation of embedded derivatives                             |   | -           |   |   | -                |   |   | 1,979           |  |   | 1,979       |  
| | Loss on revaluation of derivative warrant
      liability               |   | -           |   |   | -                |   |   | 410,584         |  |   | 410,584     |  
| | Net loss before income taxes                                            |   | 2,572,339   |   |   |                  |   |   | 608,843         |  |   | 3,181,182   |  
| |                                                                         |   |             |   |   |                  |   |   |                 |  |   |             |  
| | Income taxes                                                            |   | 1,205       |   |   | -                |   |   | -               |  |   | 1,205       |  
| | Net loss and comprehensive loss                                         | $ | 2,573,544   |   | $ | -                |   | $ | 608,843         |  | $ | 3,182,387   |  
| |                                                                         |   |             |   |   |                  |   |   |                 |  |   |             |  
| | Loss per common share                                                   | $ | 0.03        |   |   |                  |   |   |                 |  | $ | 0.03        |  
| |                                                                         |   |             |   |   |                  |   |   |                 |  |   |             |  
| | Weighted average number of shares                                       |   | 102,301,168 |   |   |                  |   |   |                 |  |   | 102,301,168 |  

29

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|7. | RESTATEMENT OF FINANCIAL STATEMENTS TO IFRS
      (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Reconciliation of Loss and Comprehensive Loss:(Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company reclassified stock based compensation from
      professional, other fees and salaries to a separate line item to classify
      this line item by function as required under IFRS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The adjustment for the modification of conversion feature
      of bridge loans was recorded to deficit under Canadian GAAP guidance.
      Under IFRS guidance, this amount is recorded to loss and comprehensive
      loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|8. | 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, promissory note
      receivable, 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 measured at fair
      value on the statement of financial position date consist of cash,
      derivative warrant liability and the conversion feature on bridge loans.
      Cash is measured at Level 1 of the fair value hierarchy. Derivative
      warrant liability and the conversion feature on bridge loans are measured
      at Level 2 of the fair value hierarchy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

30

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|9.  | 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, 2012.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10. | PROMISSORY NOTE RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | In April 2009, the Company advanced $200,000 to a private
      company incorporated in New Jersey and a strategic development partner of
      the Company. The Company and the private Company executed a promissory
      note with respect to the $200,000 advance stipulating the following terms
      and conditions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| | a) | Maturity date of September 30, 2010.                                                                                                                                                  
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                       
| | b) | Interest payable on a quarterly basis in arrears
      calculated from August 1, 2009 at a rate of 10%. In July 2011, the
      interest rate on the promissory note increased to 18%.
| |    |                                                                                                                                                                                       
| | c) | Secured by a first priority security interest over all of
      the assets of the private company.                                                                                    

At October 31, 2010, the Company
recorded a provision to reserve the outstanding principal and interest
outstanding of $201,333 pending resolution of collection efforts.

In 2011 the Company received payments
totaling $110,000 against the amounts previously reserved. In 2012 the Company
received payments totaling $30,000 against the amounts previously reserved.

31

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|10. | PROMISSORY NOTE RECEIVABLE (Contd)                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | At October 31, 2012 the balance outstanding was $101,853
      and this amount has been fully reserved. The Company served notice to the
      private company that it was demanding payments under the terms of the
      promissory note and the security agreement and has received judgment in
      its favor during the year ended October 31, 2012. The Company continues to
      pursue collection of this fully reserved note.

| |                                                |   |          |   |   | Net of     |  
| | ---------------------------------------------- | - | -------- | - | - | ---------- | -
| |                                                |   |          |   |   | provision/ |  
| |                                                |   | Gross    |   |   | reserve    |  
| | Balance outstanding at November 01,
      2010 | $ | 206,333  |   | $ | 5,000      |  
| |                                                |   |          |   |   |            |  
| | Interest accrued                               |   | 20,220   |   |   | 20,220     |  
| | Reserved                                       |   | -        |   |   | (20,220    | )
| |                                                |   |          |   |   |            |  
| | Repayment                                      |   | (115,000 | ) |   | (115,000   | )
| | Recovery of reserved amount                    |   | -        |   |   | 110,000    |  
| | Balance outstanding at October 31, 2011        |   | 111,553  |   |   | -          |  
| |                                                |   |          |   |   |            |  
| | Interest accrued                               |   | 20,300   |   |   | 20,300     |  
| | Reserved                                       |   | -        |   |   | (20,300    | )
| |                                                |   |          |   |   |            |  
| | Recovery of reserved amount                    |   | (30,000  | ) |   | -          |  
| | Balance
      outstanding at October 31, 2012  | $ | 101,853  |   | $ | -          |  

The outstanding balance of principal
and interest at October 31, 2012 is $101,853 which is fully reserved.

32

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|11. | PROPERTY AND EQUIPMENT
|--- | ----------------------

| |                                   |   | Computers |  |   | Office    |  |   | Total  | 
| | --------------------------------- | - | --------- |  | - | --------- |  | - | ------ | 
| |                                   |   |           |  |   | Equipment |  |   |        | 
| | Cost                              |   |           |  |   |           |  |   |        | 
| |                                   |   |           |  |   |           |  |   |        | 
| | At November 1, 2010               | $ | 40,734    |  | $ | 25,989    |  | $ | 66,723 | 
| | Additions                         |   | -         |  |   | -         |  |   | -      | 
| | Year ended October 31, 2011       | $ | 40,734    |  | $ | 25,989    |  | $ | 66,723 | 
| |                                   |   |           |  |   |           |  |   |        | 
| | At November 1, 2011               | $ | 40,734    |  |   | 25,989    |  | $ | 66,723 | 
| | Additions                         |   | -         |  |   | -         |  |   | -      | 
| |                                   |   |           |  |   |           |  |   |        | 
| | Year ended
      October 31, 2012 | $ | 40,734    |  | $ | 25,989    |  | $ | 66,723 | 

| | Accumulated amortization           |   | Computers |  |   | Office    |  |   | Total  | 
| | ---------------------------------- | - | --------- |  | - | --------- |  | - | ------ | 
| |                                    |   |           |  |   | Equipment |  |   |        | 
| |                                    |   |           |  |   |           |  |   |        | 
| |                                    |   |           |  |   |           |  |   |        | 
| | At November 1, 2010                | $ | 24,048    |  | $ | 25,989    |  | $ | 50,037 | 
| | Amortization for the year          |   | 6,469     |  |   | -         |  |   | 6,469  | 
| | Impact of foreign exchange         |   | 16        |  |   | -         |  |   | 16     | 
| | Year ended
      October 31, 2011  | $ | 30,533    |  | $ | 25,989    |  | $ | 56,522 | 
| |                                    |   |           |  |   |           |  |   |        | 
| | At November 1, 2011                | $ | 30,533    |  |   | 25,989    |  | $ | 56,522 | 
| | Amortization for the year          |   | 4,414     |  |   | -         |  |   | 4,414  | 
| | Year ended
      October 31, 2012  | $ | 34,947    |  | $ | 25,989    |  | $ | 60,936 | 
| |                                    |   |           |  |   |           |  |   |        | 
| | Net book value at November 1, 2010 | $ | 16,686    |  | $ | -         |  | $ | 16,686 | 
| | Net book value at October 31, 2011 | $ | 10,201    |  | $ | -         |  | $ | 10,201 | 
| | Net book value at October 31, 2012 | $ | 5,787     |  | $ | -         |  | $ | 5,787  | 

33

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|12. | DEFERRED DEVELOPMENT COSTS                                                        
|--- | ----------------------------------------------------------------------------------
|    |                                                                                   
|    | The breakdown of development costs that have been
      capitalized is as follows:

| | At November 1, 2010               | $ | 221,521 | 
| | --------------------------------- | - | ------- | 
| | Additions                         |   | 425,085 | 
| | Year ended October 31, 2011       | $ | 646,606 | 
| | At November 1, 2011               | $ | 646,606 | 
| | Additions                         |   | 71,557  | 
| | Year ended
      October 31, 2012 | $ | 718,163 | 

|    | Netted in additions are $Nil (2011 - $129,600) of amounts
      received from strategic development partners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Included in additions is patent amortization of $15,204
      (2011 - $Nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|13. | 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 future.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| | At November 1, 2010               | $ | -       | 
| | --------------------------------- | - | ------- | 
| | Additions                         |   | 135,465 | 
| | Year ended October 31, 2011       | $ | 135,465 | 
| | At November 1, 2011               | $ | 135,465 | 
| | Additions                         |   | -       | 
| | Year ended
      October 31, 2012 | $ | 135,465 | 

34

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|13. | INTANGIBLE ASSETS AND PATENTS (contd)
      Intangible Assets
      Accumulated
amortization
|--- | ---------------------------------------------------------------------------------------------

| | At November 1, 2010                      | $ | -       | 
| | ---------------------------------------- | - | ------- | 
| | Amortization for
      the year          |   | -       | 
| | Year ended October 31, 2012              | $ | -       | 
| |                                          |   |         | 
| | At November 1, 2011                      | $ | -       | 
| | Amortization for
      the year          |   | 19,352  | 
| | Year ended October 31, 2012              | $ | 19,352  | 
| |                                          |   |         | 
| | Net book value at November 1, 2010       | $ | -       | 
| | Net book value at October 31, 2011       | $ | 135,465 | 
| | Net book value at October 31,
      2012 | $ | 116,113 | 

Patents

Cost

| | At November 1, 2010               | $ | 230,294  |  
| | --------------------------------- | - | -------- | -
| | Additions                         |   | 8,017    |  
| | Write-down                        |   | (175,614 | )
| | Year ended
      October 31, 2011 | $ | 62,697   |  
| |                                   |   |          |  
| | At November 1, 2011               | $ | 62,697   |  
| | Additions                         |   | 26,650   |  
| | Year ended
      October 31, 2012 | $ | 89,347   |  

35

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|13. | INTANGIBLE ASSETS AND PATENTS (Contd)Accumulated Amortization
|--- | --------------------------------------------------------------

| | At November 1, 2010                | $ | 28,267  |  
| | ---------------------------------- | - | ------- | -
| | Amortization for the year          |   | 43,333  |  
| | Write-down                         |   | (46,581 | )
| | Year ended
      October 31, 2011  | $ | 25,019  |  
| |                                    |   |         |  
| | At November 1, 2011                | $ | 25,019  |  
| | Amortization for the year          |   | 15,204  |  
| | Year ended
      October 31, 2012  | $ | 40,223  |  
| |                                    |   |         |  
| | Net book value at November 1, 2010 | $ | 202,027 |  
| | Net book value at October 31, 2011 | $ | 37,678  |  
| | Net book value at October 31, 2012 | $ | 49,124  |  

|    | In the fiscal year ended October 31, 2011, the Company
      wrote-down the value of its patents by $129,033 relating to technology the
      Company has no immediate plans to develop.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                         
|    | Amortization for the year ended October 31, 2012 was
      capitalized to deferred development costs.                                                                                   
|    |                                                                                                                                                                                         
|14. | 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.                                  

36

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|14. | SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
      (Contd)
|--- | --------------------------------------------------------------

| | a) | Share Capital(Contd)
| | -- | ---------------------

| |                                                      |  | Number of   |  |   |            |  
| | ---------------------------------------------------- |  | ----------- |  | - | ---------- | -
| |                                                      |  | Shares      |  |   | Amount     |  
| | Balance at November 1, 2010                          |  | 95,324,511  |  | $ | 50,102,699 |  
| |                                                      |  |             |  |   |            |  
| | Private plaement of units for cash (Note
      15)   |  | 20,825,207  |  |   | 2,478,681  |  
| | Warrants issued on private placements (Note 15)      |  | -           |  |   | (774,578   | )
| | Financing costs                                      |  | -           |  |   | (32,247    | )
| | Balance at October 31, 2011                          |  | 116,149,718 |  |   | 51,774,555 |  
| |                                                      |  |             |  |   |            |  
| | Priate placement of units for cash (Note 15)         |  | 6,344,899   |  |   | 1,040,899  |  
| | Warrants exercised                                   |  | 12,075,858  |  |   | 1,499,713  |  
| | Warrants issued on private placements (Note 15)      |  | -           |  |   | (356,364   | )
| | Fair value of warrants exercised                     |  | -           |  |   | 558,993    |  
| | Share issued on conversion of bridge loans (Note 16) |  | 1,860,080   |  |   | 226,900    |  
| | Financing costs                                      |  | -           |  |   | (16,457    | )
| | Balance at
      October 31, 2012                    |  | 136,430,555 |  | $ | 54,728,239 |  

| | 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 15,600,000 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.

37

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|14. | SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
      (Contd)
|--- | --------------------------------------------------------------

| | b) | Stock Options(Contd)                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                    
| |    | A summary of the status of the Companys fixed stock
      option plan through October 31, 2012 and changes during the periods is as
      follows:

| |                                     |  | Options   |   |  | Weighted average |  
| | ----------------------------------- |  | --------- | - |  | ---------------- | -
| |                                     |  | **(000)** |   |  | exercise price   |  
| | Outstanding, November 1, 2010       |  | 10,022    |   |  | 0.89             |  
| | Granted                             |  | 7,975     |   |  | 0.22             |  
| | Expired                             |  | (6,822    | ) |  | (0.80            | )
| | Outstanding, October 31, 2011       |  | 11,175    |   |  | 0.47             |  
| | Granted                             |  | 2,000     |   |  | 0.35             |  
| | Expired                             |  | (540      | ) |  | (0.44            | )
| | Forfeited                           |  | (2,720    | ) |  | (1.20            | )
| | Outstanding,
      October 31, 2012 |  | 9,915     |   |  | (0.24            | )

During the year ended October 31, 2012
the Company issued a total of 2,000,000 (2011  7,975,000) stock options to
officers, directors and employees. The Company has the following stock options
outstanding at October 31, 2012:

| | Date of issue                   |  | # Issued  |  |  | **Strick Price** |  |  | Expiry Date       | 
| | ------------------------------- |  | --------- |  |  | ---------------- |  |  | ----------------- | 
| |                                 |  |           |  |  |                  |  |  |                   | 
| | Monday, December 20,
      2010 |  | 315,000   |  |  | 0.55             |  |  | December 20, 2012 | 
| | Tuesday, April 05, 2011         |  | 125,000   |  |  | 0.35             |  |  | April 5, 2016     | 
| | Monday, October 31,
      2011  |  | 7,475,000 |  |  | 0.20             |  |  | October 31, 2016  | 
| | Tuesday, April 10, 2012         |  | 2,000,000 |  |  | 0.35             |  |  | April 10, 2017    | 
| |                                 |  | 9,915,000 |  |  |                  |  |  |                   | 

The Company recorded a total expense
of $430,856 (2011: $928,497) with respect to the issuance of these options,
calculated in accordance with the Black Scholes option-pricing model.

38

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|14. | SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE
      (Contd)
|--- | --------------------------------------------------------------

| | **b)** | Stock Options(Contd)                                                                      
| | ------ | -------------------------------------------------------------------------------------------
| |        |                                                                                            
| |        | The underlying assumptions in the Black Scholes option-pricing model
      were as follows:

| |                                                    |   | 2012    |  |   | 2011          | 
| | -------------------------------------------------- | - | ------- |  | - | ------------- | 
| | Share price                                        | $ | 0.30    |  | $ | 0.17 - 0.20   | 
| | Volatility factor (based on historical volatility) |   | 99%     |  |   | 90% - 95%     | 
| | Risk free interest rate                            |   | 1.31%   |  |   | 1.62% - 2.55% | 
| | Expected life                                      |   | 5 years |  |   | 2 - 5 years   | 
| | Dividend yield                                     |   | 0%      |  |   | 0%            | 
| | Forfeiture rate                                    |   | 0%      |  |   | 0%            | 

The following table summarizes
information about stock options outstanding as at October 31, 2012.

Options outstanding
    
    
    Options exercisableWeightedaverageremaining
    
    
    Weighted
    
    
    
    
    
    WeightedActual
    
    
    
    
    contractual
    
    
    average
    
    
    
    
    
    averageexercise
    
    Number
    
    
    Life
    
    
    exercise
    
    
    Number
    
    
    exerciseprice
    
    Outstanding
    
    
    (in years)
    
    
    price
    
    
    exercisable
    
    
    price0.55
    
    315,000
    
    
    0.1
    
    
    0.55
    
    
    315,000
    
    
    0.550.35
    
    125,000
    
    
    3.4
    
    
    0.35
    
    
    125,000
    
    
    0.350.20
    
    7,475,000
    
    
    4.0
    
    
    0.20
    
    
    7,475,000
    
    
    0.200.35
    
    2,000,000
    
    
    4.4
    
    
    0.35
    
    
    2,000,000
    
    
    0.35Total
    
    9,915,000
    
    
    
    
    
    0.24
    
    
    9,915,000
    
    
    0.24


39

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|14. | 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, 2012 was based on the loss attributable to
      common shareholders of $1,775,065 (2011 - $3,182,387) divided by the
      weighted average number of common shares outstanding of 123,375,510 (2011
       102,301,168).
| |    |                                                                                                                                                                                                                                                                                                                     
| |    | Diluted loss per share did not include the effect of
      9,915,000 stock options and 19,692,968 warrants outstanding and the
      potential conversion of bridge loans as they are
  anti-dilutive.                                                                                                              

|15. | PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
      COMMON SHARE PURCHASE WARRANTS
|--- | -----------------------------------------------------------------------------------------

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

| | i)  | In 2012 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 $1,040,899 and issued a total of 6,344,899
      common shares. 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                        
| |     | 6,344,899 common share purchase warrants with an average
      price of $0.17 were attached to the private placement completed during
      2012. All warrants issued in 2012 have a 12 month term from issue
    date.                                                                                
| |     |                                                                                                                                                                                                                                                                                                        
| | ii) | In 2011 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 $2,478,681 and issued a total of
      20,825,207 common shares.
| |     |                                                                                                                                                                                                                                                                                                        
| |     | 20,825,207 common share purchase warrants with an average
      price of $0.14 were attached to the private placement completed during
      2011. All warrants issued in 2011 had a 12 month term from issue
    date.                                                                                

40

---

|MICROMEM TECHNOLOGIES INC.                   
|---------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
|(Expressed in United States dollars)         
|                                             
|For the years ended October 31, 2012 and 2011

|15. | PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
      COMMON SHARE PURCHASE WARRANTS (Contd)
|--- | --------------------------------------------------------------------------------------------------

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

| | iii) | In 2012 the Company extended the expiry dates on a total
      of 15,267,087 common share purchase warrants which would have otherwise
      expired in 2012. These warrants were extended for a period of 6 to12
      months in each case. The Company changed the strike price of 429,686
      warrants extended from $1.20 to $0.80 and 1,666,667 warrants from $0.15 to
      $0.19. The strike price remained unchanged for all other warrants extended
      ranging from $0.12 to $0.80 per warrant.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | iv)  | In 2011 the Company extended the expiry date on a total
      of 7,928,432 common share purchase warrants which would have otherwise
      expired in 2011. These warrants were extended for a period of 6 to 12
      months in each case. The strike price remained unchanged in each case,
      ranging from $0.20 to $1.20 per warrant.                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | v)   | The Company calculated the relative fair value of the
      share purchase warrants in accordance with the Black Scholes
      option-pricing model. The Company reported a total charge to share capital
      of $356,364 (2011 - $774,578) and an offsetting charge to contributed
      surplus of $66,997 (2011 - $254,311) for US dollar share purchase warrants
      issued and $289,367 (2011 - $520,267) to derivative warrants 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:                                                                                                                                                                                                                                                                                                                                              

| |                                                    | 2012                | 2011               
| | -------------------------------------------------- | ------------------- | -------------------
| | Share price                                        | $0.10 -
      $0.35 | $0.12 -
      $0.32
| | Volatility factor (based on historical volatility) | 107 - 156%          | 98 - 121%          
| | Risk free interest rate                            | 0.91 -
      1.24%  | 1.18 -
      1.38% 
| | Dividend yield                                     | 0%                  | 0%                 
| | Expected life                                      | 1 year              | 1 year             

41

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|15. | PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
      COMMON SHARE PURCHASE WARRANTS (Contd)
|--- | --------------------------------------------------------------------------------------------------

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

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
$1,322,879 (2011 - $293,020) and an offsetting charge to contributed surplus of
$358,983 (2011 - $113,384) for US dollar warrants extended and $963,896 (2011 -
$179,636) to derivative warrant liability for Canadian warrants extended.

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

| |                                                    | 2012                | 2011               
| | -------------------------------------------------- | ------------------- | -------------------
| | Share price                                        | $0.12 -
      $0.30 | $0.12 -
      $0.24
| | Volatility factor (based on historical volatility) | 109 - 144%          | 112 - 131%         
| | Risk free interest rate                            | 0.91 -
      1.14%  | 1.11 -
      1.54% 
| | Dividend yield                                     | 0%                  | 0%                 
| | Expected life                                      | 0.33 - 1.0 year     | 0.50 - 1.27 years  

| | b) | Derivative Warrant Liability                                              
| | -- | --------------------------------------------------------------------------
| |    |                                                                           
| |    | The following summarizes the change in derivative warrant
      liability:

| |                                                                               |   | October 31, |   |   | October 31, |  |   | November 1, |  
| | ----------------------------------------------------------------------------- | - | ----------- | - | - | ----------- |  | - | ----------- | -
| |                                                                               |   | 2012        |   |   | 2011        |  |   | 2010        |  
| |                                                                               |   |             |   |   | (Note 6)    |  |   | (Note 6)    |  
| |                                                                               |   |             |   |   |             |  |   |             |  
| | Balance, beginning of year                                                    | $ | 1,178,691   |   | $ | 68,207      |  | $ | 165,668     |  
| | Fair value assigned in warrants in units issuances (Note
      15)            |   | 289,367     |   |   | 520,265     |  |   | -           |  
| | Fair value assigned in warrants extended
      (Note 15)                      |   | 963,896     |   |   | 179,635     |  |   | -           |  
| | Fair value assigned to warrants issued on settlements of
      debt (Note 16) |   | 306,061     |   |   | -           |  |   | -           |  
| | Fair value transferred to share capital for
      warrants exercised          |   | (348,947    | ) |   | -           |  |   | -           |  
| | (Gain) Loss on
      revaluation of warrants                                  |   | (1,327,524  | ) |   | 410,584     |  |   | (97,461     | )
| | Balance, end of year                                                          | $ | 1,061,544   |   | $ | 1,178,691   |  | $ | 68,207      |  

42

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|15. | 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 year end
      using the Black Scholes option- pricing model with the following
      assumptions:

| |                                                    | 2012                | 2011               
| | -------------------------------------------------- | ------------------- | -------------------
| | Share price                                        | $ 0.21              | 0.19               
| | Volatility factor (based on historical volatility) | 81 - 153%           | 114 - 148%         
| | Risk free interest rate                            | 1.01 -
      1.03 % | 0.86 -
      1.36 %
| | Dividend yield                                     | 0%                  | 0%                 
| | Expected life                                      | 0.25 - 1 year       | 0.75 - 1 year      

| | c) | Share Purchase Warrants                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                              
| |    | A summary of the outstanding common share purchase
      warrants as of the Companys fiscal year-ends and the changes during the
      period is as follows:

| |                                                                                         |  |             |   |   | Weighted |   |  |           | 
| | --------------------------------------------------------------------------------------- |  | ----------- | - | - | -------- | - |  | --------- | 
| |                                                                                         |  |             |   |   | average  |   |  |           | 
| |                                                                                         |  |             |   |   | exercise |   |  | Proceeds  | 
| |                                                                                         |  | Warrants    |   |   | price    |   |  | Realized  | 
| |                                                                                         |  |             |   |   |          |   |  |           | 
| | Balance outstanding at October 31,
      2010                                           |  | 6,198,885   |   | $ | 0.51     |   |  | -         | 
| | Expired                                                                                 |  | (406,455    | ) | $ | (0.54    | ) |  | -         | 
| | Granted                                                                                 |  | 20,880,207  |   | $ | 0.14     |   |  | -         | 
| |                                                                                         |  |             |   |   |          |   |  |           | 
| | Balance outstanding at October 31,
      2011                                           |  | 26,672,637  |   | $ | 0.23     |   |  | -         | 
| | Exercised                                                                               |  | (12,075,858 | ) | $ | (0.12    | ) |  | 1,499,713 | 
| | Expired                                                                                 |  | (3,108,792  | ) | $ | (0.15    | ) |  | -         | 
| | Granted                                                                                 |  | 8,204,981   |   | $ | 0.19     |   |  | -         | 
| |                                                                                         |  |             |   |   |          |   |  |           | 
| | Balance at
      October 31, 2012                                                       |  | 19,692,968  |   | $ | 0.27     |   |  |           | 
| | The weighted average share price
      on the date of exercise was $0.23 (2011 - $Nil). | 

43

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|15. | PRIVATE PLACEMENTS, DERIVATIVE WARRANT LIABILITY AND
      COMMON SHARE PURCHASE WARRANTS (Contd)
|--- | --------------------------------------------------------------------------------------------------

| | c) | Share Purchase Warrants(Contd)
| | -- | -------------------------------

Strick
    
    
    RemainingDate of
    Number of
    price
    
    Expiry
    lifeissue
    warrants
    $
    Currency
    Date
    (in years)November 4, 2011
    1,135,022
    0.15
    CDN
    November 4, 2012
    0.01December 23, 2011
    100,000
    0.12
    
    December 23, 2012
    0.14January 4, 2011
    250,000
    0.20
    CDN
    January 4, 2013
    0.18January 11, 2011
    750,000
    0.22
    CDN
    January 11, 2013
    0.20July 12, 2010
    312,500
    0.40
    CDN
    January 12, 2013
    0.20July 22, 2010
    312,500
    0.45
    
    January 12, 2013
    0.20January 15, 2010
    25,000
    0.55
    
    January 15, 2013
    0.21January 23, 2012
    770,000
    0.12
    CDN
    January 23, 2013
    0.23January 26, 2010
    300,000
    0.55
    
    January 26, 2013
    0.24January 31, 2010
    325,000
    0.22
    CDN
    January 31, 2013
    0.25February 1, 2010
    111,111
    0.56
    
    February 1, 2013
    0.25February 3, 2012
    76,667
    0.15
    
    February 3, 2013
    0.26February 8, 2012
    88,236
    0.20
    CDN
    February 8, 2013
    0.27February 10, 2012
    142,858
    0.44
    CDN
    February 10, 2013
    0.28February 12, 2010
    133,333
    0.56
    
    February 12, 2013
    0.28February 15, 2012
    666,667
    0.18
    CDN
    February 15, 2013
    0.29February 27, 2012
    208,333
    0.30
    CDN
    February 27, 2013
    0.33May 11, 2012
    562,499
    0.30
    
    February 27, 2013
    0.33May 11, 2012
    208,333
    0.30
    
    May 11, 2013
    0.53March 13, 2012
    291,666
    0.30
    CDN
    March 13, 2013
    0.36March 23, 2012
    58,333
    0.30
    CDN
    March 23, 2013
    0.39April 18, 2012
    83,333
    0.30
    CDN
    April 18, 2013
    0.46April 27, 2011
    95,000
    0.15
    
    April 27, 2013
    0.49July 13, 2012
    500,000
    0.25
    CDN
    July 13, 2013
    0.70July 12, 2010
    1,120,000
    0.12
    CDN
    July 12, 2013
    0.69August 6, 2012
    186,667
    0.15
    CDN
    August 6, 2013
    0.76August 8, 2012
    553,413
    0.20
    CDN
    August 8, 2013
    0.77August 30, 2010
    200,000
    0.30
    CDN
    August 30, 2013
    0.83September 12, 2012
    728,572
    0.17
    CDN
    September 12, 2013
    0.86August 16, 2011
    1,666,667
    0.19
    CDN
    September 16, 2013
    0.87October 15, 2010
    1,325,000
    0.24
    
    October 15, 2013
    0.95October 21, 2011
    1,388,890
    0.11
    
    October 21, 2013
    0.97October 25, 2012
    282,047
    0.18
    CDN
    October 25, 2013
    0.98October 29, 2012
    442,333
    0.18
    CDN
    October 29, 2013
    0.99November 5, 2010
    500,000
    0.22
    CDN
    November 5, 2013
    1.01November 11, 2009
    123,276
    0.75
    
    November 11, 2013
    1.03May 14, 2009
    429,686
    0.80
    
    November 14, 2013
    1.04May 25, 2010
    765,188
    0.41
    
    November 25, 2013
    1.07November 30, 2010
    400,000
    0.22
    CDN
    November 30, 2013
    1.08December 14, 2009
    600,000
    0.80
    CDN
    December 14, 2013
    1.12May 15, 2010
    339,838
    0.45
    
    December 15, 2013
    1.12December 16, 2009
    815,000
    0.59
    CDN
    December 16, 2013
    1.12December 17, 2010
    20,000
    0.20
    CDN
    December 17, 2013
    1.13December
      20, 2010
    300,000
    0.22
    CDN
    December 20, 2013
    1.1319,692,968
    0.27


44

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|16. | BRIDGE LOANS
|--- | ------------

| | (a) | On March 31, 2010 the Company secured a 180 day
      convertible bridge loan (Loan 1) from an arms length investor in the
      amount of $250,000 CDN. The interest rate on the loan was established at
      4% per month (effective interest rate  48%). The principal and interest
      of the loan was convertible at $0.55 USD per share at the holders option.
      The Company provided 12,500 common share purchase warrants to acquire
      common shares at a strike price of $0.50 USD per share. As a result, net
      proceeds of $220 were allocated to warrants. The loan was originally due
      in October 2010. At October 31, 2010, the note remained outstanding and
      interest was accrued at the stated rate of 4% per month compounded
      monthly. On December 17, 2010, the Company renegotiated the loan,
      extending the terms to June 17, 2011 and bearing interest at 2% per month
      compounded monthly. An additional 20,000 common share purchase warrants
      were issued in conjunction with the renegotiation. No value was assigned
      to these warrants as their value was nominal. The conversion feature for
      this loan was reduced from $0.55 USD to $0.20 USD. As a result of the
      change in conversion, a value of $158,567 was recorded to deficit with an
      offsetting charge to contributed surplus to reflect the value of the more
      favourable conversion feature.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | On July 17, 2011 the Company renegotiated the loan,
      extending the terms to October 17, 2011 and bearing interest at 2% per
      month compounded monthly. An additional 20,000 common share purchase
      warrants were issued in conjunction with the renegotiation. No value was
      assigned to these warrants as their value was nominal. The conversion
      feature of this loan remained unchanged at $0.20 USD. This loan was repaid
      in October 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | On August 30, 2010 the Company secured a 180 day
      convertible bridge loan (Loan 2) from an arms length investor in the
      amount of $200,000 CDN. The interest rate on the loan was established at
      2% per month (effective interest rate  26%). The principal and interest
      of the loan was convertible at $0.40 USD per share at the holders option.
      The Company provided 7,500 common share purchase warrants to acquire
      common shares at a strike price of $0.40 USD per share. Net proceeds of
      $14 were allocated to these warrants. This loan was repaid in February
      2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

45

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|16. | BRIDGE LOANS (Contd)
|--- | ---------------------

| | (c) | On March 4, 2011 the Company secured a 180 day
      convertible bridge loan (Loan 3) from an arms length investor in the
      amount of $100,000 CDN. The interest rate on the loan was established at
      2% per month (effective interest rate  17%). The principal and interest
      of the loan was convertible at $0.20 CDN per share at the holders option.
      The Company provided 5,000 common share purchase warrants to acquire
      common shares at a strike price of $0.20 CDN per share. No value was
      assigned to these warrants as their value was nominal. The loan was
      originally due September 4, 2011. The loan was renegotiated and extended
      for an additional 90 days. The conversion price was revised to $0.15 CDN
      per share at the holders option. As a result of the change in conversion,
      a value of $26,997 was recorded to deficit with an offsetting charge to
      contributed surplus to reflect the value of the more favorable conversion
      feature. All other terms remained the same. This loan was repaid in the
      quarter ended January 31, 2012.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (d) | On February 25, 2011 the Company secured a 30 day
      convertible bridge loan (Loan 4) from an arms length investor in the
      amount of $250,000 CDN. The interest rate on the loan was established at
      2% per month (effective interest rate  26%). The principal and interest
      of the loan was convertible at $0.20 CDN per share at the holders option.
      The Company provided 10,000 common share purchase warrants to acquire
      common shares at a strike price of $0.20 CDN per share. No value was
      assigned to the warrants as the amount was nominal. In the quarter ended
      July 31, 2011, the principal and interest were repaid.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (e) | On March 22, 2011 the Company secured a short term loan
      (Loan 5) from a director of the Company in the amount of $100,000 CDN.
      The interest rate on the loan was established at 2% per month (effective
      interest rate  26%). In the quarter ended July 31, 2011, the principal
      and interest were repaid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (f) | On December 2, 2011, the Company secured $285,000 CDN of
      bridge loans (Loan 6) from a group of arms length investors with
      maturities of six months. The loans are unsecured, bear interest at a rate
      of 2% per month (effective interest rate  26%) and are convertible at the
      holders option at $0.12 USD per unit. Each unit upon conversion includes
      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 loan was
      extended on a month to month basis in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

46

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|16. | BRIDGE LOANS (Contd)
|--- | ---------------------

| | (g) | On January 12, 2012, the Company secured a $100,000 CDN
      bridge loan (Loan 7) from an arms length investor with a maturity date
      in six months. The loan is unsecured, bears interest at a rate of 2% per
      month (effective interest rate  43%) and is convertible at the holders
      option at $0.10 CDN per unit. Each unit, upon conversion includes one
      common share and one common share purchase warrant with a one year expiry
      and an exercise price of $0.12 CDN. This loan was converted in the quarter
      ended July 31, 2012 by issuing 1,120,000 common shares.                                                                                                                                                                                                
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (h) | On February 7, 2012, the Company secured $204,000 CDN of
      bridge loans (Loan 8) from a group of arms length investors with
      maturities of six months. The loans are unsecured, bear interest at a rate
      of 2% per months (effective interest rate  49%) and are convertible at
      the holders option at $0.12 CDN to $0.17 CDN per share. Each unit upon
      conversion includes one common share and one common share purchase warrant
      with a one year expiry and an exercise price of $0.15 CDN to $0.20 CDN.
      The term of the loan was extended on a month to month basis in July 2012.
      $94,805 of this loan was converted into 740,080 common shares and
      principal of $100,000 CDN was not repaid but rolled by the holder into a
      new loan (Loan 9).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (i) | On September 4, 2012, the Company secured $125,000 CDN of
      bridge loans (Loan 9) from a group of arms length investors with
      maturities of six months. The loans are unsecured, bear interest at a rate
      of 2% per month (effective interest rate  32%) and are convertible at the
      holders option at $0.18 CDN per share. Each unit, upon conversion,
      includes one common share and one common share purchase warrant with a one
      year expiry and an exercise price of $0.22 CDN.                                                                                                                                                                                                                                                                                           

The outstanding bridge loans at
November 1, 2010 are summarized as follows (Note 6):

| |                                                   |   | Loan 1  |   |   | Loan 2  |   |   | Total   |  
| | ------------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
| | Principal                                         | $ | 249,176 |   | $ | 188,600 |   | $ | 437,776 |  
| | Interest accrued                                  |   | 67,686  |   |   | 7,689   |   |   | 75,375  |  
| | Accretion expense                                 |   | 4,986   |   |   | 429     |   |   | 5,415   |  
| | Equity portion of bridge loan - conversion featur |   | (4,766  | ) |   | (1,018  | ) |   | (5,784  | )
| | Equity portion of bridge loan - warrants          |   | (220    | ) |   | (14     | ) |   | (234    | )
| |                                                   |   |         |   |   |         |   |   | -       |  
| | Balance at November 1, 2010                       | $ | 316,862 |   | $ | 195,686 |   | $ | 512,548 |  

47

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|16. | BRIDGE LOANS (Contd)                                                                     
|--- | ------------------------------------------------------------------------------------------
|    |                                                                                           
|    | The outstanding bridge loans at October 31, 2011 are
      summarized as follows (Note 6):

| |                                                    |   | Loan 1   |   |   | Loan 2   |   |   | Loan 3  |   |   | Loan 4   |   |   | Loan 5   |   |   | Total      |  
| | -------------------------------------------------- | - | -------- | - | - | -------- | - | - | ------- | - | - | -------- | - | - | -------- | - | - | ---------- | -
| | Principal                                          | $ | 249,176  |   | $ | 188,600  |   | $ | 77,238  |   | $ | 254,875  |   | $ | 100,310  |   | $ | 870,199    |  
| | Embedded derivative                                |   | -        |   |   | -        |   |   | 25,138  |   |   | -        |   |   | -        |   |   | 25,138     |  
| | Interest accrued                                   |   | 160,402  |   |   | 23,898   |   |   | 16,162  |   |   | 12,065   |   |   | 2,473    |   |   | 215,000    |  
| | Accretion expense                                  |   | 4,986    |   |   | 1,032    |   |   | 11,844  |   |   | -        |   |   | -        |   |   | 17,862     |  
| | Loss on revaluation of embedded derivative         |   | -        |   |   | -        |   |   | 1,979   |   |   | -        |   |   | -        |   |   | 1,979      |  
| | Equity portion of bridge loan - conversion feature |   | (4,766   | ) |   | (1,018   | ) |   | -       |   |   | -        |   |   | -        |   |   | (5,784     | )
| | Equity portion of bridge loan - warrants           |   | (220     | ) |   | (14      | ) |   | -       |   |   | -        |   |   | -        |   |   | (234       | )
| | Repayments                                         |   | (409,578 | ) |   | (212,498 | ) |   | (12,319 | ) |   | (266,940 | ) |   | (102,783 | ) |   | (1,004,118 | )
| |                                                    |   |          |   |   |          |   |   |         |   |   |          |   |   |          |   |   | -          |  
| | Balance at October
      31, 2011                  | $ | -        |   | $ | -        |   | $ | 120,042 |   | $ | -        |   | $ | -        |   | $ | 120,042    |  

The outstanding bridge loans at October
31, 2012 are summarized as follows:

| |                                                          |   | Loan 3   |   |   | Loan 6  |   |   | Loan 7   |   |   | Loan 8   |   |   | Loan 9  |   |   | Total    |  
| | -------------------------------------------------------- | - | -------- | - | - | ------- | - | - | -------- | - | - | -------- | - | - | ------- | - | - | -------- | -
| | Principal                                                | $ | 77,238   |   | $ | 284,514 |   | $ | 52,747   |   | $ | 104,099  |   | $ | 81,194  |   | $ | 599,792  |  
| | Embedded derivative                                      |   | 25,138   |   |   | -       |   |   | 44,776   |   |   | 99,828   |   |   | 44,850  |   |   | 214,592  |  
| | Interest accrued                                         |   | 18,495   |   |   | 62,403  |   |   | 11,767   |   |   | 24,606   |   |   | 4,816   |   |   | 122,087  |  
| | Interest paid                                            |   | (12,318  | ) |   | (56,903 | ) |   | -        |   |   | (12,063  | ) |   | -       |   |   | (81,284  | )
| | Accretion expense                                        |   | 25,702   |   |   | 1,557   |   |   | 45,313   |   |   | 101,962  |   |   | 26,161  |   |   | 200,695  |  
| | Gain on revaluation of embedded derivative               |   | (25,138  | ) |   | -       |   |   | (44,776  | ) |   | (99,828  | ) |   | (4,101  | ) |   | (173,843 | )
| | Equity portion of bridge loan - conversion
      feature |   | -        |   |   | (1,557  | ) |   | -        |   |   | -        |   |   | -       |   |   | (1,557   | )
| | (Gain) loss on settlement                                |   | 708      |   |   | -       |   |   | -        |   |   | (233     | ) |   | -       |   |   | 475      |  
| | Conversion                                               |   | (109,825 | ) |   | -       |   |   | -        |   |   | (117,075 | ) |   | -       |   |   | (226,900 | )
| | Repayments                                               |   | -        |   |   | -       |   |   | (109,827 | ) |   | (101,296 | ) |   | -       |   |   | (211,123 | )
| |                                                          |   |          |   |   |         |   |   |          |   |   |          |   |   |         |   |   | -        |  
| | Balance at October
      31, 2012                        | $ | -        |   | $ | 290,014 |   | $ | -        |   | $ | -        |   | $ | 152,920 |   | $ | 442,934  |  

48

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|16. | BRIDGE LOANS (Contd)                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                    
|    | The fair value of the embedded derivatives for which the
      conversion price is in CDN was estimated on initial recognition using the
      Black Scholes option-pricing model with the following
  assumptions:

| |                                                    | 2012                | 2011    
| | -------------------------------------------------- | ------------------- | --------
| | Share price                                        | $0.15 -
      $0.27 | $ 0.20  
| | Volatility factor (based on historical volatility) | 126 - 156%          | 1.11    
| | Risk free interest rate                            | 0.93 -
      0.94%  | 0.02    
| | Dividend yield                                     | 0%                  | 0%      
| | Expected life                                      | 6 months            | 6 months

The embedded derivative at October 31,
2012 was revalued for loans outstanding in which the conversion price is in CDN
using the following underlying assumptions in the Black Scholes option-pricing
model:

| |                                                    | 2012       | 2011      
| | -------------------------------------------------- | ---------- | ----------
| | Share price                                        | $ 0.21     | $ 0.17    
| | Volatility factor (based on historical volatility) | 79%        | 1.35      
| | Risk free interest rate                            | 1%         | 0.01      
| | Dividend yield                                     | 0%         | 0%        
| | Expected life                                      | 0.34 years | 0.25 years

During the year, loan 7 and a portion
of loan 8 were settled by the holder converting their amount outstanding with
the Company issuing 1,860,080 common share with an assigned value of $226,900.
As a result of the conversion, the holder received 1,860,080 common share
purchase warrants exercisable at a price of $0.12 - $0.20 CDN for a period of 1
year. These common share purchase warrants were valued at $306,061 using the
Black Scholes option-pricing model with the following assumptions.

| |                                                    | 2012         
| | -------------------------------------------------- | -------------
| | Share price                                        | $0.23 - $0.25
| | Volatility factor (based on historical volatility) | 154 - 156%   
| | Risk free interest rate                            | 1.03 - 1.24% 
| | Dividend yield                                     | 0%           
| | Expected life                                      | 1 year       

49

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|17. | CONTRIBUTED SURPLUS
|--- | -------------------

| | Balance outstanding at November 1, 2010
      (Note 6)                            | $ | 24,498,736 |  
| | --------------------------------------------------------------------------------- | - | ---------- | -
| |                                                                                   |   |            |  
| | Stock based compensation expense relating
      to stock options issued (Note 14) |   | 928,497    |  
| | Common share purchase warrants                                                    |   |            |  
| | (a) Issued (Note 15)                                                              |   | 254,311    |  
| | (b) Extended (note 15)                                                            |   | 113,384    |  
| | Modification of bridge loans (Note 16)                                            |   | 185,564    |  
| | Equity portion of
      bridge loans (Note 16)                                    |   | 5,784      |  
| |                                                                                   |   |            |  
| | Balance at October 31, 2011 (Note 6)                                              |   | 25,986,276 |  
| | Stock based compensation expense relating
      to stock options issued (Note 14) |   | 430,856    |  
| | Common share purchase warrants                                                    |   |            |  
| | (a) Issued (Note 15)                                                              |   | 66,997     |  
| | (b) Extended (note 15)                                                            |   | 358,983    |  
| | Fair value of warrants exercised                                                  |   | (208,935   | )
| |                                                                                   |   |            |  
| | Balance at October 31, 2012                                                       | $ | 26,634,177 |  

50

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|18. | INCOME TAXES
|--- | ------------

| | (a) | The Company has non-capital losses of approximately $20.0
      million available to reduce future taxable income, the benefit of which
      has not been recognized in these consolidated financial statements. As of
      October 31, 2012 the tax losses expire as
follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      |   |            |  |   | Other     |  |   |            | 
| | ---- | - | ---------- |  | - | --------- |  | - | ---------- | 
| |      |   | Canada     |  |   | foreign   |  |   | Total      | 
| | 2014 | $ | 978,133    |  | $ | -         |  | $ | 978,133    | 
| | 2015 |   | 3,212,751  |  |   | -         |  |   | 3,212,751  | 
| | 2022 |   | -          |  |   | 7,301     |  |   | 7,301      | 
| | 2023 |   | -          |  |   | 9,667     |  |   | 9,667      | 
| | 2025 |   | -          |  |   | 14,471    |  |   | 14,471     | 
| | 2026 |   | 2,403,497  |  |   | 5,254     |  |   | 2,408,751  | 
| | 2027 |   | 2,021,152  |  |   | 3,459     |  |   | 2,024,611  | 
| | 2028 |   | 10,483     |  |   | 55,519    |  |   | 66,002     | 
| | 2029 |   | 2,067,331  |  |   | 463,610   |  |   | 2,530,941  | 
| | 2030 |   | 2,794,877  |  |   | 1,471,700 |  |   | 4,266,577  | 
| | 2031 |   | 1,683,826  |  |   | 421,724   |  |   | 2,105,550  | 
| | 2032 |   | 1,991,469  |  |   | 382,177   |  |   | 2,373,646  | 
| |      |   |            |  |   |           |  |   |            | 
| |      | $ | 17,163,519 |  | $ | 2,834,882 |  | $ | 19,998,401 | 

In addition the Company has available
capital loss carry forwards of approximately $1.7 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.

51

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|18. | INCOME TAXES (Contd)
|--- | ---------------------

| | (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, |   |   | November 1, |  
| | ------------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                                                                |   | 2012        |   |   | 2011        |   |   | 2010        |  
| |                                                                                |   |             |   |   | (Note 6)    |   |   | (Note 6)    |  
| | Non-capital losses and other                                                   | $ | 5,877,761   |   | $ | 4,959,149   |   | $ | 4,104,904   |  
| | Capital losses                                                                 |   | 221,578     |   |   | 210,319     |   |   | 204,815     |  
| | Property, equipment, intangibles, patents
      and deferred development costs |   | 1,988,956   |   |   | 1,898,201   |   |   | 1,911,952   |  
| | Share issue costs                                                              |   | 21,497      |   |   | 28,788      |   |   | 32,525      |  
| |                                                                                |   |             |   |   |             |   |   |             |  
| |                                                                                |   | 8,109,792   |   |   | 7,096,457   |   |   | 6,254,196   |  
| | Deferred tax assets not recognized                                             |   | (8,109,792  | ) |   | (7,096,457  | ) |   | (6,254,196  | )
| |                                                                                |   |             |   |   |             |   |   |             |  
| |                                                                                | $ | -           |   | $ | -           |   | $ | -           |  

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

| |                                                                                                                         |   | October 31, |   |   | October 31, |  
| | ----------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                                                                                         |   | 2012        |   |   | 2011        |  
| |                                                                                                                         |   |             |   |   | (Note 6)    |  
| | Loss before income taxes                                                                                                | $ | (1,775,065  | ) | $ | (3,181,182  | )
| | Statutory rate                                                                                                          |   | 26.50%      |   |   | 28.53%      |  
| |                                                                                                                         |   |             |   |   |             |  
| | Expected income tax recovery                                                                                            |   | (470,392    | ) |   | (907,591    | )
| | Effect on income taxes of unrecognized
      future income tax assets relating to deductible temporary differences on : |   |             |   |   |             |  
| | Non-deductible expenses and other items                                                                                 |   | (148,207    | ) |   | 439,774     |  
| | Share issue costs and other                                                                                             |   | (4,361      | ) |   | (8,062      | )
| | Effect of exchange rate on future tax assets carried
      forward from previous years                                  |   | 3,071       |   |   | (183,451    | )
| | Change in future income tax rates and other                                                                             |   | (393,446    | ) |   | (181,726    | )
| | Change in deferred
      tax assets not recognized                                                                      |   | 1,013,335   |   |   | 842,261     |  
| |                                                                                                                         |   |             |   |   |             |  
| |                                                                                                                         | $ | -           |   | $ | 1,205       |  

52

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|19. | EXPENSES Administration                                                    
|--- | ---------------------------------------------------------------------------
|    |                                                                            
|    | The components of general and administration expenses are
      as follows:

| |                                             |   | 2012    |   |   | 2011     |  
| | ------------------------------------------- | - | ------- | - | - | -------- | -
| |                                             |   |         |   |   | (Note 6) |  
| | General and administrative                  | $ | 66,651  |   | $ | 25,988   |  
| | Rent and occupancy costs                    |   | 108,193 |   |   | 60,396   |  
| | Bad debt expense                            |   | 21,586  |   |   | 67,049   |  
| | Interest income                             |   | (20,300 | ) |   | (20,220  | )
| | Interest expense                            |   | 106,442 |   |   | 139,732  |  
| | Accretion expense                           |   | 187,671 |   |   | 12,447   |  
| | Office insurance                            |   | 65,394  |   |   | 78,246   |  
| | Telephone                                   |   | 17,380  |   |   | 18,741   |  
| | Investor relations, listing and filing fees |   | 141,600 |   |   | 80,448   |  
| |                                             |   |         |   |   |          |  
| |                                             | $ | 694,617 |   | $ | 462,827  |  

Professional, other fees and
salaries

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

| |                       |   | 2012      |  |   | 2011      | 
| | --------------------- | - | --------- |  | - | --------- | 
| |                       |   |           |  |   | (Note 6)  | 
| | Professional fees     | $ | 183,021   |  | $ | 173,217   | 
| | Consulting fees       |   | 917,420   |  |   | 467,132   | 
| | Salaries and benefits |   | 407,450   |  |   | 424,306   | 
| |                       |   |           |  |   |           | 
| |                       | $ | 1,507,891 |  | $ | 1,064,655 | 

53

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|20. | MANAGEMENT COMPENSATION AND RELATED PARTY
      TRANSACTIONS
|--- | ------------------------------------------------------------

| | (a) | Chairman:                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | On May 29, 2005, the Company entered into a new
      employment agreement with the Chairman for a period from January 1, 2005
      through September 30, 2009. In 2009, the Company extended the agreement to
      December 31, 2010. In January 2011, the Board of Directors extended the
      Chairmans contract on a month to month basis reflecting annual
      compensation amount of $150,000 CDN.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In 2012 the Chairman was awarded a total of 100,000
      options at a strike price of $.35 per share (2011: 1 million options at
      strike price of $.20 per share).                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The total compensation paid to the Chairman during the
      year ended October 31 is summarized as
follows:                                                                                                                                                                                                                                                                                                  

| |      |  |                   |  |  | Stock Based  | 
| | ---- |  | ----------------- |  |  | ------------ | 
| |      |  |                   |  |  | Compensation | 
| |      |  | Cash Compensation |  |  | Expense      | 
| |      |  | $                 |  |  | $            | 
| | 2012 |  | 149,565           |  |  | 23,697       | 
| | 2011 |  | 152,326           |  |  | 118,038      | 

In March 2011 the Chairman provided a
bridge loan to the Company of $100,000, and the loan plus interest was repaid in
July 2011 (Note 16(e)).

In August 2011 the Chairman, converted
$112,500 of compensation received under contract to a unit private placement
consisting of one common share and one common share purchase warrant. A total of
703,125 units were issued under the private placement.

54

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|20. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
      (Contd)
|--- | ---------------------------------------------------------------------

| | (b) | Management and consulting fees:                                                                                                                                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                           
| |     | Included in professional fees as reported are management
      and consulting fees paid or payable to individuals (or companies
      controlled by such individuals) who served as officers and directors of
      the Company. The total compensation paid to such parties during the fiscal
      years ending October 31, 2012 and 2011 is as
follows.

| |      |  |                   |  |  | Stock Based  | 
| | ---- |  | ----------------- |  |  | ------------ | 
| |      |  |                   |  |  | Compensation | 
| |      |  | Cash Compensation |  |  | Expense      | 
| |      |  | $                 |  |  | $            | 
| | 2012 |  | 625,831           |  |  | 352,225      | 
| | 2011 |  | 647,132           |  |  | 590,191      | 

In 2011 the Company assigned the
promissory note receivable (Note 10) to an officer of the Company in conjunction
with outstanding and unpaid fees due to that officer. During the year a total of
$30,000 (2011- $80,000) received from the borrower was paid directly to that
officer under the assignment agreement. The balance owing to the officer of the
Company at October 31, 2012 was $56,500 (2011-$102,512).

In February 2012 the officer
subscribed for $50,000 as a Unit private placement consisting of one common
share (at a price of $.35 per share) and one common share purchase warrant (at a
price of $.44 per share). A total of 143,000 Units were subscribed for.

55

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|21. | COMMITMENTS
|--- | -----------

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

- OCE released the Company and the UofT from the
      commercialization obligations set forth in all prior research
      collaboration agreements.
- The Company acquired exclusive worldwide rights to the
      technology and patent rights related to the technology developed at the
      UofT.
- The Company has agreed to royalties and payments under the
      terms of the License Agreement as follows:
- In consideration for the rights and licenses granted, the
      Company has agreed to pay to the UofT:

| | i.  | 4% of net sales until such time as the UofT has received
      from the Company an aggregate amount of $500,000 CDN;
| | --- | --------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                     
| | ii. | 1% of net sales thereafter.                                                                                         

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

| | i.  | in combination or association with the Companys
      intellectual property, the UofT shall receive 10% of any net fees and/or
      net royalties that shall be received by the Company in respect of any
      licenses involving both the rights granted and such Micromem intellectual
      property;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                            
| | ii. | For all other sublicenses of the rights granted to any
      non-affiliate, the UofT shall receive 20% of any net fees and/or net
      royalties that may be received by the Company in respect of such
      sublicenses.                                                                                

56

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|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|21. | COMMITMENTS (Contd)
|--- | --------------------

| | (a) | License Agreement:
| | --- | ------------------

| | iii. | Net fees and/or net royalties shall be received from the
      Company until such time as the UofT has received from the Company an
      aggregate amount of $500,000 CDN; thereafter the Company shall pay half of
      the amounts as otherwise noted above.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- At any point after which the Company has paid the UofT
      $500,000 CDN, the Company may at its option buy out the obligation to pay
      royalties under the License Agreement by paying to the UofT a single lump
      sum payment equaling the greater of $500,000 CDN and an amount equal to
      the total amount of royalties paid by the Company to the UofT in the
      preceding twenty-four months. The Company shall be entitled to exercise
      such option by providing written notice to the UofT along with the
      required payment, after which time the Companys obligation to pay
      royalties as otherwise calculated shall be waived by the UofT.
- As a condition to entering the License Agreement the
      Company agreed to a research agreement with a funding commitment of
      $500,000 CDN, to continue the further research and development of the
      inventions and the Companys intellectual property. In August 2005, the
      Company made an initial payment of $250,000 CDN and, in November 2005, the
      Company made the second payment of $250,000 CDN under the terms of this
      research agreement.

| |     | To date the Company reports nil revenues
      relating to this technology.                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                              
| | (b) | Operating Leases:                                                                                                                                                                                            
| |     |                                                                                                                                                                                                              
| |     | 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 for this premise are as follows:

| | Less than 1 year | $ | 47,000  | 
| | ---------------- | - | ------- | 
| | 2 to 5 years     |   | 176,000 | 
| |                  |   |         | 
| |                  | $ | 223,000 | 

57

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|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|22. | CONTINGENCIES                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                   
|    | The Company has agreed to indemnify its directors and
      officers and certain of its employees in accordance with the Companys
      by-laws. The Company maintains insurance policies that may provide
      coverage against certain claims.
|    |                                                                                                                                                                                                                                                   
|23. | 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. The total monetary financial instruments are in a net liabilities
      position. Management monitors the Canadian net liability position on a
      periodic basis throughout the course of the year and adjusts the total net
      monetary liability balance accordingly.
| |    |                                                                                                                                                                                                                                                                                                                                               
| |    | The consolidated financial statements include balances
      that are denominated in Canadian dollars as
follows:                                                                                                                                                                                                                             

| |                                          |   | 2012    |  |   | 2011    |  |   | 2010      | 
| | ---------------------------------------- | - | ------- |  | - | ------- |  | - | --------- | 
| | Cash and cash equivalents                | $ | 263,383 |  | $ | 20,238  |  | $ | 4,681     | 
| | Deposits and other receivable            |   | 46,016  |  |   | 21,467  |  |   | 89,238    | 
| | Accounts payable and accrued liabilities |   | 267,098 |  |   | 496,597 |  |   | 1,063,456 | 
| | Bridge loan                              |   | 159,902 |  |   | 103,733 |  |   | 450,000   | 

58

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|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|23. | FINANCIAL RISK MANAGEMENT
  (Contd)
|--- | ------------------------------------

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

| | ii.  | Foreign Exchange Risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      | A 10% strengthening of the US dollar against the Canadian
      dollar would have increased the net equity by $10,695 (2011  $55,862) due
      to a reduction in the value of net liability balance. A 10% weakening of
      the US dollar against the Canadian dollar at October 31, 2012 would have
      had the equal but opposite effect.                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | iii. | 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 exposed to interest price risk on its
      interest bearing bridge loans 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, 2012.                                                                                                                                                

59

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|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|23. | 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 cash equivalents, deposit and other receivables. The carrying amount
      of financial assets represents maximum credit exposure.                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | As at October 31, 2012, the Company reports a working
      capital deficiency of $731,673 (measured as current assets less current
      liabilities excluding the derivative warrant liability) and has certain
      financial commitments (Notes 20 and 21), the majority of which are due
      within one year. It must continue to raise financing in order to meet its
      current obligations.

|24. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                              
|    | There is one operating segment of the business being the
      development and commercialization efforts with respect to the Company's
      proprietary memory and sensor applications. Currently, the predominant
      market segment that the Company is pursuing is the North American market
      for such technology.
|    |                                                                                                                                                                                                                                                                                                                              
|25. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                              
|    | The Company reports the following as subsequent
      events:                                                                                                                                                                                                                                                                

| | i)  | The Company issued 3,079,521 common shares via unit
      private placements and received proceeds of $496,182. Each unit consisted
      of one common share at an average price of $0.16 per share and one common
      share purchase warrant at an average strike price of $0.21 per warrant.
      The common share purchase warrants issued expire in 12 months from the
      date of issuance.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                       
| | ii) | The Company received proceeds of $558,931 from the
      exercise of 4,137,246 common share purchase
warrants.                                                                                                                                                                                                                                                                                        

60

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|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years
      ended October 31, 2012 and 2011

|25. | SUBSEQUENT EVENTS
(Contd)
|--- | --------------------------

| | iii) | The Company issued 1,090,000 stock options to directors,
      officers and employees. The strike price is $0.30 per option with a 5 year
      term to expiry. All options vested upon issuance.                                                                                                                                                               
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                 
| | iv)  | The Company extended the expiry dates of a total of
      3,871,369 common share purchase warrants. These warrants were extended for
      a period of 12 months in each case. The strike price remained unchanged in
      each case ranging from $0.20 to $0.56 per warrant. These warrants would
      have otherwise expired between January and March
2013.

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

61

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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).                                                                                                                                                                               

40

---

|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. 4.5  | Agreement with Investor
      Relations Group dated September 1, 2008 (Incorporated by reference to the
      Companys Form 20-F filed with the Commission on February 24, 2009).                                        
|Exhibit No. 4.6  | Agreement with Dreifus Associates Limited (DAL)
      dated June 1, 2008 (Incorporated by reference   to the
      Companys Form 20-F filed with the Commission on February 24, 2009).                                   
|Exhibit No. 4.7  | Unotron Promissory Note dated
      August 1, 2009 (Incorporated by reference to the Companys Annual Report
      on Form 20-F filed with the Commission on March 1, 2010).                                              
|Exhibit No. 4.8  | Agreement with Life Med Technologies Inc.
      (Incorporated by reference to the Companys Annual Report on Form 20-F
      filed with the Commission on March 1, 2010)                                                  
|Exhibit No. 4.9  | Manufacturing Supply Agreement
      with Unotron. (Incorporated by reference to the Companys Annual Report on
      Form 20-F/A filed with the Commission on February 25, 2011)                                         
|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).                                                                                                                   
|Exhibit No. 13.2 | Officer's Certification pursuant to Section 906
      of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                   

41

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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 Fuda Title:    Chief Executive
Officer

By:       /s/ Dan
AmadoriName:  Dan Amadori Title:    Chief Financial
Officer

Dated: February 22, 2013

42

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