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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 1934or[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934For The Fiscal Year Ended October 31,
2011Or[   ]TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934or[   ]SHELL COMPANY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this
shell report

Commission File No. 0-26005

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

Ontario, Canada(Jurisdiction of incorporation
or organization)

777 Bay Street, Suite 1910,Toronto, Ontario M5G
2E4, CanadaTel: (416) 364-6513Fax: (416) 360-4034(Address of principal executive offices)

Joseph Fuda; 416-364-6513, JFuda@micromeminc.com, 777 Bay
St., Suite 1910 Toronto, On M5G 2E4(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: 116,149,718 Common Shares

Indicate by check mark if the registrant is a well-known
seasoned issuer as defined in Rule 405 of the Securities Act: Yes
_____    
No X

If this report is an annual or transition report, indicate by
check mark if the registration is not required to file a report pursuant to
section 13 or 15 of the Securities Exchange Act of 1934: Yes
_____    
No X

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

Indicate by check mark whether the registrant 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

1

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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  X          
by the International Accounting Standards Board ______

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
17X      
Item 18 ______

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes______    
 No X

2

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TABLE OF CONTENTS

|           |                                                                              | Page
|---------- | ---------------------------------------------------------------------------- | ----
|**Part I** |                                                                              |     
|           |                                                                              |     
|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                                                   | 14  
|Item
4A.   | Unresolved
staff comments                                                    | 20  
|Item
5.    | Operating
and Financial Review and Prospects                                 | 20  
|Item
6.    | Directors,
Senior Management and Employees                                   | 27  
|Item
7.    | Major
Shareholders and Related Party Transactions                            | 31  
|Item
8.    | Financial
Information                                                        | 32  
|Item
9.    | The
Offer and Listing                                                        | 32  
|Item
10.   | Additional
Information                                                       | 33  
|Item
11.   | Quantitative
and Qualitative Disclosures about Market Risk                   | 40  
|Item
12.   | Description
of Securities Other Than Equity Securities                       | 40  
|           |                                                                              |     
|Part
II    |                                                                              |     
|           |                                                                              |     
|Item
13.   | Defaults,
Dividend Arrearages and Delinquencies                              | 40  
|Item
14.   | Material
Modifications to the Rights of Security Holders and Use of Proceeds | 40  
|Item
15.   | Controls
and Procedures                                                      | 41  
|Item
15T.  | Controls
and Procedures                                                      | 41  
|Item
16.   | Not
Applicable                                                               | 42  
|Item
16A   | Audit
Committee Financial Expert                                             | 42  
|Item
16B   | Code
of Ethics                                                               | 42  
|Item
16C   | Principal
Accountant Fees and Services                                       | 42  
|Item
16D   | Exemptions
from the Listing Standards for Audit Committees                   | 43  
|Item
16E   | Purchases
of Equity by the Issuer and Affiliated Purchasers                  | 43  
|Item
16F   | Changes
in Registrants Certifying Accountant                                | 43  
|Item
16G   | Corporate
Governance                                                         | 43  
|           |                                                                              |     
|Part
III   |                                                                              |     
|           |                                                                              |     
|Item
17.   | Financial
Statements                                                         | 43  
|Item
18    | Financial
Statements                                                         | 44  
|Item
19.   | Exhibits                                                                     | 44  
|Signatures |                                                                              | 46  

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

The following table sets forth our selected consolidated
financial data in United States dollars as of and for each of the five fiscal
years ended October 31, 1011, 2010, 2009, 2008 and 2007. 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 17-Financial Statements and "Item 5 - Operating
and Financial Review and Prospects, included elsewhere in this Annual Report on
Form 20-F.

Selected balance sheet information(all amounts in
      U.S. dollars)2011
    2010
    2009
    2008
    2007Working capital (deficiency)
    ($1,047,228)
    ($1,459,460)
    ($650,044)
    ($338,079)
    ($1,531,855)Capital Assets
    10,201
    16,686
    24,442
    26,321
    -Total Assets
    906,346
    568,336
    2,562,479
    630,467
    329,232Capital Stock
    51,774,555
    50,102,699
    48,494,180
    44,380,134
    37,166,397Shareholders' equity (deficiency)
    (217,278)
    (1,019,226)
    1,522,839
    (311,758)
    (1,531,855)


4

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Selected statement of operations and deficit
      information(all amounts in U.S. dollars)2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Interest and other income
    $
    963
    
    $
    22,886
    
    $
    88,047
    
    $
    11,762
    
    $
    2,586Research and development expenses
    
    (75,896
    )
    
    (106,007
    )
    
    13,880
    
    
    1,063,508
    
    
    682,331General and administrative and
      other expenses
    
    1,720,701
    
    
    4,676,322
    
    
    2,433,537
    
    
    3,323,565
    
    
    1,862,417Stock
      compensation expense
    
    928,497
    
    
    95,038
    
    
    1,951,569
    
    
    1,041,414
    
    
    269,216Loss before income taxes
    
    (2,572,339
    )
    
    (4,665,353
    )
    
    (4,310,939
    )
    
    (5,416,725
    )
    
    (2,811,378
    )Provision for income taxes (recovery)
    
    1,205
    
    
    9,508
    
    
    -
    
    
    -
    
    
    -Net loss
    
    (2,573,544
    )
    
    (4,674,861
    )
    
    (4,310,939
    )
    
    (5,416,725
    )
    
    (2,811,378
    )Loss per share-basic and diluted
    
    (0.03
    )
    
    0.05
    
    
    0.05
    
    
    0.07
    
    
    0.04Weighted average number of basic
      and         diluted shares
    
    102,301,168
    
    
    92,225,645
    
    
    86,400,439
    
    
    78,012,115
    
    
    70,685,153Dividends
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -


Reconciliation between Canadian GAAP and U.S. GAAP:

Our consolidated financial statements for the period have been
prepared in accordance with Canadian GAAP which, in our case conforms in all
material respects with U.S. GAAP except for how the Company has accounted for
development expenditures reported in the fiscal years ended October 31, 2011,
2010 and 2009, intangible assets, warrant modification and modification of
the conversion feature of bridge loans in the fiscal year ended October 31, 2011 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.

Under U.S. GAAP all development expenditures are expensed as
incurred. In 2011, the Company reports $646,606 (2010: $221,521) of development
costs and $135,465 (2010: nil) of intangible asset expenses capitalized under
Canadian GAAP.

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 a nil 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.

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 Canadian GAAP 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 Canadian GAAP, 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 the conversion feature
represented an embedded derivative that required separation. Under U.S. GAAP, no
beneficial conversion feature exists and under Canadian GAAP a $185,564 charge
was recorded to retained earnings with an offsetting charge to contributed
surplus to reflect the value of the more favourable conversion feature.

A reconciliation between Canadian and U.S. GAAP has been
provided in Note 18 to the Companys 2011 audited financial statements in Item
17 of this Annual Report.

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 $).

5

---

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.

2011
    2010
    2009
    2008
    2007High for period
    1.0583
    1.0039
    0.9716
    1.0905
    1.0527Low for period
    0.9430
    0.9278
    0.7692
    0.7726
    0.8437End of period
    1.0079
    0.9885
    0.9334
    0.8374
    1.0527Average for period
    1.0139
    0.9640
    0.8587
    0.9761
    0.9120


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
    July2011
    2011
    2011
    2011
    2011
    2011High
    0.9788
    0.9780
    0.9520
    0.9728
    0.9672
    0.9590Low
    0.9710
    0.9680
    0.9465
    0.9653
    0.9625
    0.9505


August
    September
    October
    November
    December
    January2011
    2011
    2011
    2011
    2011
    2012High
    0.9799
    1.0482
    0.9996
    1.0271
    1.0216
    1.0550Low
    0.9726
    1.0372
    0.9922
    1.0124
    1.0162
    0.9966


On February 24, 2012 the noon buying rate for one Canadian
dollar, as quoted by the Bank of Canada, was CDN $0.9988 = U.S. $1.00.

B.Capitalization and Indebtedness Not Applicable.

C.Reasons for the Offer and Use of Proceeds Not Applicable.

D.Risk Factors

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

Risk Factors Related to Our Business

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

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

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.

6

---

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.

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

At October 31, 2011 we had $44,062 cash on hand and our current
monthly cash expenses were approximately $150,000. Our working capital
deficiency is $1,047,228 at October 31, 2011. Subsequent to October 31, 2011,
through to the date of the filing of this annual report, we have raised an
additional $976,214 through private placements and bridge loans.

We currently have no operating revenue.

At October 31, 2011 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 continue to develop prototypes of our magnetic sensor
technology in 2011 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 memory 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 to develop,
introduce, and license or sell in a timely manner our technology or products
incorporating our technology and to compete effectively on the basis of factors
such as speed, density, die size and power consumption.

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

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.

7

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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 will depend on our ability to develop,
introduce, and license or sell in a timely manner our technology or products
incorporating our technology and to compete effectively on the basis of factors
such as speed, density, die size and power consumption.

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

MRAM as a market segment is both crowded and competitive. We
understand that other companies have research and development efforts under way
in connection with non-volatile random access memory, also referred to herein as
RAM. Much work is being done in the MRAM research and development at companies
such as NVE, Cypress, Freescale, Phillips, Motorola and others. Other research
and development efforts at IBM, Hewlett Packard and Nantero are focused on
non-magnetic based non-volatile RAM. Existing competition in low density
applications include Honeywell, Naval Research Laboratories, Ramtron and NVE.
All of these companies have substantial resources at their disposal.

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

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

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

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.

8

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

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

The range of products we intend to commercialize is currently
limited to applications of our sensor technology. Reliance on a limited range of
products could restrict our ability to respond to adverse business conditions.
If we are not successful in developing this specific technology, or if there is
not adequate demand for such technology or the market for such technology
develops less rapidly than we anticipate, we may not have the capability to
shift our resources to the development of alternative products. In such case our
business would likely be at a significant disadvantage to other competitors in
the field. As a result, the limited range of products we intend to develop could
limit our revenues and profitability.

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.

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Our supply of future products could be dependent upon
relationships with key suppliers.

We will be reliant on third parties to supply the raw materials
needed to manufacture our future products. Any reliance on suppliers may involve
several risks, including a potential inability to obtain critical materials and
reduced control over production costs, delivery schedules, reliability and
quality. Any unanticipated disruption to future contract manufacture caused by
problems at suppliers could delay shipment of products, increase our cost of
goods sold and result in lost sales.

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

At present, we 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.

The rights to certain of our patented technologies for
memory design are shared with a third party.

Our earliest technology included a memory design with the
magnetic bit aligned vertically to the substrate, also referred to herein as our
VEMRAM technology. We have abandoned the development of this earliest
technology. We acquired ownership of certain patents and patent applications
covering the VEMRAM technology, as well as certain related rights, pursuant to
an Asset Purchase Agreement dated as of December 10, 2000 with Estancia Limited,
also referred to herein as Estancia. However, under the terms of the Asset
Purchase Agreement we have been required to convey back to Estancia a 40%
undivided interest in the VEMRAM patents, as well as the right to participate in
gross profits and royalties from the license or sale of such patents. This
participation right requires us to pay to Estancia 32% of (i) the gross profit,
less expenses to be agreed by the parties, for each license of the patents sold
or otherwise transferred by us and (ii) all royalties received by us as a result
of the license or sale of the patents less reasonable expenses directly related
to the obtaining of such royalties.

We will be reliant upon contractual rights to use certain
technologies that are material to our business.

Until 2008, certain technologies material to our business have
been developed through collaborative arrangements with the University of
Toronto. We entered into a number of successive Research Collaboration
Agreements with the University of Toronto under which research and development
programs were led by a University research team. We have provided funding,
equipment and background technology to these projects. Certain Canadian
governmental entities are also parties to these agreements and have provided
additional funding. The University of Toronto has ownership rights to all
intellectual property developed under these programs. We have no ownership
rights but have the right to obtain exclusive, world-wide and perpetual
sub-licenses from the governmental participants to use such intellectual
property; the governmental participants in turn have the right to obtain an
exclusive, world-wide license to such technology directly from the University of
Toronto.

Our auditors have previously identified material
weaknesses in our internal accounting control over financial reporting.

We operate as a development stage company and have historically
had only limited accounting personnel and resources with which to address our
internal control procedures.

We were not required to secure an attestation report of our
internal control procedures for the fiscal year ended October 31, 2011 in that
our market capitalization during the 2011 fiscal year was below the minimum
threshold for such requirements. We maintain a small staff complement and there is limited
opportunity for segregation of accounting responsibilities amongst our staff.
The Audit Committee functions as the overseer of all financial reporting and
governance-related matters. We believe that our procedures and controls are
effective, however there can be no guarantee that our procedures and controls
mitigate all related risks.

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In their Attestation Report dated February 14, 2011, our
auditors concluded that there were no material weaknesses in our internal
controls over financial reporting. In the 2010 fiscal year we made a concerted
effort to address the material weakness that our auditors had identified in
their 2009 Attestation Report dated February 17, 2010. These efforts included a
formalized quarterly review signoff procedure with our Audit Committee and
quarterly discussions with our external auditors. We also assigned one of our
staff with full responsibility for the monitoring and testing of our internal
accounting controls over financial reporting.

Although we have implemented compensating controls in our
systems and our procedures which we believe mitigate these risks, 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.

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

We depend on key personnel.

Our senior managers and employees are Salvatore Fuda, who
serves as the Chairman of the Board of Directors; Joseph Fuda, who serves as our
Chief Executive Officer; 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 MRAM technology.

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

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

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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.

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:

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

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

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

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

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.

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

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

We do not anticipate paying dividends.

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

We may need to issue additional securities which may
cause our shareholders to experience dilution.

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

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.            
**I****NFORMATION 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 777 Bay Street, Suite
1910, Toronto, Ontario M5G 2E4 (416.364.6513) . Micromem was incorporated on
October 21, 1985 as Mine Lake Minerals Inc. We subsequently changed our name to
Avanti Capital Corp. on June 23, 1988, to AvantiCorp International Inc. on April
30, 1992 and to Micromem Technologies Inc. on January 11, 1999 in connection
with our acquisition of Pageant Technologies Incorporated, also referred to
herein as Pageant International. Our website address is www.micromeminc.com. The information on our website is
not part of this annual report on Form 20-F. We have included our website
address in this document as an inactive textual reference only.

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Research and Development Efforts

Prior to 2009, the Companys research and development
initiatives were led by a Technical Advisory Committee which consisted of two of
our directors, Steven Van Fleet and Larry Blue. They were assisted as required
by outside service providers including design and engineering services and
several U.S.-based foundries. Additionally, the Company retained Henry Dreifus
of Dreifus Associates, Limited of Orlando, Florida to provide services to the
Company. Mr. Dreifus served as a director of Micromem between January 2008 and
June 2009.

The following is a commentary on the development of specific
projects undertaken since 2008 and the developments through 2011:

BAE:In 2008, BAE expressed initial
interest in the Company's sensor technology. The Company and BAE executed the
appropriate confidentiality and material transfer agreements and began
discussions with respect to specific project work to be conducted in BAE's
foundries in the United States. In August 2008, the Company entered into a
working agreement with BAE whereby the Company agreed to commit up to $1 million
of funding to BAE-led development work on its sensor technology. The end goal of
the BAE development work was to identify specific applications where BAE would
incorporate the Company's technology into their product offerings to their own
large defense and aerospace customers.

During 2009, Micromem and BAE Systems successfully completed
the manufacturing of a multi-bit array structure of our memory. The work was
completed in BAEs U.S. Department of Defense (DOD) foundry in Nashua, New
Hampshire. Micromem submitted the multi-bit array structure in a reticle design
format to BAE which manufactured the memory using their proprietary high
mobility epi layer and their standard foundry processes. The magnetic processing
steps required in the manufacture of our memory were subcontracted to specialty
manufacturers. Memory testing was completed by a certified third party company.

Micromem and BAE Systems were successful in creating a fully
functioning multi-bit MRAM cell. Our strategy was to license the memory patent
portfolio to clients that have specific end user requirements that require low
power, high temperature radiation hardened memory.

The Company initially anticipated having a concentrator unit
available from a supplier, NanoOpto, in 2010 which would have allowed the
Company to build sensor applications with the required tolerance and performance
levels required by BAE and the DOD in general. NanoOpto discontinued operations
during 2010 and no further initiatives were undertaken in 2011. The Company may
develop an alternative solution for the concentrator, pending the resolution of
its working capital constraints. At that time, it plans to re-approach BAE with
the intention of pursuing commercial discussions.

Between 2008  2010, Micromem spent a total of $797,186 with
respect to these foundry services provided by BAE. Given these developments, at
October 31, 2010, the Company recorded an impairment reserve of $797,185 against
these costs which were previously capitalized and continues to report its
investment in development costs at nominal value of $1 as of October 31,
2011.

Unotron: The Company announced a contractual
agreement in March 2009 with Unotron to develop an application for a washable
keyboard utilizing the Companys sensor technology. The manufacturing agreement
was executed in May 2009.

Micromem advanced $200,000 to Unotron at the beginning of this
relationship as its initial investment in the project. This investment was
structured as a secured debenture with a first charge on the assets of Unotron.
The debenture stipulated quarterly interest at a rate of 10% with a maturity
date of September 2010.

From a development standpoint, the Company has incurred
$529,495 of costs associated with the development of prototype products and has
delivered these prototypes to Unotron. The Company engaged engineers to assist
in this effort and incurred the cost associated with several trips to the
Unotron manufacturing facilities in China during 2010. The products have been
developed and accepted by our client during two visits to Hong Kong by engineers
engaged by Micromem. A short list of integration issues with the clients
keyboard controller remains outstanding. These will be resolved if we are in
receipt of an order forecast in accordance with the manufacturing agreement.

The Company believes that it has met all of the technical
specifications associated with the prototype products and remains committed to
fulfilling the terms and conditions of the contractual arrangements executed.
Given the delays that the Company has encountered in 2010 in finalizing the
commercial terms with Unotron, it recorded an impairment reserve of $529,494 and
reports its investment in development costs at nominal value of $1.

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In 2011 the Company suspended all further development
activities with Unotron, pending repayment of the outstanding promissory note,
as discussed below.

The secured debenture that Micromem holds with Unotron matured
on September 30, 2010. Since that time the Company has been in regular
negotiations with Unotron with respect to the repayment of the debenture. In
2011, Unotron repaid a total of $115,000 of the outstanding balance due to the
Company. The outstanding balance, including principal and interest, at October
31, 2011 is $111,553 and that amount is full reserved by the Company. We
continue to pursue collection of the remaining balance owing by Unotron.

LMTI: In 2009 Micromem and Life Med Technologies
Inc. (LMTI) entered into a manufacturing agreement. Under the terms of the
agreement, Micromem agreed to design and manufacture prototypes, submit and
obtain FDA 510(K) approval and manufacture a medical device that incorporates
our magnetic sensor technology.

During 2010 our prototype was developed and tested and was
ready for FDA protocol trials. In addition, all sections of the FDA
documentation that we could complete were submitted to our FDA attorney. The
sections of the FDA applications requiring LMTIs input were not received or
completed.

During 2010 we met on numerous occasions with the principals of
LMTI. LMTI communicated an interpretation of the original contractual agreements
with which the Company disagreed. Under the terms of the executed contractual
agreements, Micromem had agreed to incur the development costs with respect to
the product prototype, to file the FDA submission in its name and, in this
process, would retain all of the rights to the intellectual property that was
developed. Micromem had agreed that upon LMTIs fulfillment and payment under
the terms of the purchase order, Micromem would transfer the related
intellectual property to LMTI.

As of October 31, 2010 we had incurred a total of approximately
$115,000 of direct costs associated with the LMTI project and, given the
developments as above, we fully reserved these costs in the third quarter of
2010.

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 LMTI, we were cancelling our working arrangements with LMTI. .

At October 31, 2011 the Company is exploring alternative market
opportunities and other potential strategic partners for this technology.

NEMT: In 2009 Micromem and NEMT entered into a
manufacturing agreement to develop a magnetic device capable of detecting small
changes in the earths magnetic signature. NEMT planned to use this for aerial
exploration in the Bering Sea for oil and gas reserves. The prototype device was
designed and built and tested in the field by NEMT. Our intention was to deliver
the final product during 2010 to NEMT; they would use the device to fulfill an
exploration contract they were awarded. However, the development of this
technology was not finalized by the contractor we engaged to complete this work
due to Micromems cash constraints.

During 2011 the Company completed extensive upgrades to the
software and the device is back in the field being tested. As a result of the
initial work that we have undertaken with NEMT, we have identified a further
opportunity and we have recently submitted a proposal based upon this
development to a company focused on gold mining. Negotiations are ongoing to
execute a potential development contract.

The Company has also issued a development proposal for further
enhancements to this technology to incorporate recent enhancements including
integration with hyperspectral monitoring for aerial operations.

The Company recorded an impairment reserve of $797,793 with
respect to the direct costs associated with the NEMT project as of the end of
its third quarter as reported on September 29, 2010. At October 31, 2011 the
Company reports its investment in development costs at $15,001 representing the
additional cost expended by the Company in 2011.

Oil Sensor: The Company is in discussions with
  two potential automotive clients for a development and licensing contract for
  an enhanced oil condition sensor that includes use of nanoparticles embedded
  in the oil filter. A provisional patent for this unique technology has been
  generated and submitted to the USPTO.

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International Energy Company:The Company
has been successful in detecting a 30-nanometer particle at 1 ppb, which is
considered as a major contract milestone. The design phase of the project has
been completed and a proof of concept prototype is under construction for
anticipated delivery in 2012.

GSI Westwind:The Company has met the design
milestone outlined in the original development plan and received the related
second milestone payment of $27,300 during the third quarter of 2011. It is now
proceeding with the next phase in the contract which is the development of a
manufacturing prototype.

Medical Device: The Company is currently
negotiating with three non-U.S. companies for manufacturing and licensing rights
for our medical sensor. If these negotiations are successful the anticipated
contract calls for these clients to underwrite commercialization efforts of the
product, to be responsible for sales and marketing channels and commit to pay
royalties to the Company tied to future product sales.

Intellectual Property: Micromem has commenced the
process of preparing provisional patents for several of the applications that it
has under development including an integrated sensor platform for oil monitoring
in vehicles, an array of high resolution sensors and a data processing algorithm
for use in conjunction with medical devices. We have engaged new legal counsel
for these initiatives.

Changes to Our Board of Directors and Management

At our Annual Meeting of Shareholders held on Friday, October
28, 2011, 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 Research
and Development Efforts beginning on page 15 of this Annual Report.

Industry Background

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

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

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.

17

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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

During the 2009 fiscal year, the Company completed a series of
private placement financings with arms length investors pursuant to prospectus
and registration exemptions set forth in applicable securities laws. In total,
the Company received proceeds of $2,958,842 from the issuances of 4,393,535
common shares.

In these financings, a total of 3,805,845 common share purchase
warrants were attached to the common shares with a maximum term of 12 months
from issue date and exercise prices ranging from $0.70 to $1.24 per warrant.
Additionally, the Company issued 39,062 broker warrants to a financial advisor
who secured financing for the Company.

In 2009 warrant holders exercised 200,000 common share purchase
warrants and the Company realized proceeds of $234,000. Cash proceeds realized
during the year ended October 31, 2009 by the Company upon the exercise of
1,652,801 options by officers and directors and staff totaled $992,417.

In the 2010 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 laws. The Company
received a total of $2,021,051 of proceeds and issued a total of 5,749,201
common shares. A total of 5,749,201 common share purchase warrants were attached
to the private placement shares at an average exercise price of $0.44 per
warrant. The warrants in all cases had a 12 month term from issue date.

In 2010 the Company secured two bridge loan totaling $437,776
which were repaid in 2011. The total interest paid on these bridge loans was
$75,375. A total of 20,000 common share purchase warrants were also issued to
the lenders in 2010.

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 expiry date on a total of
7,928,432 common share purchase warrants which would have otherwise expired
during the year. The expiry dates were extended for an additional 12 months in
each case from the original expiry 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 is $106,783 and this
loan was repaid subsequent to year-end. The total interest paid or accrued on
the bridge loans in 2011 was $139,921. A total of 55,000 common share purchase
warrants were also issued to the lenders in 2011.

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.
Accordingly, it reports $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 have both issued patents and pending patent applications and also entered
into confidentiality and other agreements with third parties and our employees
to protect our intellectual property and trade secrets. We intend to continue to
actively pursue the protection of our intellectual property. Our management will
determine from time to time the jurisdictions where protection will is
appropriate. This determination will be based on a number of factors including
the state of development of our technology, the importance of a particular market for our
technology, the costs of pursuing patent protection in a jurisdiction and our
financial position at the time.

18

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Our patent portfolio comprises separate 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 pursued to research
      collaboration agreements with the University of Toronto;                                                                             
| |     |                                                                                                                                                                                                      
| | (c) | those applications covering the technology developments
      that the Company has furthered since it began working with the US-based
      foundries and BAL in September, 2007;                    
| |     |                                                                                                                                                                                                      
| | (d) | those applications covering the technology development
      that the Company has furthered in collaboration with DAL, under contract
      to provide technical design services to the Company; and.
| |     |                                                                                                                                                                                                      
| | (e) | Provisional patent filings in
2011.                                                                                                                                                                  

The Company has engaged Morgan Lewis as our patent attorneys
since 2005. It has paid Morgan Lewis approximately $1 million in legal fees
since 2005. During 2010, the Company was unable to remain current on the Morgan
Lewis invoices as submitted. At October 31, 2010, the balance owing on services
provided by Morgan Lewis was approximately $115,000. Morgan Lewis resigned as a
service provider to the Company in October 2010. In 2011 we continued to pay
down the obligation 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.

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 MAST 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 3,987 square feet of commercial office space pursuant to a
lease that expired in 2010 and has since been renewed on a month-to-month basis.

The Company made no capital expenditures in 2011, $851 of
capital expenditures in 2010 and $9,668 of capital expenditures in 2009.

19

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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 year ended
October 31, 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 Canadian GAAP and are stated in United States dollars. These
principles are also in conformity in all material respects with U.S. GAAP except
as described in Note 18 to our 2011 audited consolidated financial
statements.

I.          
OVERVIEW

We are a development 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.

**A.**          **Operating
Results**

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

Selected statement of operations and deficit information

2011
    2010
    2009
    2008
    2007Interest and other income
    $963
    $22,886
    $ 88,047
    $ 11,762
    $ 2,586Loss for the year
    2,573,544
    4,674,861
    4,310,939
    5,416,725
    2,811,378Loss per share-basic and diluted
    0.03
    0.05
    0.05
    0.07
    0.04


Selected balance sheet information

2011
    2010
    2009
    2008
    2007Working capital (deficiency)
    $1,047,228
    $ (1,459,460)
    $ (650,044)
    $ (338,079)
    $ (1,531,855)Property and equipment
    10,201
    16,686
    24,422
    26,321
    -Total Assets
    906,346
    568,336
    2,562,479
    630,467
    329,232Shareholders
      equity (deficiency)
    (217,278)
    (1,019,226)
    1,522,839
    (311,758)
    (1,531,855)


Fiscal 2011 compared to fiscal 2010:

The Company remained in pre-revenue mode at October 31, 2011.
The Company had net interest income of $963 in 2011 relating to funds on deposit
held periodically during the year. It recorded but fully reserved a total of
$20,220 of interest income on a secured promissory note outstanding. In 2010 it
reported $22,886 of interest income relating primarily to interest collected on
the promissory note.

The Company capitalized $425,085 of net development costs
relating to several development projects in 2011. It received $129,600 of
development funding from two development partners and incurred $597,682 of
related costs on these projects. In 2010, the Company incurred $932,302 of
development costs and booked reserves of $2,711,392 against total development
costs capitalized. At October 31, 2011 the Company had $646,606 of
deferred development costs on its balance sheet (2010: $221,521).

20

---

In the fiscal year ended October 31, 2011, the Company
wrote-down the value of its patents by $129,033 which relate to technology the
Company has no immediate plans to develop. The Company reports $37,678 of
patents on its balance sheet at October 31, 2011

The Company capitalized $135,465 of intangible assets relating
to costs incurred with respect to technical expertise for its sensor technology
which it significantly advanced in multiple industry applications in 2011 (2010:
nil).

In 2011 the Company reported $452,111 of general and
administrative expenses and a recovery of $110,000 of payments received relating
to the secured promissory note that it had fully reserved at October 31, 2010.
In 2010 the Company reported $550,657 of general and administrative costs which
included an allowance of $201,333 to fully reserve the secured promissory note.
The level of expenditure on general and administrative costs, excluding the
impact of the promissory note in each of these years, was consistent between
2011 and 2010. These costs include office rent, communication costs, insurance,
filing fees, and costs associated with the annual general meeting of
shareholders.

Professional and other fees and salaries totaled $1,993,152 in
2011. This included a non-cash charge of $928,497 (2010: $95,038) with respect
to the cost of stock options awarded in 2011, calculated in accordance with the
Black Scholes options pricing model. The net cash expense in 2011 of $1,064,655
compares to $1,345,406 in 2010. The Company has reduced full time staff by two
individuals in 2011 and has reduced legal costs in 2011.

In 2011 we recovered $75,896 of research and development costs
representing recovering of expenses previously recorded from suppliers invoices
which were settled at a discount to face value. In 2010, we recorded a recovery
of $106,007 in the settlement of an accounts payable balance due to NanoOpto.
Development costs of $425,085 were capitalized in 2011 whereas the Company
capitalized $932,302 of such costs during the 2010 fiscal year but reserved a
total of $2,711,392 by the 2010 fiscal year end.

In 2011, the Company further reduced its travel related costs
to $91,885 from $146,104 in 2010, given its financial constraints during the
year. These costs consist primarily of travel costs incurred by MAST and relate
to the various business development activities led by Steven Van Fleet, MASTs
President.

Fiscal 2010 Compared to Fiscal 2009

The Company remained in pre-revenue mode at October 31, 2010.
The Company reported interest income of $22,886 in 2010 which primarily relates
to interested earned on the secured promissory note outstanding (Fiscal 2009:
Revenue of $88,047 comprised of $11,382 of interest income and $76,665 of
recoveries of tax credits).

The Company brought its income tax filings for all of its
subsidiaries up to date in 2010. It reports a small income tax expense of
approximately $9,500 relating to an inactive subsidiary.

In the third and fourth quarters of the 2010 fiscal year, the
Company booked impairment reserves against the project development costs it had
capitalized commencing in 2009 and continuing in the first and second quarters
of 2010. The impairment reserve of $2,711,392 includes amounts relating to
LifeMed ($114,642), Unotron ($529,424), NEMT ($797,793), BAE ($797,185) and
other projects ($472,348).

In 2010, the Company had general and administrative costs of
$550,657 compared to $937,146 in 2009. The decrease was in part due to expiry of
the Investor Relations Group (IRG) contract in September 2009. In 2009 the
activity in MAST increased significantly. The major components of the MAST
general and administrative expenses included market research ($140,000) investor
relations ($112,000) and travel expenses ($66,000). Activity in 2010 was
significantly curtailed and minimal new business development was undertaken. In
2010 the reserve for doubtful accounts includes the impairment reserve on the
Unotron debenture of $200,000 offset by the recovery of approximately $66,000 of
amounts billed to related parties and collected in 2010 after originally
reserved. These charges to related parties are a rebilling of a portion of its
overhead expenses. Given uncertainty of collection the Company will reserve the
amounts that are rebilled as these charges are recorded. The reserves reflected
in 2009 represent such amounts. Insurance related expense increased in 2010 as
the Company increased the extent of its basic coverage. Interest expense in 2010
relates to the interest incurred with respect to the bridge loans it secured in
2010.

21

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Professional, other fees and salaries were significantly
reduced from $3,240,960 in 2009 to $1,345,406 in 2010, in large part because the
Company did not issue any stock options to its officers or directors. As in
2009, the Company capitalized legal costs associated with its patent related
filings; accordingly no expense is reported in this category in 2009 or 2010.
Other legal expenses relate to ongoing compliance related costs. In 2010, the
Company incurred legal expenses related to the preparation of its FDA filing
material for the LMTI project. In 2009, it incurred legal expenses relating to
the CNSX listing it obtained that year. In 2010 we adjusted the salary rates of
several individuals on payroll. Commencing in 2008, the Company entered into a
three year employment agreeement through 2011 with the President of MAST at an
annual remuneration of $180,000. The bulk of these expenses in 2009 and all of
these costs incurred in 2010 have been allocated to Projects under Development
and capitalized. Payments to DAL in 2009 and 2010 have largely been capitalized
as Projects under Development. The expense in 2010 relates to the extension of
certain options previously granted for an additional year. In 2009 the Company
awarded stock options to officers, directors and employees and reported the
expense calculated in accordance with the Black Scholes option-pricing model.

In 2010 we reported a recovery of $106,007 of research and
development costs compared to $13,880 of expense in 2009. Commencing in 2009,
the Company began to capitalize its development costs which were previously
reported in this cost category and until that time were expensed as incurred.
During the 2009  2010 fiscal years, the Company incurred $479,000 of costs
associated with the concentrator being developed by NanoOpto. These costs were
capitalized and when the Company settled with NanoOpto it recovered $106,007 of
these costs and as a result, it reports this as Other Credits in 2010.

Travel and entertainment expense was $146,104 in 2010 compared
to $223,586 in 2009 primarily because business development activity was
curtailed in 2010 due to the Companys working capital situation.

|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, 2010                                | $7,778   | ($1,803,883)      | 0.02             
|July 31, 2010                                   | 5,000    | (1,937,819)       | 0.02             
|April 30, 2010                                  | 5,009    | (526,760)         | 0.01             
|January 31, 2010                                | 5,099    | (406,399)         | -                
|                                                |          |                   |                  
|October 31, 2011                                | $ -      | $(1,248,756)      | 0.01             
|July 31, 2011                                   | 585      | (237,795)         | 0.00             
|April 30, 2011                                  | 39       | (507,225)         | 0.01             
|January 31, 2011                                | 339      | (579,768)         | 0.01             

**B.**          **Liquidity
and Capital Resources**

Liquidity

We are a development stage company. We currently have no cash
flow from operations and will have none until we 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, 2011 we have approximately $40,000 cash on hand (2010: $26,000) and
our monthly cash expenses approximate $150,000 (2010: $200,000). Our working
capital deficiency at October 31, 2011 is $1,047,228 (2010: $1,459,460). The
Company is not current with respect to certain of its accounts payable and
accrued liabilities and continues to work with these trade suppliers to bring
these accounts current. Since October 31, 2011 we have raised an additional
$976,214 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.

22

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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 had no commitments for capital expenditures as of October
31, 2011 and made no expenditures on capital equipment during the 2011 fiscal
year.

**C.**          **Research and Development**

We are a development stage company. Under Canadian GAAP,
research costs are expensed in the period incurred. Development expenses are
expensed as incurred unless they meet the criteria for deferral and amortization
under Canadian GAAP, which 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 recovery of research and development expenses relating to
settlement of trade payables was $75,896 in 2011 (2010: $106,007). We
capitalized net development expenditures of $425,085 in 2011 (2010: $932,302)
and recorded no reserves against these deferred costs in 2011 (2010: reserve of
$2,711,392 recorded). We report $646,606 of deferred development costs at
October 31, 2011 (2010: $221,521).

**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.

23

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**F.**          **Tabular
Disclosure of Contractual Obligations**

A summary of our financial commitments as of October 31, 2011
is as below:

Payments due by periodTotal
      Less than 1 
        year
      1-3 years
      3-5 years
      More than 5 yearsConvertible debt obligations
      106,783
      106,783
      -
      -
      -Capital Lease obligations
      -
      -
      -
      -
      -Operating lease obligations
      10,0001
      10,0001
      -
      -
      -Purchase obligations
      379,442
      379,442
      -
      -
      -Management agreements   Chairman   CFO
          President   President MAST INC.
      12,5001 
        12,5001 
        13,3331 
        15,0001
      12,500 
        12,500 
        12,500 
        15,000
      - 
        - 
        - 
        -
      - 
        -
      - 
        -Total:
      549,558
      549,558
      -
      -
      -


1 Monthly obligations, no contractual term.

Critical Accounting Policies

Our significant accounting policies are set forth in Note 3 to
our consolidated financial statements, which should be read in conjunction with
management's discussion of our critical accounting policies and estimates set
forth below.

Our consolidated financial statements for the period have been
prepared in accordance with Canadian GAAP which, in our case conforms in all
material respects with U.S. GAAP except for the accounting for development
expenditures reported in the fiscal years ended October 31, 2009, 2010 and 2011,
intangible assets, warrant modification and modification of the conversion feature
of bridge loans in the fiscal year ended October 31, 2011 and for the allocation
of proceeds received using the relative fair value method of accounting for Unit
private placements for the fiscal years through October 31, 2008.

We are a development stage company. Under Canadian GAAP,
research costs are expensed in the period incurred. Development expenses are
expensed as incurred unless they meet the criteria for deferral and amortization
under Canadian GAAP which is the translation of research findings or other
knowledge into a plan for the technology prior to commercial production or use.
Under U.S. GAAP all development expenditures are expensed as incurred. In 2011,
the Company has capitalized $646,606 (2010: $221, 521) of development costs and
$135,465 (2010: nil) capitalized as intangible assets under Canadian GAAP.

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
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.

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 Canadian GAAP 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 Canadian GAAP, 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 the conversion feature represented an embedded derivative that
required separation. Under U.S. GAAP, no beneficial conversion feature exists
and under Canadian GAAP a $185,564 charge was recorded to retained earnings with
an offsetting charge to contributed surplus to reflect the value of the more
favourable conversion feature.

24

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A reconciliation between Canadian and U.S. GAAP has been
provided in the footnotes to the 2011 and 2010 audited financial statements.

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 3 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.

Commitments

Summary of commitments:
    Date executed:A. Research collaboration agreements(1) Revised Licensed Agreement  University of Toronto
      June 2005B. Operating Leases (a)
      2010C. 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, 2011.

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.

25

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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 an operating lease commitment which will expire on
December 31, 2012 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. We have agreed to provide
      compensation based on a percentage of the increase of the market
      capitalization on a year-over-year basis commencing as of December 31,
      2005. This compensation is subject to a minimum annual amount of $150,000
      (CDN) or (approximately $143,877 U.S. funds at the then current exchange
      rates). At our option, we can pay either cash or issue common shares as
      compensation providing that the cumulative maximum number of shares that
      we can issue under the agreement is 2,000,000 common shares. At October
      31, 2010, $143,877 of cash compensation for the 2010 fiscal year has been
      provided for (2009: $129,149).
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

D.Other commitments:

None.

26

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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.

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, 2011 are set forth below:

|Name              | Age | Position                                             
|----------------- | --- | -----------------------------------------------------
|                  |     |                                                      
|Salvatore Fuda    | 76  | Chairman of the
      Board of Directors             
|Joseph Fuda       | 50  | President, Chief Executive
      Officer and Director
|Dan Amadori       | 60  | Chief Financial
      Officer                        
|Steven Van Fleet  | 57  | Director and President of MAST,
      Inc.           
|Andrew Brandt     | 73  | Director                                             
|David Sharpless   | 61  | Director                                             
|Larry Blue        | 55  | Director                                             
|Oliver Nepomuceno | 42  | Director                                             
|Alex Dey          | 68  | Director                                             

Salvatore Fuda has served as Chairman of the Board of
Directors of Micromem since January 11, 1999 and a Director of Micromem since
1992. He served as President and Chief Executive Officer from June 2000 through
to February 13, 2002. From 1992 to January 11, 1999 he also served as Secretary
of Micromem. He served as President and Chief Executive Officer of Ontex
Resources Limited (TSE) from 1986 to December 1998 and as Chairman of the Board
of Ontex Resources Limited until 2008. He has served as Chairman of the Board of
Directors and as a director of Echo Energy Canada Inc. from 2002 - 2009. He also
served as Chairman of the Board of Leader Capital Corp. He is the father of
Joseph Fuda.

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

27

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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. Mr. Sharpless also sits
on the Board of Directors of a number of other private and public entities. He
has served as a director of Micromem Since 2001.

Larry Blueis Vice President and General Manager of
Multek Inc., a subsidiary of Flextronics. 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 on November 7, 2005. Previously
Mr. Blue had senior management roles with Hughes Network Systems and with IBM in
Research Triangle Park. Mr. Blue has served as a director of Micromem since
2005.

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

Alex Dey isa 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.

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.

28

---

**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 
      2010
      160,000 
      160,000
      -
      -
      2,000,0001
      1,450,000 2Salvatore Fuda, 
        Chairman of the Board of Directors
      2011 
        2010
      150,000 
        150,000
      - 
        -
      - 
        -
      1,000,0001
        -Andrew Brandt 
      Director
      2011 
      2010
      - 
      -
      - 
      -
      - 
      -
      350,0001
      -David Sharpless 
        Director
      2011 
        2010
      - 
        -
      - 
        -
      - 
        -
      450,0001
        -Steven Van Fleet 
      Director and President of MAST, Inc.
      2011 
      2010
      180,000 
      180,000
      - 
      -
      - 
      -
      1,000,0001
      300,000 2Dan Amadori 
        Chief Financial Officer
      2011 
        2010
      150,000 
        150,000
      - 
        -
      - 
        -
      1,000,0001
        100,0002Larry Blue 
      Director
      2011 
      2010
      - 
      -
      - 
      -
      - 
      -
      500,0001
      100,0002Oliver Nepomuceno 
        Director
      2011 
        2010
      - 
        -
      - 
        -
      - 
        -
      350,0001Alex Dey 
      Director
      2011 
      2010
      -
      -
      -
      225,0003
      -


Notes:

|1. | Each option entitles the holder to purchase one of our
      common shares at a price of $0.20 per share prior to expiry in October
      2016.                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | These options were originally awarded in 2005 and were
      extended for a period of 12 months in 2010. These options expired
      unexercised in May, 2011.                                                                    
|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 expiry
      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 set at each annual meeting and approved by the shareholders. 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.

In 2010 we did not issue any options to officers, directors or
employees. We extended the term by one year of a total of 2,027,199 options
which were due to expire in 2010. In December 2010, we issued 375,000 options at
a strike price of $0.55, 125,000 options at a strike price of $0.35 in April
2011 and 7,475,000 options at a strike price of $0.20 in October 2011.

29

---

**C.**          **Board
Practices**

Our Board of Directors meets on an as required basis during the
fiscal year. In 2011 our Board of Directors met formally on December 15, 2010,
February 15, 2011 and October 20, 2011.

Our Audit Committee met on a quarterly basis during fiscal 2011
for the purpose of approving the quarterly 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 2011. 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 2011 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 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 2011 the Audit Committee met on January 10,
2011, February 15, 2011, March 27, 2011, June 23, 2011 and September 27, 2011.

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, Alex Dey
an outside director and Jason Baun, the Companys Chief Information Officer.

**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., our Chief Information
Officer and four 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.

30

---

E.           Share
Ownership

NAME
    SHARES OWNED
    OPTIONS HELD
    OPTION EXERCISE
      PRICE
    EXPIRY DATE
    % OF TOTAL1Joseph Fuda Chief Executive Officer
      and Director
    191,500
    2,000,000 100,000
      150,000
    $0.20 $1.50 $1.00
    10/31/2016 08/28/2013
      08/25/2014
    2.06% (2,441,500)Salvatore Fuda Chairman of the Board of Directors
      and Director
    4,564,1672
    1,000,000 150,000
    $0.20 $1.00
    10/31/2016 08/25/2014
    4.87% (5,714,167)Andrew Brandt Director
    110,000
    350,000 85,000
      110,000
    $0.20 $1.50 $1.00
    10/31/2016 08/28/2013
      08/25/2014
    0.56% (655,000)David Sharpless Director
    100,000
    450,000 75,000 85,000 110,000
    $0.20 $1.01 $1.50 $1.00
    10/31/2016 03/03/2013 08/28/2013
      08/25/2014
    0.70 % (820,000)Steven Van Fleet Director and
      President of MAST, Inc.
    -
    350,000 1,000,000
      100,000 500,000 150,000
    $0.36 $0.20 $1.01
      $1.50 $1.00
    4/15/2012 10/31/2016
      03/03/2013 28/28/2013 08/25/2014
    1.78 % (2,100,000)Dan Amadori Chief Financial Officer
    326,801
    1,000,000 100,000 150,000
    $0.20 $1.50 $1.00
    10/31/2016 08/28/2013 8/25/2014
    1.34 % (1,576,801)Jason Baun Chief Information
      Officer
    -
    200,000 150,000
      100,000 15,000 80,000
    $0.20 $0.55 $0.60
      $1.50 $1.00
    10/31/2016 12/20/2016
      10/25/2012 08/28/2013 08/25/2014
    0.47% (545,000)Larry Blue Director
    187,500
    500,000 75,000 85,000 110,000
    $0.20 $1.01 $1.50 $1.00
    10/31/2016 03/03/2013 08/28/2013
      08/25/2014
    0.82% (957,500)Oliver Nepomuceno Director
    953,572
    350,000 75,000 75,000
      100,000
    $0.20 $1.01 $1.50
      $1.00
    10/31/2016 03/03/2013
      08/28/2013 08/25/2014
    1.33% (1,553,572)Alex Dey Director
    350,000
    125,000 100,000
    $0.35 $0.20
    04/5/2016 10/31/2016
    0.49% (575,000)


|1 | Calculated based on shares owned plus options held as a
      percentage total of shares outstanding as of October 31, 2011, plus
      options held.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|2 | 4,048,748 shares are held by a corporation wholly owned
      by a trust established for the benefit of members of Salvatore Fuda's
      family.    

ITEM
7.            
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.           Major
Shareholders

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.

31

---

**B.**          
Other Related Party Transactions

In June 2008, we entered into a six-month agreement with
Dreifus Associates Limited (DAL), whose major shareholder is Henry Dreifus, a
Director of the Company between January 2008 and June 2009. DAL provided a range
of technical and business development support to the Company. Our monthly cost
under the agreement was approximately $40,000. In addition, we granted Henry
Dreifus 350,000 stock options at an exercise price of $1.20 per share in March
2008. 275,000 of these options vested at issue date, the balance vested in three
equal quarterly installments of 25,000 options commencing in June 2008. These
options expired unexercised on August 29, 2009, 45 days after Mr. Dreifus did
not stand for re-election as a director. In August 2008, we issued 200,000 stock
options to Mr. Dreifus at an exercise price of $1.50 per share expiring in
August 2013 unexercised. These options were not vested upon issuance but only
when and if the Company would achieve certain revenue milestones. Those revenue
milestones have not been achieved and Mr. Dreifus no longer provides services to
the Company These options expired in 2011. In September 2010 the Company issued
192,307 common shares to settle $50,000 of balances due to DAL for services
rendered. At October 31, 2011 the remaining balance payable to DAL is
approximately $154,000.

Transactions With Related Parties, Directors &
Officers

The Company has paid cash and non-cash compensation to its
officers and directors during the 2011 and 2010 fiscal years as follows:

|                       |      |   | Cash         |  |   | Non-Cash     | 
|---------------------- | ---- | - | ------------ |  | - | ------------ | 
|                       |      |   | Compensation |  |   | Compensation | 
|Chairman               | 2011 | $ | 152,326      |  | $ | 118,038      | 
|                       | 2010 |   | 143,877      |  |   | -            | 
|                       |      |   |              |  |   |              | 
|Officers and Directors | 2011 | $ | 647,132      |  |   | 590,191      | 
|                       | 2010 |   | 621,223      |  |   | 95,038       | 

ITEM
8.            
FINANCIAL INFORMATION

A.Consolidated Statements and Other Financial Information

See Item 17  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, 2011 and as of February 24, 2012 there are no
legal proceedings outstanding.

B.          
Significant Changes

Since October 31, 2011 the Company has raised an additional
$976,214 through Unit private placement financings and bridge loans. There has
been no other significant change in our financial position since October 31,
2011.

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.

32

---

Period
    High
    LowLast six months:February 2012
    0.49
    0.133January 2012
    0.155
    0.10December 2011
    0.15
    0.072November 2011
    0.24
    0.10October 2011
    0.21
    0.111September 2011
    0.16
    0.111Last eight quarters:Q1 2012
    0.24
    0.072Q4 2011
    0.22
    0.111Q3 2011
    0.2614
    0.12Q2 2011
    0.22
    0.11Q1 2011
    0.34
    0.19Q4 2010
    0.35
    0.175Q3 2010
    0.40
    0.135Q2 2010
    0.55
    0.4008Last five years:2011
    0.34
    0.0722010
    0.65
    0.1352009
    1.75
    0.512008
    2.60
    0.312007
    0.85
    0.35


On February 24, 2012, the last reported sale price for our
common shares on the OTC Bulletin Board was $0.34.

ITEM
10.           ADDITIONAL
INFORMATION

A.         
 Share Capital

Our authorized capital consists of an unlimited number of
common shares, of which 116,149,718 shares were issued and outstanding as of
October 31, 2011, and 2,000,000 special, redeemable, voting preference shares,
referred to herein as special shares, none of which were outstanding, as of
October 31, 2011.

Additionally the Company has 11,175,000 stock options
outstanding with a weighted average exercise price of $.47 (2010: 10,022,199
options outstanding with a weighted average exercise price of $.89) and a total
of 26,672,637 outstanding warrants to acquire common shares with a weighted
average exercise price of $.23 (2010: 6,198,887 outstanding warrants with a
weighted average exercise price of $.51).

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.

33

---

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

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

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

- borrow money on the credit of Micromem;
- issue, re-issue, sell or pledge debt obligations of Micromem;
- subject to restrictions respecting financial assistance prescribed in the
  Business Corporations Act (Ontario), give a guarantee on behalf 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.

34

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Rights and Privileges of Shareholders

Only the registered holders of our common shares and special
preference shares on the record date are entitled to receive notice of and vote
at annual and special meetings of shareholders. Where the items of business
affect the rights of shareholders other than the holders of common shares, a
special majority of two-thirds of the votes cast by the affected shareholders at
the meeting called for such purpose is required to approve the item of business.
Beneficial holders of common shares and special shares are also entitled to
receive proxy materials in respect of meetings of shareholders in accordance
with Canadian Securities Administrators National Instrument 54-101, provided
that such proxies are limited in scope to instructing the registered shareholder
(usually a brokerage house) on how to vote on behalf of the beneficial
shareholder. There are no restrictions on the number of shares that may be held
by non-residents other than restrictions set out in the Investment Canada
Act (Canada). See "Additional Information - D. Exchange Controls".

There are no provisions in the By-laws regarding public
disclosure of individual shareholdings. Notwithstanding this, applicable
Canadian securities legislation requires certain public disclosure of persons
owning or acquiring common shares in excess of 10% of a corporation's issued and
outstanding share capital.

C.Material Contracts

|1. | 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.                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2. | In June 2008, we entered into a six-month agreement with
      Dreifus Associates Limited (DAL), whose major shareholder Henry Dreifus,
      became a director in January 2008. DAL has provided a range of technical
      and business development support to the Company. Our monthly cost under
      the contract was approximately $40,000. In addition, we granted Henry
      Dreifus 350,000 stock options at an exercise price of $1.20 per share in
      March 2008. 275,000 of these options vested at issue date, the balance
      vested in 3 equal quarterly installments of 25,000 options commencing in
      June 2008. These options expired in August 2009, 45 days after Mr. Dreifus
      did not stand for reelection as a director. In August 2008, we issued
      200,000 stock options to Henry Dreifus at an exercise price of $1.50 per
      share expiring in August 2013 if unexercised. These options were not
      vested upon issuance but only when and if the Company would achieve
      certain revenue milestones. Those revenue milestones have not been
      achieved and Mr. Dreifus no longer provides services to the Company. These
      options expired in 2011. In September 2010 the Company issued 192,307
      common shares to settle $50,000 of balances due to DAL for services
      rendered. At October 31, 2011 the remaining balance payable to DAL is
      approximately $154,000.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3. | 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. In addition, 100,000 common stock options were awarded at a
      exercise price of $1.50 per share vesting in 25,000 share installments
      over four quarters commencing in August 2008 and expiring in August 2013
      if unexercised. 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. In addition, 100,000 common stock options were awarded at a exercise
      price of $1.50 per share vesting in 25,000 share installments over four
      quarters commencing in August 2008 and expiring in August 2013 if unexercised.
      The agreement was extended on a month-to- month basis in May 2010
      stipulating the same annual base remuneration amount.    

35

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| | 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. The agreement stipulates annual
      base remuneration of $204,000 per year. In addition, 500,000 common stock
      options at a price of $1.50 per share were awarded vesting in 125,000
      share installments over four quarters commencing in August 2008 and
      expiring in August 2013 if unexercised. The agreementt was extended on a
      month-to-month basis in May 2011.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | 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 $115,000 of payments from
      Unotron during 2011. The interest rate on outstanding balances was revised
      to 18% in July 2011. The balance outstanding at October 31, 2011 is
      $111,553, which balance is fully reserved by the Company.                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5. | 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 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. See Research and
      Development Efforts, pages 16-17 of this Annual Report for a discussion of
      developments during 2010 - 2011.                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|6. | 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. See Research and Development Efforts,
      page 16-17 for a discussion of developments during 2010 - 2011. 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 LMTI, 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.

36

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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.)

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).

37

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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.

In the case of US Holders that are corporations, distributions
from the Company generally are not eligible for the dividends received
deduction.

38

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Dispositions of Common Shares of the Company

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

US Anti-Deferral Regimes

There are two regimes applicable to foreign corporations under
United States federal income tax law that potentially may apply to the Company -
the controlled foreign corporation (CFC) regime and the PFIC regime.

Generally, a foreign corporation is not a CFC unless more than
fifty percent (by vote or value) of its stock is owned by U.S. Shareholders
(generally, United States persons who have ten percent or more of the votes of
the foreign corporation). This classification generally results in the inclusion
of certain income of the CFC in the U.S. Shareholders' income as a deemed
dividend. If the Company were a CFC, the United States federal tax consequences
summarized herein could be materially and adversely different.

PFIC status is not conditioned on a certain level of ownership
of the foreign corporation by United States persons, however. The Company or any
Related Entity would be considered a PFIC if during any taxable year, 75% or
more of its gross income consists of certain types of passive income, or if
the average value during a taxable year of its passive assets (generally,
assets that generate passive income) is 50% or more of the average value of all
assets held by it. Passive income generally includes items such as dividends,
interest, rents and royalties, although there are various look through rules
that treat dividends from related persons, for example, as non-passive under
certain conditions.

If the Company is classified as a PFIC, a US Holder is subject
to increased United States federal income tax liability in respect of gain
recognized on the disposition of his, her or its common shares or upon the
receipt of certain distributions, unless such person makes a qualified electing
fund election to be taxed currently on his, or her or its pro rata
portion of the Company's income and gain (whether or not such income or gain is
distributed in the form of dividends or otherwise), and the Company provides
certain annual statements which include the information necessary to determine
inclusions and assure compliance with the PFIC rules. As an alternative to the
foregoing rules, a US Holder may make a mark-to-market election to include in
income each year as ordinary income an amount equal to the increase in value of
his, her or its common shares for that year or to claim a deduction for any
decrease in value (but only to the extent of previous mark-to-market gains).

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.

39

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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

ITEM
13.           DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable.

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

None.

40

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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
2011, our Chief Executive Officer and Chief Financial Officer concluded that, as
of October 31, 2011, 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, 2011. 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, 2011, our internal control over financial
reporting were effective.

2011 Attestation Report

The Company was not required to obtain an Attestation Report
prepared by the independent accountants for the fiscal year ended October 31,
2011 in that its market capitalization was below the minimum threshold for such
requirements.

2010 Attestation Report

The Attestation Report dated February 14, 2011 submitted by our
independent accountants cited no material weaknesses in the 2010 fiscal
year.

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, 2011 that has materially affected or is
reasonable likely to materially affect, our internal controls over financial
reporting.

ITEM 15T.   Controls and Procedures

Not applicable

41

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ITEM 16.   (Reserved)

Not Applicable.

ITEM 16A.   Audit Committee Financial
Expert

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

ITEM 16B.  Code of Ethics

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

ITEM 16C.   Principal Accountant Fees and
Services

The following table presents fees for professional audit
services rendered by our auditors for the audit of our consolidated financial
statements for the years ended October 31, 2011 and 2010, and fees billed for
other services rendered by our auditors including our offerings of securities
and tax services.

|                         | Fiscal 2011 | Fiscal 2010
|------------------------ | ----------- | -----------
|                         |             |            
|Audit Fees               | $60,000     | $75,000    
|Audit Related Fees (SOX) | -           | 25,000     
|Tax Fees                 | 5,000       | 25,000     
|All Other Fees           | 10,000      | 5,000      

Audit Fees

In 2010 we paid a total of $75,000 to Collins Barrow Toronto
LLP for audit services; in 2011 we paid a total of $60,000 to Collins Barrow
Toronto LLP for audit services.

Audit Related Fees

We paid $25,000 of audit related fees to Collins Barrow Toronto
LLP in 2010 relating to our SOX compliance audit.

Tax Fees

We paid $5,000 of tax-related fees for services in 2011 and
$25,000 of tax-related fees in 2010 to Chiampou Travis Besaw & Kershner LLP.

All other fees

We paid $10,000 in 2011 and $5,000 in 2010 to Collins Barrow
LLP with respect to our quarterly filings. Pre-approval policies The
Audit Committee assesses and pre-approves all audit and non-audit services.

42

---

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

Not applicable.

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

Not applicable.

ITEM 16F.   Change in Registrants Certifying
Accountant.

Not applicable.

ITEM 16G.   Corporate Governance

Not applicable

ITEM 17.   Financial Statements

43

---







Consolidated Financial Statements of

MICROMEM TECHNOLOGIES INC.

Years ended October 31, 2011, 2010 and 2009







---

|                    | 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      
|                                                   | www.collinsbarrow.com
|To the Shareholders of Micromem Technologies Inc.: |                      

We have audited the accompanying consolidated financial
statements of Micromem Technologies Inc. and its subsidiaries, which comprise
the consolidated balance sheets as at October 31, 2011 and 2010 and the
consolidated statements of operations and deficit and cash flows for each of the
years in the three-year period ended 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
Canadian generally accepted accounting principles, 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 financial statements. The
procedures selected depend on the auditors judgment, including the assessment
of the risks of material misstatement of the 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 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 financial statements.

We believe that the audit evidence we have obtained in ours
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, 2011 and 2010, and its
financial performance and its cash flows for each of the years in the three-year
period ended October 31, 2011 in accordance with Canadian generally accepted
accounting principles.

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 doubts about Micromem Technologies Inc.s ability to
continue as a going concern.

Chartered Accountants Licensed Public Accountants
Toronto, Ontario 
  February 24, 2012

| | 1 | 
| | - | 

---

MICROMEM TECHNOLOGIES
INC.(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS(Expressed in United
States dollars)

|As at                                                                                                                                                                                                                                                                                                                 |   | October 31, 2011 |   |   | October 31, 2010 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
|                                                                                                                                                                                                                                                                                                                      |   |                  |   |   |                  |  
|Assets                                                                                                                                                                                                                                                                                                                |   |                  |   |   |                  |  
|Current assets:                                                                                                                                                                                                                                                                                                       |   |                  |   |   |                  |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                             | $ | 44,062           |   | $ | 26,039           |  
|Deposits and other
      receivables                                                                                                                                                                                                                                                                                  |   | 32,334           |   |   | 97,063           |  
|Promissory note
      receivable (Note 7)                                                                                                                                                                                                                                                                             |   | -                |   |   | 5,000            |  
|                                                                                                                                                                                                                                                                                                                      |   | 76,396           |   |   | 128,102          |  
|                                                                                                                                                                                                                                                                                                                      |   |                  |   |   |                  |  
|Property and equipment, net (Note 8)                                                                                                                                                                                                                                                                                  |   | 10,201           |   |   | 16,686           |  
|Deferred development costs
      (Note 9)                                                                                                                                                                                                                                                                             |   | 646,606          |   |   | 221,521          |  
|Intangible assets (Note 10)                                                                                                                                                                                                                                                                                           |   | 135,465          |   |   | -                |  
|Patents, net (Note 10)                                                                                                                                                                                                                                                                                                |   | 37,678           |   |   | 202,027          |  
|                                                                                                                                                                                                                                                                                                                      | $ | 906,346          |   | $ | 568,336          |  
|                                                                                                                                                                                                                                                                                                                      |   |                  |   |   |                  |  
|Liabilities and Shareholders' Equity
      (Deficiency)                                                                                                                                                                                                                                                               |   |                  |   |   |                  |  
|Current liabilities:                                                                                                                                                                                                                                                                                                  |   |                  |   |   |                  |  
|Bridge loans (Note
      11(e))                                                                                                                                                                                                                                                                                       |   | 106,783          |   |   | 512,548          |  
|Accounts payable and
      accrued liabilities                                                                                                                                                                                                                                                                        |   | 1,016,841        |   |   | 1,075,014        |  
|                                                                                                                                                                                                                                                                                                                      |   | 1,123,624        |   |   | 1,587,562        |  
|Shareholders' Equity
      (Deficiency)                                                                                                                                                                                                                                                                               |   |                  |   |   |                  |  
|Share capital:
      (Note 11)                                                                                                                                                                                                                                                                                        |   |                  |   |   |                  |  
|Authorized:                       
       2,000,000 special preference shares, redeemable,
      voting                          Unlimited
      common shares without par
      value                Issued
      and
      outstanding:                          116,149,718
      common shares (2010: 95,324,511) |   | 51,774,555       |   |   | 50,102,699       |  
|Equity component
      of bridge loans (Note 11(e))                                                                                                                                                                                                                                                                   |   | 558              |   |   | 5,784            |  
|Contributed surplus (Note 12)                                                                                                                                                                                                                                                                                         |   | 26,851,850       |   |   | 24,664,404       |  
|Deficit accumulated during the development
      stage                                                                                                                                                                                                                                                                |   | (78,844,241      | ) |   | (75,792,113      | )
|                                                                                                                                                                                                                                                                                                                      |   | (217,278         | ) |   | (1,019,226       | )
|                                                                                                                                                                                                                                                                                                                      | $ | 906,346          |   | $ | 568,336          |  
|                                                                                                                                                                                                                                                                                                                      |   |                  |   |   |                  |  
|                                                                                                                                                                                                                                                                                                                      |   |                  |   |   |                  |  
|Going Concern (Note 2)                                                                                                                                                                                                                                                                                                |   |                  |   |   |                  |  
|Related Party Transactions (Note 14)                                                                                                                                                                                                                                                                                  |   |                  |   |   |                  |  
|Commitments (Note 15)                                                                                                                                                                                                                                                                                                 |   |                  |   |   |                  |  
|Contingencies (Note 16)                                                                                                                                                                                                                                                                                               |   |                  |   |   |                  |  
|Subsequent Events (Note 20)                                                                                                                                                                                                                                                                                           |   |                  |   |   |                  |  

|"Joseph Fuda"
      (Signed)     | 
|-------------------------------- | 
|Joseph Fuda, Director            | 
|                                 | 
|"David Sharpless"
      (Signed) | 
|David Sharpless, Director        | 

See accompanying notes.

2

---

MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT
STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS AND
DEFICIT(Expressed in United States dollars)For the year ended
October 31, 2011 (with comparative data)

|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   | Period from            |  
|----------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - | - | ---------------- | - | - | ---------------------- | -
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   | September 3, 1997      |  
|                                                                                                            |   | October 31, 2011 |   |   | October 31, 2010 |   |   | October 31, 2009 |   |   | to
      Oct. 31, 2011 |  
|                                                                                                            |   | (12 mos          | ) |   | (12 mos          | ) |   | (12 mos          | ) |   |                        |  
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Costs and expenses (income):                                                                                |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Administration                                                                                              | $ | 452,111          |   | $ | 349,324          |   | $ | 937,146          |   | $ | 4,751,990              |  
|Professional, other fees and salaries (Notes
      11 and 14)                                               |   | 1,993,152        |   |   | 1,345,406        |   |   | 3,240,960        |   |   | 48,305,817             |  
|Research and development
      (recovery) (Note 15 (d))                                                     |   | (75,896          | ) |   | (106,007         | ) |   | 13,880           |   |   | 8,703,617              |  
|Travel and entertainment                                                                                    |   | 91,885           |   |   | 146,104          |   |   | 223,586          |   |   | 2,434,175              |  
|Amortization of property and
      equipment (Note 8)                                                       |   | 6,469            |   |   | 8,586            |   |   | 11,567           |   |   | 561,518                |  
|Amortization of patents (Note 10)                                                                           |   | 43,333           |   |   | -                |   |   | -                |   |   | 110,929                |  
|Foreign exchange loss (gain)                                                                                |   | 43,215           |   |   | 32,101           |   |   | (28,153          | ) |   | 178,963                |  
|Write-down of deferred development costs (Note
      9)                                                     |   | -                |   |   | 2,711,392        |   |   | -                |   |   | 2,711,392              |  
|Write-down of patents and
      trademarks (Note 10)                                                        |   | 129,033          |   |   | -                |   |   | -                |   |   | 428,853                |  
|Write-down of royalty rights                                                                                |   | -                |   |   | -                |   |   | -                |   |   | 10,000,000             |  
|Allowance (recovery),
      promissory note receivable (Note 7)                                             |   | (110,000         | ) |   | 201,333          |   |   | -                |   |   | 91,333                 |  
|Other
      expenses                                                                                        |   | -                |   |   | -                |   |   | -                |   |   | 732,941                |  
|Loss from operations                                                                                        |   | 2,573,302        |   |   | 4,688,239        |   |   | 4,398,986        |   |   | 79,011,528             |  
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Interest and other income                                                                                   |   | (963             | ) |   | (22,886          | ) |   | (88,047          | ) |   | (676,261               | )
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Loss before income taxes                                                                                    |   | (2,572,339       | ) |   | (4,665,353       | ) |   | (4,310,939       | ) |   | (78,335,267            | )
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Income taxes (Note 13)                                                                                      |   | 1,205            |   |   | 9,508            |   |   | -                |   |   | 30,390                 |  
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Net loss for the year                                                                                       |   | (2,573,544       | ) |   | (4,674,861       | ) |   | (4,310,939       | ) |   | (78,365,657            | )
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Deficit accumulated during the development
      stage, beginning of year                                   |   | (75,792,113      | ) |   | (71,117,252      | ) |   | (66,806,313      | ) |   | -                      |  
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Adjustment for the modification of warrants
      (Note 11(f))                                              |   | (293,020         | ) |   | -                |   |   | -                |   |   | (293,020               | )
|Adjustment for the
      modification of conversion feature of bridge loans (Note 11(e)(i) and
      (iii)) |   | (185,564         | ) |   | -                |   |   | -                |   |   | (185,564               | )
|Deficit accumulated during the development
      stage, end of year                                         | $ | (78,844,241      | ) | $ | (75,792,113      | ) | $ | (71,117,252      | ) | $ | (78,844,241            | )
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Loss per
      share - basic and diluted                                                                    |   | (0.03            | ) |   | (0.05            | ) |   | (0.05            | ) |   | (1.22                  | )
|                                                                                                            |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Weighted average number of shares                                                                           |   | 102,301,168      |   |   | 92,225,645       |   |   | 86,400,439       |   |   | 64,376,850             |  

See accompanying notes.

3

---

MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT
STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in
United States dollars)For the year ended October 31, 2011 (with comparative
data)

|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   | Period from            |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - | - | ---------------- | - | - | ---------------------- | -
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   | September 03, 1997     |  
|                                                                                                        |   | October 31, 2011 |   |   | October 31, 2010 |   |   | October 31, 2009 |   |   | to
      Oct. 31, 2011 |  
|                                                                                                        |   | (12 mos          | ) |   | (12 mos          | ) |   | (12 mos          | ) |   |                        |  
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Net loss for the year                                                                                   | $ | (2,573,544       | ) | $ | (4,674,861       | ) | $ | (4,310,939       | ) | $ | (78,365,657            | )
|Adjustments to reconcile loss
      for the period to net      cash used in operating
      activities: |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Amortization of patents and trademarks                                                                  |   | 43,333           |   |   | -                |   |   | -                |   |   | 110,929                |  
|Amortization of
      property and equipment                                                            |   | 6,469            |   |   | 8,586            |   |   | 11,567           |   |   | 561,518                |  
|Accretion expense                                                                                       |   | 1,167            |   |   | 5,415            |   |   | -                |   |   | 6,582                  |  
|Stock option
      expense                                                                              |   | 928,497          |   |   | 95,038           |   |   | 1,951,569        |   |   | 33,191,211             |  
|Write-down of deferred development costs                                                                |   | -                |   |   | 2,711,392        |   |   | -                |   |   | 2,711,392              |  
|Write-down of
      patents and trademarks                                                              |   | 129,033          |   |   | -                |   |   | -                |   |   | 428,853                |  
|Gain on settlement of debt                                                                              |   | -                |   |   | (114,000         | ) |   | -                |   |   | (114,000               | )
|Shares issued to
      supplier                                                                         |   | -                |   |   | -                |   |   | 173,125          |   |   | 173,125                |  
|Write-down of royalty rights                                                                            |   | -                |   |   | -                |   |   | -                |   |   | 10,000,000             |  
|Other adjustments                                                                                       |   | -                |   |   |                  |   |   | -                |   |   | 215,086                |  
|Net changes in non-cash
      working capital                                                           |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Increase
      (decrease) in deposits and other receivables                                             |   | 69,729           |   |   | 181,423          |   |   | (154,575         | ) |   | (23,737                | )
|Increase (decrease) in
      accounts payable and accrued liabilities                                   |   | (58,192          | ) |   | 170,874          |   |   | 97,415           |   |   | 1,286,537              |  
|Net cash used in
      operating activities                                                             |   | (1,453,508       | ) |   | (1,616,133       | ) |   | (2,231,838       | ) |   | (29,818,161            | )
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Cash flows from investing activities:                                                                   |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Purchase of property
      and equipment                                                                |   | -                |   |   | (851             | ) |   | (9,668           | ) |   | (771,654               | )
|Patents and trademarks                                                                                  |   | (8,017           | ) |   | (78,891          | ) |   | (147,850         | ) |   | (602,175               | )
|Deferred development
      costs                                                                        |   | (425,085         | ) |   | (878,852         | ) |   | (2,000,611       | ) |   | (3,304,547             | )
|Intangible assets                                                                                       |   | (135,465         | ) |   | -                |   |   | -                |   |   | (135,465               | )
|Other                                                                                                   |   | -                |   |   | -                |   |   | -                |   |   | 395,099                |  
|Royalty rights                                                                                          |   | -                |   |   | -                |   |   | -                |   |   | (2,000,000             | )
|Net cash used in investing activities                                                                   |   | (568,567         | ) |   | (958,594         | ) |   | (2,158,129       | ) |   | (6,418,742             | )
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Cash flows from financing activities:                                                                   |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Issue of common shares                                                                                  |   | 2,446,432        |   |   | 1,981,741        |   |   | 4,020,842        |   |   | 34,994,973             |  
|Bridge loan advances                                                                                    |   | 496,813          |   |   | 512,915          |   |   | -                |   |   | 1,009,728              |  
|Bridge loan repayments                                                                                  |   | (903,147         | ) |   | -                |   |   | -                |   |   | (903,147               | )
|Other                                                                                                   |   | -                |   |   | -                |   |   | -                |   |   | 1,179,411              |  
|Net cash provided by financing activities                                                               |   | 2,040,098        |   |   | 2,494,656        |   |   | 4,020,842        |   |   | 36,280,965             |  
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Increase (decrease) in cash and cash
      equivalents                                                  |   | 18,023           |   |   | (80,071          | ) |   | (369,125         | ) |   | 44,062                 |  
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Cash and cash equivalents, beginning of year                                                            |   | 26,039           |   |   | 106,110          |   |   | 475,235          |   |   | -                      |  
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   | -                      |  
|Cash and cash equivalents, end of year                                                                  | $ | 44,062           |   | $ | 26,039           |   | $ | 106,110          |   | $ | 44,062                 |  
|                                                                                                        |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Supplemental cash flow information:                                                                     |   |                  |   |   |                  |   |   |                  |   |   |                        |  
|Interest paid                                                                                           |   | 211,264          |   |   | -                |   |   | -                |   |   | 288,251                |  
|Income taxes paid                                                                                       |   | 10,713           |   |   | -                |   |   | -                |   |   | 77,435                 |  

See accompanying notes.

4

---

MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT
STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DEFICIENCY)(Expressed in United States dollars)For the year
ended October 31, 2011 (with comparative data)

Number of
    
    
    Share
      Capital
    
    
    Contributed
    
    
    Deferred
      Share
    
    
    Equity
      component
    
    
    Deficit
      AccumulatedShares
    
    
    
    
    
    Surplus
    
    
    Compensation
    
    
    of Bridge loan
    
    
    DuringDevelopment stageMicromem share capital, October 31, 1998
    
    3,490,643
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Exercise of directors stock options
    
    490,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Pageant share capital, October 31, 1998
    
    -
    
    
    1
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (500,992
    )Common shares of Pageant, December 4, 1998
    
    -
    
    
    4,999
    
    
    -
    
    
    -
    
    
    -
    
    
    -Assigned fair
      value of net assets
    
    32,000,000
    
    
    549,140
    
    
    -
    
    
    -
    
    
    -
    
    
    -Micromem share capital, September 11, 1999
    
    35,980,643
    
    
    554,140
    
    
    -
    
    
    -
    
    
    -
    
    
    (500,992
    )Exercise of common share purchase warrants
      for cash
    
    120,676
    
    
    164,053
    
    
    -
    
    
    -
    
    
    -
    
    
    -Private placement of common shares for cash, May 17, 1999
    
    350,000
    
    
    1,050,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Shareholder loan forgiven
    
    -
    
    
    -
    
    
    544,891
    
    
    -
    
    
    -
    
    
    -Exercise of stock options for cash
    
    100,000
    
    
    300,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (5,207,787
    )Balance, October 31, 1999
    
    36,551,319
    
    
    2,068,193
    
    
    544,891
    
    
    -
    
    
    -
    
    
    (5,708,779
    )Exercise of common share purchase warrants for cash
    
    182,087
    
    
    274,717
    
    
    -
    
    
    -
    
    
    -
    
    
    -Exercise of stock options for cash
    
    100,000
    
    
    300,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Deferred share compensation
    
    -
    
    
    -
    
    
    2,711,881
    
    
    (453,219
    )
    
    -
    
    
    -Private placement of common shares for
      cash, February 10, 2000
    
    2,000,000
    
    
    5,000,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Common shares issued pursuant to compensation agreements,
      March
    
    901,110
    
    
    4,206,447
    
    
    -
    
    
    -
    
    
    -
    
    
    -Stock options issued to
      directors/consultants
    
    -
    
    
    -
    
    
    9,681,257
    
    
    -
    
    
    -
    
    
    -Net loss for the
      year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (16,940,613
    )Balance, October 31, 2000
    
    39,734,516
    
    
    11,849,357
    
    
    12,938,029
    
    
    (453,219
    )
    
    -
    
    
    (22,649,392
    )Exercise of common share purchase warrants
      for cash
    
    362,450
    
    
    554,655
    
    
    -
    
    
    -
    
    
    -
    
    
    -Common shares issued under rights offering November 20,
      2000
    
    304,674
    
    
    1,119,058
    
    
    -
    
    
    -
    
    
    -
    
    
    -Exercise of stock options for cash
    
    800,000
    
    
    2,400,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Deferred share compensation
    
    -
    
    
    -
    
    
    (453,219
    )
    
    453,219
    
    
    -
    
    
    -Stock-based compensation
    
    -
    
    
    -
    
    
    34,000
    
    
    -
    
    
    -
    
    
    -Exercise of directors stock options for cash, January 17,
      2001
    
    714,686
    
    
    71,469
    
    
    -
    
    
    -
    
    
    -
    
    
    -Common shares issued pursuant to
      compensatory stock options
    
    -
    
    
    1,581,242
    
    
    (1,581,242
    )
    
    -
    
    
    -
    
    
    -Adjustment-share compensation expenses
    
    -
    
    
    -
    
    
    (677,420
    )
    
    -
    
    
    -
    
    
    -Common shares issued pursuant to
      compensation agreement, January
    
    11,192
    
    
    66,461
    
    
    -
    
    
    -
    
    
    -
    
    
    -Private placement of common shares for cash, March 21, 2001
    
    2,000,000
    
    
    4,000,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Common shares issued under asset purchase
      agreement to Estancia
    
    2,007,831
    
    
    8,000,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Compensation shares due but not issued
    
    -
    
    
    -
    
    
    1,431,545
    
    
    -
    
    
    -
    
    
    -Stock options issued to
      directors/consultants
    
    -
    
    
    -
    
    
    4,627,752
    
    
    -
    
    
    -
    
    
    -Net loss for the
      year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (9,187,377
    )Balance, October 31, 2001
    
    45,935,349
    
    
    29,642,242
    
    
    16,319,445
    
    
    -
    
    
    -
    
    
    (31,836,769
    )Stock options issued to
      directors/consultants
    
    -
    
    
    -
    
    
    1,832,500
    
    
    -
    
    
    -
    
    
    -Shares issued pursuant to compensatory agreement, March 26,
      2002
    
    765,588
    
    
    1,431,545
    
    
    (1,431,545
    )
    
    -
    
    
    -
    
    
    -Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    
    
    
    (14,565,515
    )Balance, October 31, 2002
    
    46,700,937
    
    
    31,073,787
    
    
    16,720,400
    
    
    -
    
    
    -
    
    
    (46,402,284
    )Private placement of common shares for cash, August 13,
      2003
    
    2,031,250
    
    
    162,500
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,767,965
    )Stock options
      issued to directors/consultants
    
    
    
    
    
    
    
    318,000
    
    
    
    
    
    -Balance, October 31, 2003
    
    48,732,187
    
    
    31,236,287
    
    
    17,038,400
    
    
    -
    
    
    -
    
    
    (48,170,249
    )Private placement
    
    800,000
    
    
    73,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Exercise of common share warrants
    
    3,231,250
    
    
    264,500
    
    
    -
    
    
    -
    
    
    -
    
    
    -Exercise of options for cash
    
    5,300,000
    
    
    530,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -Stock options issued to consultant
    
    -
    
    
    -
    
    
    1,379,970
    
    
    -
    
    
    -
    
    
    -Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,314,298
    )Balance at October 31, 2004
    
    58,063,437
    
    
    32,103,787
    
    
    18,418,370
    
    
    -
    
    
    -
    
    
    (50,484,547
    )Exercise of common share purchase warrants for cash
    
    2,431,250
    
    
    206,500
    
    
    -
    
    
    -
    
    
    -
    
    
    -Private placement of common shares for cash
    
    2,342,334
    
    
    1,472,500
    
    
    -
    
    
    -
    
    
    -
    
    
    -Exercise of stock options
    
    1,820,000
    
    
    553,600
    
    
    -
    
    
    -
    
    
    -
    
    
    -Settlement of accounts payable for common
      shares
    
    62,428
    
    
    43,700
    
    
    -
    
    
    -
    
    
    -
    
    
    -Stock options issued to consultants/employees
    
    -
    
    
    -
    
    
    1,721,742
    
    
    -
    
    
    -
    
    
    -Legal expenses relating to private
      placements
    
    -
    
    
    (75,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Net loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (4,035,483
    )Transfer to contributed surplus (restatement)
    
    -
    
    
    (264,000
    )
    
    264,000
    
    
    -
    
    
    -
    
    
    -Balance at October 31, 2005
    
    64,719,449
    
    
    34,041,087
    
    
    20,404,112
    
    
    -
    
    
    -
    
    
    (54,520,030
    )


5

---

MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT
STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DEFICIENCY)(Expressed in United States dollars)For the year
ended October 31, 2011 (with comparative data)

Number of
    
    
      Share Capital
    
    
      Contributed
    
    
      Deferred
        Share
    
    
      Equity component
    
    
    Deficit AccumulatedShares
    
    
      
    
    
      Surplus
    
    
      Compensation
    
    
      of Bridge loan
    
    
    DuringDevelopment stageBalance at October 31, 2005
    
      64,719,449
    
    $
      34,041,087
    
    $
      20,404,112
        $
    
    
      -
    
    $
      -
    
    $
    (54,520,030
    )Exercise of stock options
    
      3,550,000
    
    
      1,064,980
    
    
      -
    
    
      -
    
    
      -
    
    
    -Stock options issued to consultants/employees
    
      -
    
    
      -
    
    
      2,058,560
    
    
      -
    
    
      -
    
    
    -Private placement of common
      shares for cash
    
      150,000
    
    
      75,000
    
    
      -
    
    
      -
    
    
      -
    
    
    -Exercise of common share purchase warrants
      for cash
    
      771,850
    
    
      485,548
    
    
      -
    
    
      -
    
    
      -
    
    
    -Net loss
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
    (4,058,180
    )Transfer to contributed surplus (restatement)
    
      -
    
    
      1,026,738
    
    
      (1,026,738
    )
    
      -
    
    
      -
    
    
    -Balance at October 31, 2006
    
      69,191,299
    
    
      36,693,353
    
    
      21,435,934
    
    
      -
    
    
      -
    
    
    (58,578,210
    )Exercise of stock options
    
      1,700,000
    
    
      552,000
    
    
      -
    
    
      -
    
    
      -
    
    
    -Transfer from contributed surplus
    
      -
    
    
      340,122
    
    
      (340,122
    )
    
      -
    
    
      -
    
    
    -Price adjustment on
      outstanding warrants
    
      -
    
    
      (1,326,308
    )
    
      1,326,308
    
    
      -
    
    
      -
    
    
    -Stock options issued to consultants/employees
    
      -
    
    
      -
    
    
      86,787
    
    
      -
    
    
      -
    
    
    -Stock options issued to
      Directors
    
      -
    
    
      -
    
    
      96,945
    
    
      -
    
    
      -
    
    
    -Warrants issued to consultants
    
      -
    
    
      -
    
    
      85,484
    
    
      -
    
    
      -
    
    
    -Exercise of common share
      purchase warrants for cash
    
      477,500
    
    
      191,000
    
    
      -
    
    
      -
    
    
      -
    
    
    -Private placement of common shares for cash
    
      1,577,368
    
    
      716,230
    
    
      -
    
    
      -
    
    
      -
    
    
    -Net loss
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
    (2,811,378
    )Balance at October 31, 2007
    
      72,946,167
    
    
      37,166,397
    
    
      22,691,336
    
    
      -
    
    
      -
    
    
    (61,389,588
    )Warrants issued to consultants
    
      -
    
    
      -
    
    
      23,814
    
    
      -
    
    
      -
    
    
    -Private placement of common
      shares for cash
    
      4,152,296
    
    
      2,980,031
    
    
      -
    
    
      -
    
    
      -
    
    
    -Exercise of stock options
    
      1,440,000
    
    
      1,010,500
    
    
      -
    
    
      -
    
    
      -
    
    
    -Exercise of common share
      purchase warrants for cash
    
      3,671,318
    
    
      1,493,527
    
    
      -
    
    
      -
    
    
      -
    
    
    -Transfer from contributed surplus for stock
      options exercised
    
      -
    
    
      537,494
    
    
      (537,494
    )
    
      -
    
    
      -
    
    
    -Transfer from contributed
      surplus for warrants exercised
    
      -
    
    
      1,411,792
    
    
      (1,411,792
    )
    
      -
    
    
      -
    
    
    -Stock options issued to directors/consultants
    
      -
    
    
      -
    
    
      1,017,600
    
    
      -
    
    
      -
    
    
    -Settlement of accounts
      payable for common shares.
    
      30,000
    
    
      59,100
    
    
      -
    
    
      -
    
    
      -
    
    
    -Cashless exercise of warrants for common
      shares
    
      646,886
    
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
    -Warrants issued for private
      placement
    
      -
    
    
      (330,957
    )
    
      330,957
    
    
      -
    
    
      -
    
    
    -Common shares for services
    
      50,000
    
    
      52,250
    
    
      -
    
    
      -
    
    
      -
    
    
    -Net loss
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
    (5,416,725
    )Balance at October 31, 2008
    
      82,936,667
    
    
      44,380,134
    
    
      22,114,421
    
    
      -
    
    
      -
    
    
    (66,806,313
    )Private placement of units for cash
    
      4,393,535
    
    
      2,305,215
    
    
      653,627
    
    
      -
    
    
      -
    
    
    -Exercise of stock options
    
      1,652,801
    
    
      992,417
    
    
      -
    
    
      -
    
    
      -
    
    
    -Transfer from contributed surplus for stock
      options exercised
    
      -
    
    
      573,706
    
    
      (573,706
    )
    
      -
    
    
      -
    
    
    -Common shares for services
    
      200,000
    
    
      173,125
    
    
      -
    
    
      -
    
    
      -
    
    
    -Financing cost paid
    
      -
    
    
      (164,417
    )
    
      -
    
    
      -
    
    
      -
    
    
    -Stock options issued to
      directors/consultants
    
      -
    
    
      -
    
    
      1,951,569
    
    
      -
    
    
      -
    
    
    -Exercise of common share purchase warrants
      for cash
    
      200,000
    
    
      234,000
    
    
      -
    
    
      -
    
    
      -
    
    
    -Net loss
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
    (4,310,939
    )Balance at October 31, 2009
    
      89,383,003
    
    
      48,494,180
    
    
      24,145,911
    
    
      -
    
    
      -
    
    
    (71,117,252
    )Private placement of units for cash
    
      5,749,201
    
    
      1,599,658
    
    
      421,393
    
    
      -
    
    
      -
    
    
    -Common shares for services
    
      192,307
    
    
      50,000
    
    
      -
    
    
      -
    
    
      -
    
    
    -Financing cost paid
    
      -
    
    
      (39,310
    )
    
      -
    
    
      -
    
    
      -
    
    
    -Stock options extended to
      directors/consultants
    
      -
    
    
      -
    
    
      95,038
    
    
      -
    
    
      -
    
    
    -Warrants extended
    
      -
    
    
      (1,829
    )
    
      1,829
    
    
      -
    
    
      -
    
    
    -Equity portion of bridge loan
    
      -
    
    
      -
    
    
      233
    
    
      -
    
    
      5,784
    
    
    -Net
      loss
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
    (4,674,861
    )Balance at October 31, 2010
    
      95,324,511
    
    
      50,102,699
    
    
      24,664,404
    
    
      -
    
    
      5,784
    
    
    (75,792,113
    )Private placement of units for cash
    
      20,825,207
    
    
      2,478,681
    
    
      -
    
    
      -
    
    
      -
    
    
    -Financing costs paid
    
      
    
    
      (32,249
    )Stock options issued to directors/staff
    
      -
    
    
      -
    
    
      928,497
    
    
      -
    
    
      -
    
    
    -Warrants issued for private
      placement
    
      -
    
    
      (774,575
    )
    
      774,575
    
    
      -
    
    
      -
    
    
    -Warrants extended
    
      -
    
    
      -
    
    
      293,020
    
    
      -
    
    
      -
    
    
    (293,020
    )Modification of bridge loans
    
      -
    
    
      -
    
    
      185,564
    
    
      -
    
    
      -
    
    
    (185,564
    )Equity portion of bridge loan
    
      -
    
    
      -
    
    
      5,790
    
    
      -
    
    
      (5,226
    )
    
    -Net loss
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
    (2,573,544
    )Balance at October 31, 2011
    
      116,149,718
    
    
      51,774,555
    
    
      26,851,850
    
    
      -
    
    
      558
    
    
    (78,844,241
    )


See accompanying notes.

6

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|1. | NATURE OF BUSINESS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Micromem Technologies Inc. (Micromem or the Company)
      is a corporation incorporated under the laws of the Province of Ontario,
      Canada. By Articles of Amendment dated January 14, 1999, the Company
      changed its name from Avanticorp International Inc. to Micromem
      Technologies Inc. On January 11, 1999, the Company acquired all of the
      outstanding shares of Pageant Technologies Inc. (Pageant), a company
      subsisting under the laws of Barbados. This acquisition was recorded as a
      reverse takeover under Canadian generally accepted accounting principles
      (Canadian GAAP) which, except as outlined in Note 18, conforms with
      United States generally accepted accounting principles (U.S.
    GAAP).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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, 2011 and is devoting substantially
      all of its efforts to the development of its technologies. Accordingly,
      for financial reporting purposes, the Company is a development stage
      enterprise.                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | GOING CONCERN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | These consolidated financial statements have been
      prepared on the going concern basis, which presumes that the Company
      will be able to realize its assets and discharge its liabilities in the
      normal course of business for the foreseeable future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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, 2011, the Company incurred a net
      loss of $2,573,544 (2010: $4,674,861) and, as of that date, the Company
      has an accumulated deficit of $78,844,241 (2010: $75,792,113), a working
      capital deficiency of $1,047,228 (2010: $1,459,460) and negative cash
      flows from operations of $1,453,508 (2010: $1,616,133).                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company will focus its development effort on existing
      projects in order to develop commercial applications for these projects
      and will continue to raise financing for operations as outlined in Notes
      11 and 20.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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 term loans.                                                                                                                                                                                                                                                                                                                                           

7

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|2. | GOING CONCERN (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In the ensuing fiscal year, the Company anticipates that
      (i) it will realize initial revenues from commercialization efforts with
      current strategic development partners, (ii) it will monitor the timing of
      incurring additional expenses in keeping with its ongoing working capital
      position, and (iii) it will continue to secure financing in the same
      manner in which it has raised financing to date.                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The consolidated financial statements have been prepared
      on a going concern basis and do not include any adjustments to the amounts
      and classifications of the assets and liabilities that might be necessary
      should the Company be unable to continue in business. If the going
      concern assumption were not appropriate for these consolidated financial
      statements then adjustments would be necessary to the carrying value of
      assets and liabilities, the reported expenses and the balance sheet
      classifications used. Such adjustments may be material.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | These consolidated financial statements have been
      prepared in accordance with Canadian GAAP and are stated in United States
      dollars. These principles are also in conformity in all material respects
      with U.S. GAAP (except as disclosed in Note 18). The most significant
      accounting policies are as follows:                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

8

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| | iii. | On October 30, 2008, the Company incorporated 7070179
      Canada Inc. as a wholly- owned subsidiary. On October 31, 2008, the
      Company assigned its rights, title and interests in certain patents which
      it previously held directly to 7070179 Canada Inc. in exchange for common
      shares of this subsidiary.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |    | All intercompany investments, balances and transactions
      have been eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b. | Use of Estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The preparation of consolidated financial statements in
      conformity with Canadian GAAP requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities,
      the disclosure of contingent assets and liabilities at the date of the
      consolidated financial statements and the reported amounts of income and
      expenses during the reporting period. Actual results could differ from
      those estimates.                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Significant estimates made by the Company include the
      allowance for doubtful accounts receivable, the valuation of the
      promissory note receivable, the estimated useful life of property and
      equipment and patents, the valuation of patents, the valuation of
      intangible assets, the valuation of deferred development costs incurred,
      the valuation of bridge loans, the valuation of accrued liabilities and
      the computation of fair values of stock options and warrants using the
      Black Scholes option-pricing model.                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | c. | Financial Instruments  Recognition, Measurement,
      Disclosure and Presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Section 3855 establishes standards for recognizing and
      measuring financial assets, financial liabilities and non-financial
      derivatives. All financial assets and financial liabilities, including
      derivatives, are initially measured in the balance sheet at fair value,
      except for loans and receivables, investments held-to maturity and other
      financial liabilities, which are measured at amortized cost. Measurement
      in subsequent periods depends on whether the financial instrument had been
      classified as held-for trading, available-for-sale, held-to- maturity,
      loans and receivables, or other liabilities.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Held-for-trading financial investments are measured at
      fair value and all gains and losses are included in net income in the
      period in which they arise. Available-for-sale financial assets are
      measured at fair value with revaluation gains and losses included in other
      comprehensive income until the assets are removed from the balance
      sheet.                                                                                                                                                                                                                                                                                       

9

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------

| |    | The Company classifies cash and cash equivalents as
      held-for-trading. Held-for-trading financial assets are measured at fair
      value with unrealized gains and losses recognized in the Consolidated
      Statement of Operations. Accounts receivable 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.                                                                                                  
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | d. | Comprehensive Income:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Section 1530 requires the presentation of comprehensive
      income, which consists of net income and other comprehensive income
      ("OCI"). Comprehensive income is defined as the change in equity from
      transactions and other events from non-owner sources. OCI refers to items
      recognized in comprehensive income but that are excluded from net income
      calculated in accordance with generally accepted accounting principles.
      The Company does not currently have any other comprehensive income and
      accordingly, a statement of comprehensive income has not been
      presented.                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | e. | Foreign Currency Translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The functional and reporting currency of the Company is
      the United States dollar. The Companys wholly-owned foreign subsidiaries
      are integrated foreign operations and, therefore, the Company uses the
      temporal method whereby monetary assets and liabilities are translated
      into United States dollars at the rate of exchange in effect at the
      consolidated balance sheet dates and non-monetary assets and liabilities
      are translated at historical rates. Income 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.
      Gains or losses resulting from translation are included in the
      determination of net loss for the period.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | f. | Cash and Cash Equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Cash and cash equivalents consist of all bank accounts
      and all highly liquid investments with original maturities of three months
      or less at the date of purchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

10

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------
|   |                                                          
|   | g.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   | h.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   | i.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   | j.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          

11

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------
|   |                                                          
|   | k.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          
|   | l.                                                       
|   |                                                          
|   |                                                          

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

| | m. | 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 Corporation 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 2009, the Company
      determined that its continuing activities related to the development of
      its sensor technology met the deferral criteria and, accordingly, these
      costs have been capitalized and are tested annually 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 costs and expenditures in the
      year that they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

12

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------
|   |                                                          
|   | n.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   | o.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          
|   | p.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          
|   |                                                          

13

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Contd)
|-- | ---------------------------------------------------------
|   |                                                          
|   | q.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   | r.                                                       
|   |                                                          
|   |                                                          
|   |                                                          
|   | s.                                                       
|   |                                                          
|   |                                                          

14

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|4. | FAIR VALUE DISCLOSURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Effective November 1, 2009, the Canadian Institute of
      Chartered Accountants (CICA) issued an amendment to Handbook Section
      3862 to provide improvements to fair value and liquidity risk disclosures.
      The amendment applies to the Company's fiscal year ending October 31,
      2010. This adoption resulted in additional disclosure as provided
      below.                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | 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
      approximated 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 balance
      sheet, 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 balance sheet consist of cash and cash equivalents. Cash and
      cash equivalents are measured at level 1 of the fair value
    hierarchy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

15

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|5. | RECENT CANADIAN ACCOUNTING PRONOUNCEMENTS NOT YET
      ADOPTED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|6. | 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 capital stock, 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 twelve months
      ended October 31, 2011.

16

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|7. | 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. On August 1, 2009, the Company and the private company
      executed a promissory note with respect to the $200,000 advance
      stipulating the following terms and conditions:
|   |                                                                                                                                                                                                                                                                                                                                                
|   | a.                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                
|   | b.                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                
|   | c.                                                                                                                                                                                                                                                                                                                                             

At October 31, 2010, the Company
recorded a provision to reserve the outstanding principal amount of $200,000
pending resolution of collection efforts.

A continuity schedule of the
outstanding promissory note receivable is as below:

| | Original advance of funds, Apri l2009                        |  | 200,000  |  
| | ------------------------------------------------------------ |  | -------- | -
| | Interest charged to October 31, 2009                         |  | 5,000    |  
| | Repayments in 2009 fiscal year                               |  | (5,000   | )
| | Balance outstanding at October 31, 2009                      |  | 200,000  |  
| | Interest charged to October
      31, 2010                   |  | 26,333   |  
| | Repayments in 2010 fiscal year                               |  | (20,000  | )
| | Balance outstanding at October 31, 2010
      before reserve |  | 206,333  |  
| | Reserve of balance outstanding at October 31, 2010           |  | (201,333 | )
| | Balance outstanding at October 31, 2010                      |  | 5,000    |  
| | Interest charged to October 31, 2011                         |  | 20,220   |  
| | Reserve of interest accrued                                  |  | (20,220  | )
| | Repayments in 2011 fiscal year                               |  | (115,000 | )
| | Recovery of promissory note receivable                       |  | 110,000  |  
| | Balance
      outstanding at October 31, 2011                |  | -        |  

17

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|7. | PROMISSORY NOTE RECEIVABLE (Contd)                                                 
|-- | ------------------------------------------------------------------------------------
|   |                                                                                     
|   | The continuity schedule of the promissory note in 2011 is
      summarized as below:

| |                                         |  | Gross    |   |  | Net      |  
| | --------------------------------------- |  | -------- | - |  | -------- | -
| |                                         |  |          |   |  |          |  
| | Balance outstanding at October 31, 2010 |  | 206,333  |   |  | 5,000    |  
| |                                         |  |          |   |  |          |  
| | Interested accrued in 2011              |  | 20,220   |   |  | 20,220   |  
| | Reserved in 2011                        |  | -        |   |  | (20,220  | )
| |                                         |  |          |   |  |          |  
| | Repayments in 2011                      |  | (115,000 | ) |  | (115,000 | )
| | Recovery of reserved amounts in 2011    |  | -        |   |  | 110,000  |  
| |                                         |  |          |   |  |          |  
| | Balance outstanding at October 31, 2011 |  | 111,553  |   |  | -        |  

The Company reported net $5,000 of
interest income as a receivable at October 31, 2010; the interest income
recorded in 2011 has been fully reserved. The Company has recorded interest at a
rate of 18% per annum effective July 2011. In 2011 the Company reported $110,000
of income recoveries on the note which was reserved at October 31, 2010.

In March 2011 the Company assigned the
promissory note to an officer of the Company to cover outstanding fees owed to
that officer. Since the assignment, a total of $80,000 has been repaid by the
borrower and these payments have been applied to the balance owing to the
officer (Note 14).

The Company continues to negotiate the
repayment of the outstanding balance due.

18

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|8. | PROPERTY AND EQUIPMENT
|-- | ----------------------

| |                  |   | 2011   | 
| | ---------------- | - | ------ | 
| |                  |   |        | 
| |                  |   | Cost   | 
| | Computers        | $ | 40,733 | 
| | Office Equipment |   | 25,989 | 
| |                  |   |        | 
| | Total            | $ | 66,722 | 

| |                  |   | 2010   | 
| | ---------------- | - | ------ | 
| |                  |   |        | 
| |                  |   | Cost   | 
| | Computers        | $ | 40,733 | 
| | Office Equipment |   | 25,989 | 
| |                  |   |        | 
| | Total            | $ | 66,722 | 

19

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|9. | DEFERRED DEVELOPMENT COSTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In the year ended October 31, 2011, the Company
      capitalized costs in the amount of $425,085 (2010: $932,302) relating to
      the development of its sensor technology for future commercialization.
      Development costs include directly related consulting fees, materials and
      third party costs. During 2010, the Company evaluated the recoverability
      of these capitalized costs and has reflected an impairment reserve of
      $2,711,392 against future realization of these costs. No impairment
      reserve was recognized in 2011.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The breakdown of development costs that have been
      capitalized is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

2011Net Additions/Projects
      
      10/31/2010
      
      
      Recoveries
      
      
      10/31/2011Project A
      $
      1
      
      $
      -
      
      $
      1Project B
      
      1
      
      
      -
      
      
      1Project C
      
      1
      
      
      15,000
      
      
      15,001Project D
      
      1
      
      
      -
      
      
      1Project E
      
      221,513
      
      
      251,725
      
      
      473,238Project F
      
      1
      
      
      -
      
      
      1Project G
      
      1
      
      
      141,200
      
      
      141,201Project H
      
      1
      
      
      -
      
      
      1Project I
      
      1
      
      
      -
      
      
      1Project J
      
      -
      
      
      17,160
      
      
      17,160$
      221,521
      
      $
      425,085
      
      $
      646,606


Netted in Project E is $75,000 (2010:
nil) of amounts received from a strategic development partner. Netted in Project
J is $54,600 (2010: nil) of amounts received from a strategic development
partner.

20

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|9. | DEFERRED DEVELOPMENT COSTS
  (Contd)
|-- | -------------------------------------

2010ImpairmentProjects
      
      10/31/09
      
      
      Additions
      
      
      reserve
      
      
      10/31/10Project A
      $
      337,237
      
      $
      192,258
      
      $
      (529,494
      )
      $
      1Project B
      
      38,683
      
      
      75,960
      
      
      (114,642
      )
      
      1Project C
      
      587,349
      
      
      210,445
      
      
      (797,793
      )
      
      1Project D
      
      750,367
      
      
      46,819
      
      
      (797,185
      )
      
      1Project E
      
      131,033
      
      
      90,480
      
      
      -
      
      
      221,513Project F
      
      155,942
      
      
      23,452
      
      
      (179,393
      )
      
      1Project G
      
      -
      
      
      19,035
      
      
      (19,034
      )
      
      1Project H
      
      -
      
      
      242,464
      
      
      (242,463
      )
      
      1Project I
      
      -
      
      
      31,389
      
      
      (31,388
      )
      
      1$
      2,000,611
      
      $
      932,302
      
      $
      (2,711,392
      )
      $
      221,521


21

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|10. | 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. Accordingly, it reports $135,465 (2010: nil)
      of intangible assets at October 31, 2011, representing direct costs
      incurred with respect to such assets.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company continues to pursue, protect and expand its
      patents registered in Canada, the United States and in foreign
      jurisdictions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Patents, at cost October 31, 2009
    $
    151,641Accumulated
      amortization
    
    (3,791
    )Net book value at October 31, 2009
    
    147,850Additions
    
    78,653Amortization
    
    (24,476
    )Net book value at October 31, 2010
    
    202,027Additions
    
    8,017Amortization
    
    (43,333
    )Write-down
    
    (129,033
    )Net book value at October 31, 2011
    $
    37,678


Amortization of $43,333 was expensed in
2011. In 2009 amortization of $3,791 and in 2010 amortization of $24,476 was
capitalized in deferred development costs.

In the fiscal year ended October 31,
2011, the Company wrote-down the value of its patents by $129,033 which relates
to technology the Company has no immediate plans to develop.

22

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL
|--- | -------------
|    |              
|    | a.           
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    | b.           
|    |              
|    |              
|    |              
|    |              

| |                                              |  | Options |   |  | Weighted Average | 
| | -------------------------------------------- |  | ------- | - |  | ---------------- | 
| |                                              |  | (000    | ) |  | exercise price   | 
| | Outstanding, October 31, 2007                |  | 10,325  |   |  | .55              | 
| | Granted                                      |  | 2,145   |   |  | 1.39             | 
| | Expired                                      |  | (100    | ) |  | .72              | 
| | Exercised                                    |  | (1,440  | ) |  | .70              | 
| | Outstanding, October 31, 2008                |  | 10,930  |   |  | .85              | 
| | Granted                                      |  | 1,345   |   |  | 1.00             | 
| | Expired                                      |  | (600    | ) |  | 1.14             | 
| | Exercised                                    |  | (1,653  | ) |  | .60              | 
| | Outstanding, October 31, 2009
      and 2010 |  | 10,022  |   |  | .89              | 
| | Granted                                      |  | 7,975   |   |  | .22              | 
| | Expired                                      |  | (6,822  | ) |  | .80              | 
| | Exercised                                    |  | -       |   |  | -                | 
| | Outstanding, October 31, 2011                |  | 11,175  |   |  | .47              | 

23

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------

During the year ended October 31, 2011
the Company issued a total of 7,975,000 stock options to officers, directors and
employees.

| | Date       | # Issued  | Strike Price | Expiry Date
| | ---------- | --------- | ------------ | -----------
| |            |           |              |            
| | 12/20/2010 | 375,000   | .55          | 12/20/2012 
| | 4/5/2011   | 125,000   | .35          | 4/5/2016   
| | 10/31/2011 | 7,475,000 | .20          | 10/31/2016 
| |            | 7,975,000 | .22          |            

The Company recorded a total expense of
$928,497 (2010: $95,038, 2009: $1,951,569) with respect to the issuance of these
options, calculated in accordance with the Black Scholes option-pricing model.

During the year ended October 31, 2010,
no stock options were issued nor exercised. During the fiscal year ended October
31, 2010 the Company extended by one year 100,000 options which were to expire
in November 2009; the exercise price remained unchanged at $0.60 per share. In
May 2010, the Company extended by one year the maturity date on 1,927,199
options that had expired in June 2010. The exercise price on these options was
unchanged at $0.72 per share. The Company recorded a total expense of $95,038
with respect to the extension of these options, calculated in accordance with
the Black Scholes option-pricing model.

The underlying assumption in the Black
Scholes model were as follows:

2010
    2011Expected dividends
    -
    -Volatility factor
    59%-71%
    90%-95%Risk free interest rate
    .6%
    1.62% -2.55%Weighted average expected life
    1 year
    2  5 years


24

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------

No cash proceeds were realized during
the year ended October 31, 2011 by the Company as the result of options
exercised by officers and directors and staff (2010: nil).

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

| | Quarter Ending |  | 2009      |  |  | 2010   |  |  | 2011    | 
| | -------------- |  | --------- |  |  | ------ |  |  | ------- | 
| |                |  |           |  |  |        |  |  |         | 
| | January 31     |  | 355,117   |  |  | -      |  |  | 33,735  | 
| | April 30       |  | 342,000   |  |  | 30,385 |  |  | 12,426  | 
| | July 31        |  | 342,000   |  |  | 64,653 |  |  | -       | 
| | October 31     |  | 912,452   |  |  | -      |  |  | 882,336 | 
| |                |  |           |  |  |        |  |  |         | 
| |                |  | 1,951,569 |  |  | 95,038 |  |  | 928,497 | 

The following table summarizes
information about stock options outstanding as at October 31, 2011:

Options
        Outstanding
      Options exercisableWeighted
      Weightedaverage
      Average
      
      WeightedActual exercise
      Number
      remaining
      exercise
      Number
      Averageprice
      outstanding
      contractual life
      price
      Exercisable
      exercise price$
      
      (in
        years)
      $
      
      $0.36
      350,000
      .5 years
      0.36
      350,000
      0.360.60
      190,000
      0.9
        years
      0.60
      190,000
      0.600.55
      315,000
      1.1 years
      0.55
      315,000
      0.551.01
      325,000
      1.3
        years
      1.01
      325,000
      1.011.12
      10,000
      1.4 years
      1.12
      10,000
      1.121.50
      1,100,000
      1.8
        years
      1.50
      1,100,000
      1.501.00
      1,285,000
      2.8 years
      1.00
      1,285,000
      1.000.35
      125,000
      4.4
        years
      0.35
      125,000
      0.350.20
      7,475,000
      5.0 years
      0.20
      7,475,000
      0.20TOTAL
      11,175,000
      
      0.47
      11,175,000
      0.47


25

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------
|    |                       
|    | c.                    
|    |                       
|    |                       
|    |                       
|    | d.                    
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       

26

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------

Date of Issue
    # of Warrants
    Strike Price
    Extended Expiry$
    DateMay 14, 2009
    429,686
    1.20
    May 14, 2012November 11, 2009
    123,276
    0.75
    May 11, 2012December 14, 2009
    600,000
    0.76
    June 14, 2012December 16, 2009
    815,000
    0.56
    June 16, 2012January 15, 2010
    341,000
    0.55
    June 15, 2011January 15, 2010
    25,000
    0.55
    July 15, 2012January 26, 2010
    300,000
    0.55
    July 26, 2012February 1, 2010
    111,111
    0.56
    August 1, 2012February 12, 2010
    133,333
    0.56
    August 12, 2012May 25, 2010
    765,188
    0.41
    May 25, 2012June 15, 2010
    339,838
    0.40
    June 15, 2012July 12, 2010
    312,500
    0.39
    July 12, 2012July 23, 2010
    312,500
    0.40
    July 23, 2012August 30, 2010
    200,000
    0.28
    August 26, 2012October 15, 2010
    1,325,000
    0.24
    October 15, 2012November 5, 2010
    500,000
    0.22
    November 5, 2012November 30, 2010
    400,000
    0.22
    November 30, 2012December 17, 2010
    20,000
    0.20
    December 17, 2012December 20, 2010
    300,000
    0.22
    December 20, 2012January 4, 2011
    250,000
    0.20
    January 4, 2013January 31, 2011
    325,000
    0.22
    January 31, 20137,928,432


In each case the Company calculated
the charge associated with the extensions of these warrants in accordance with
the Black Scholes option-pricing model and reported a total charge to retained
earnings and an offsetting charge to contributed surplus of $293,020 with
respect to these extensions.

27

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------
|    |                       
|    | e.                    
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       
|    |                       

28

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------

| | iii. | On March 4, 2011 the Company secured a 180 day
      convertible bridge loan (Loan 3) from an arms length investor in the
      amount of CDN $100,000. 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 $0.21 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 $0.21 per share. As a result, net proceeds of
      $6 were allocated to warrants. 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 per share at the holders
      option. As a result of the change in conversion, a value of $26,997 was
      recorded to retained earnings with an offsetting charge to contributed
      surplus to reflect the value of the more favourable conversion feature.
      All other terms remain the same. This loan was repaid subsequent to year
      end (Note 20).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iv. | On February 25, 2011 the Company secured a 30 day
      convertible bridge loan (Loan 4) from an arms length investor in the
      amount of CDN $250,000. The interest rate on the loan was established at
      2% per month (effective interest rate  27%). The principal and interest
      of the loan was convertible at $0.21 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 $0.21 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | v.  | On March 22, 2011 the Company secured a short term loan
      (Loan 5) from a director of the Company in the amount of CDN $100,000.
      The interest rate on the loan was established at 2% per month (effective
      interest rate  25%). In the quarter ended July 31, 2011, the principal
      and interest were repaid.                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The outstanding bridge loans at October 31, 2010 are
      summarized as below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                                                 |   |              |   |   |              |   |   | Total   |  
| | ----------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------- | -
| |                                                 |   | Loan
      1 |   |   | Loan
      2 |   |   | Loan    |  
| | 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      |   | (4,766       | ) |   | (1,018       | ) |   | (5,784  | )
| | Equity portion of bridge loan  future warrants |   | (220         | ) |   | (14          | ) |   | (234    | )
| |                                                 |   |              |   |   |              |   |   |         |  
| | Balance at October 31, 2010                     | $ | 316,862      |   | $ | 195,686      |   | $ | 512,548 |  

29

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------

The outstanding bridge loans at
October 31, 2011 are summarized as below:

| |                                                       |  | Loan 1   |   |  | Loan 2   |   |  | Loan 3  |   |  | Loan 4   |   |  | Loan 5   |   |  | Total      |  
| | ----------------------------------------------------- |  | -------- | - |  | -------- | - |  | ------- | - |  | -------- | - |  | -------- | - |  | ---------- | -
| | Principal                                             |  | 249,176  |   |  | 188,600  |   |  | 102,940 |   |  | 254,875  |   |  | 138,998  |   |  | 934,589    |  
| | Interest accrued                                      |  | 160,402  |   |  | 23,898   |   |  | 16,162  |   |  | 12,065   |   |  | 2,769    |   |  | 215,296    |  
| | Accretion expense                                     |  | 4,986    |   |  | 1,032    |   |  | 564     |   |  | -        |   |  | -        |   |  | 6,582      |  
| | Equity portion of bridge loan - conversion            |  | (4,766   | ) |  | (1,018   | ) |  | (558    | ) |  | -        |   |  | -        |   |  | (6,342     | )
| | Equity portion of bridge loan
      - future warrants |  | (220     | ) |  | (14      | ) |  | (6      | ) |  |          |   |  | -        |   |  | (240       | )
| | Payments                                              |  | (409,578 | ) |  | (212,498 | ) |  | (12,319 | ) |  | (266,940 | ) |  | (141,767 | ) |  | (1,043,102 | )
| |                                                       |  |          |   |  |          |   |  |         |   |  |          |   |  |          |   |  |            |  
| | Balance at October 31, 2011                           |  | -        |   |  | -        |   |  | 106,783 |   |  | -        |   |  | -        |   |  | 106,783    |  
| |                                                       |  |          |   |  |          |   |  |         |   |  |          |   |  |          |   |  |            |  
| | Warrants issued                                       |  |          |   |  |          |   |  |         |   |  |          |   |  |          |   |  |            |  
| | 2010                                                  |  | 12,500   |   |  | 7,500    |   |  | -       |   |  | -        |   |  | -        |   |  | 20,000     |  
| | 2011                                                  |  | 40,000   |   |  | -        |   |  | 5,000   |   |  | 10,000   |   |  | -        |   |  | 55,000     |  
| |                                                       |  | 52,500   |   |  | 7,500    |   |  | 5,000   |   |  | 10,000   |   |  | -        |   |  | 75,000     |  

| | vi. | The fair value of the warrants issued with respect to the
      bridge loans was estimated using the Black Scholes option-pricing model
      with the following assumptions:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2010
    2011Loans
    LoansExpected dividends
    -
    -Volatility factor
    47%  54%
    111% - 112%Risk-free interest rate
    .6%-1.06%
    1.33% - 1.38%Weighted average expected life
    6 months
    6 months - 1 year


30

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------

| | f. | Warrants:                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                
| |    | A summary of the outstanding common share purchase
      warrants as of the Companys fiscal year-ends and the changes during the
      periods are as follows:

| |                                               |  |            |   |  | Weighted       |  |   |          | 
| | --------------------------------------------- |  | ---------- | - |  | -------------- |  | - | -------- | 
| |                                               |  |            |   |  | average        |  |   | Proceeds | 
| |                                               |  | Warrants   |   |  | exercise price |  |   | Realized | 
| | Balance outstanding at
      October 31, 2008 |  | 637,128    |   |  | $1.04          |  |   |          | 
| | Exercised                                     |  | (200,000   | ) |  | $1.17          |  | $ | 234,000  | 
| | Expired                                       |  | (826,108   | ) |  | $1.10          |  |   | -        | 
| | Granted                                       |  | 3,805,845  |   |  | $0.86          |  |   | -        | 
| | Balance outstanding at
      October 31, 2009 |  | 3,416,865  |   |  | $0.82          |  |   |          | 
| | Exercised                                     |  | -          |   |  | -              |  |   | -        | 
| | Expired                                       |  | (2,987,181 | ) |  | $0.76          |  |   | -        | 
| | Granted                                       |  | 5,769,201  |   |  | $0.46          |  |   | -        | 
| | Balance at October 31, 2010                   |  | 6,198,885  |   |  | $0.51          |  |   |          | 
| | Exercised                                     |  | -          |   |  | -              |  |   | -        | 
| | Expired                                       |  | (406,455   | ) |  | $0.54          |  |   | -        | 
| | Granted                                       |  | 20,880,207 |   |  | $0.14          |  |   | -        | 
| | Balance at October 31, 2011                   |  | 26,672,637 |   |  | $0.23          |  |   |          | 

| | g. | Settlement of Accounts Payable:                                                                                                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                           
| |    | In September 2010 the Company settled certain accounts
      payable outstanding with a supplier by issuing 192,307 common shares
      valued at $50,000.

31

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|11. | SHARE CAPITAL (Contd)
|--- | ----------------------
|    |                       
|    | h.                    
|    |                       
|    |                       
|    |                       
|12. | CONTRIBUTED SURPLUS   

Balance at October 31, 2008
    $
    22,114,421Stock compensation expense relating to stock options issued
    
    1,951,569Stock options exercised
    
    (573,706
    )Common share
      purchase warrants issued
    
    653,627Balance at October 31, 2009
    $
    24,145,911Common share purchase warrants issued
    
    423,455Stock compensation expense relating to stock options extended
    
    95,038Balance at October 31, 2010
    $
    24,664,404Stock compensation expense relating to
      stock options issued
    
    928,497Common share purchase warrants:(a)
      Issued
    
    774,575(b) Extended
    
    293,020Expense relating to equity portion of
      bridge loan
    
    5,790Modification of
      conversion feature of bridge loans
    
    185,564Balance at October 31, 2011
    $
    26,851,850


32

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|12. | CONTRIBUTED SURPLUS (Contd)                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                           
|    | The Company has calculated the charges to contributed
      surplus as presented above using the Black Scholes option pricing
      model.
|    |                                                                                                                                           
|    | The components of contributed surplus as reported at
      October 31stinclude:                                                           

| |                                                                       |   | 2011       |  |   | 2010       |  |   | 2009       | 
| | --------------------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
| | Amount relating to loan forgiveness at
      inception of the Company | $ | 544,891    |  | $ | 544,891    |  | $ | 544,891    | 
| | Stock options compensation related                                    |   | 23,530,672 |  |   | 22,602,176 |  |   | 22,507,138 | 
| | Common share purchase warrants                                        |   | 2,584,933  |  |   | 1,517,337  |  |   | 1,093,882  | 
| | Bridge loan
      related                                             |   | 191,354    |  |   | -          |  |   | -          | 
| |                                                                       | $ | 26,851,850 |  | $ | 24,664,404 |  | $ | 24,145,911 | 

|13. | INCOME TAXES
|--- | ------------
|    |             
|    | a.          

Canada
    
    
    Other Foreign
    
    
    Total2014
    
    1,026,401
    
    
    -
    
    
    1,026,4012015
    
    3,232,477
    
    
    -
    
    
    3,232,4772022
    
    -
    
    
    7,301
    
    
    7,3012023
    
    -
    
    
    9,667
    
    
    9,6672025
    
    -
    
    
    14,471
    
    
    14,4712026
    
    2,418,255
    
    
    5,245
    
    
    2,423,5092027
    
    2,033,562
    
    
    3,459
    
    
    2,037,0212028
    
    10,548
    
    
    55,519
    
    
    66,0672029
    
    2,084,132
    
    
    463,610
    
    
    2,547,7422030
    
    2,812,037
    
    
    1,471,700
    
    
    4,283,7372031
    
    1,552,679
    
    
    421,724
    
    
    1,974,402$
    15,170,091
    
    $
    2,452,705
    
    $
    17,622,796


In addition the Company has available
capital loss carry forwards of approximately $1.6 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.

33

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|13. | INCOME TAXES (Contd)
|--- | ---------------------
|    |                      
|    | b.                   

| |                                                                                |   | 10/31/11   |   |   | 10/31/10   |   |   | 10/31/09   |  
| | ------------------------------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ---------- | -
| | Non-capital losses and other                                                   | $ | 4,959,149  |   | $ | 4,104,904  |   | $ | 4,122,566  |  
| | Capital losses                                                                 |   | 210,319    |   |   | 204,815    |   |   | 224,036    |  
| | Property and equipment, intangible assets
      and deferred development costs |   | 1,898,201  |   |   | 1,911,952  |   |   | 1,562,648  |  
| | Share issue costs                                                              |   | 28,788     |   |   | 32,525     |   |   | 38,145     |  
| |                                                                                |   |            |   |   |            |   |   |            |  
| |                                                                                |   | 7,096,457  |   |   | 6,254,196  |   |   | 5,947,395  |  
| | Valuation allowance                                                            |   | (7,096,457 | ) |   | (6,254,196 | ) |   | (5,947,395 | )
| |                                                                                | $ | -          |   | $ | -          |   | $ | -          |  

34

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|13. | INCOME TAXES (Contd)
|--- | ---------------------
|    |                      
|    | c.                   

| |                                                                                                                        |   | 2011       |   |   | 2010       |   |   | 2009       |  
| | ---------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                                                                                        |   |            |   |   |            |   |   |            |  
| | Loss before income                                                                                                     | $ | (2,572,339 | ) | $ | (4,665,353 | ) | $ | (4,310,939 | )
| | taxes                                                                                                                  |   |            |   |   |            |   |   |            |  
| | Statutory rate                                                                                                         |   | 28.53%     |   |   | 31.49%     |   |   | 33.00%     |  
| |                                                                                                                        |   |            |   |   |            |   |   |            |  
| | Expected income tax recovery                                                                                           |   | (733,888   | ) |   | (1,469,267 | ) |   | (1,422,610 | )
| | Effect on income taxes of unrecognized future income tax
      assets relating to deductible temporary differences on: |   |            |   |   |            |   |   |            |  
| |                                                                                                                        |   |            |   |   |            |   |   |            |  
| | Non-deductible expenses and other items                                                                                |   | 266,071    |   |   | 34,860     |   |   | 667,939    |  
| |                                                                                                                        |   |            |   |   |            |   |   |            |  
| | Expiry of non-capital losses                                                                                           |   | -          |   |   | 312,428    |   |   | -          |  
| | Share issue costs and other                                                                                            |   | (8,062     | ) |   | (9,827     | ) |   | (47,681    | )
| | Future tax assets not recognized in prior years                                                                        |   | -          |   |   | (2,568     | ) |   | (2,094,503 | )
| |                                                                                                                        |   |            |   |   |            |   |   |            |  
| | Effect of exchange rate on future tax assets carried 
    forward from previous years                                  |   | (183,451   | ) |   | (300,585   | ) |   |            |  
| | Change in future income tax rates and other                                                                            |   | (181,726   | ) |   | 1,137,666  |   |   | -          |  
| | Change in valuation allowance                                                                                          |   | 842,261    |   |   | 306,801    |   |   | 2,896,855  |  
| |                                                                                                                        | $ | 1,205      |   | $ | 9,508      |   | $ | -          |  

35

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|14. | MANAGEMENT COMPENSATION AND RELATED PARTY
      TRANSACTIONS
|--- | ------------------------------------------------------------
|    |                                                             
|    | a.                                                          
|    |                                                             
|    |                                                             
|    |                                                             
|    |                                                             
|    |                                                             
|    |                                                             

Cash Compensation
    Stock Option Expense2011
    $ 152,326
    $ 118,0382010
    143,877
    -2009
    129,149
    101,760


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

36

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|14. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
      (Contd)
|--- | ---------------------------------------------------------------------

| |    | In 2011 the Chairman extended a bridge loan to the
      Company in the amount of $100,000. The interest rate on the loan was
      established at 2% per month (effective interest rate  25%). In the
      quarter ended July 31, 2011, the principal and interest were
  repaid.                                                                    
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                         
| | 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, 2009 - 2011 is as
follows:

Cash Compensation
    Stock Option Expense2011
    $ 647,132
    $ 590,1912010
    $ 621,223
    $ 64,6532009
    $ 625,576
    $ 407,040


The Stock Option Expense in 2010 as
listed above relates to the extension of 1,927,199 stock options.

In 2011 the Company assigned the
promissory note receivable (Note 7) to an officer of the Company in conjunction
with outstanding and unpaid fees due to that officer. During 2011, a total of
$80,000 received from the borrower was paid directly to that officer under the
assignment agreement. At October 31, 2011 the gross amount of principal and
interest outstanding from the borrower is $111,553 which amount is fully
reserved by the Company. The balance owing to the officer of the Company at
October 31, 2011 is $102,512.

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

| |                             |   | 2011      |  |   | 2010      |  |   | 2009      | 
| | --------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
| | Professional and other fees | $ | 640,349   |  | $ | 750,482   |  | $ | 845,533   | 
| | Salaries and wages          |   | 424,306   |  |   | 499,886   |  |   | 443,858   | 
| | Stock compensation expense  |   | 928,497   |  |   | 95,038    |  |   | 1,951,569 | 
| |                             | $ | 1,993,152 |  | $ | 1,345,406 |  | $ | 3,240,960 | 

37

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|14. | MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
      (Contd)
|--- | ---------------------------------------------------------------------
|    |                                                                      
|    | c.                                                                   
|    |                                                                      
|    |                                                                      
|    |                                                                      
|    |                                                                      

| |      |   | Rent   |  |   | Salaries |  |   | Other  |  |   | Total   | 
| | ---- | - | ------ |  | - | -------- |  | - | ------ |  | - | ------- | 
| | 2011 | $ | 55,800 |  | $ | 424,306  |  | $ | 11,482 |  | $ | 491,588 | 
| | 2010 |   | 27,610 |  |   | 499,886  |  |   | 13,112 |  |   | 540,608 | 
| | 2009 |   | 17,177 |  |   | 289,897  |  |   | 11,541 |  |   | 318,615 | 

In 2011 the gross amount of these expenses
  was $571,345 and the Company re-billed $79,760 of these costs to these related
  companies. At October 31, 2011 the Company reports $64,869 of balances due from
  such parties for these expenses and has reserved this amount due to uncertainty
  of collection.

|15. | COMMITMENTS
|--- | -----------
|    |            
|    | a.         
|    |            
|    |            
|    |            
|    |            
|    |            
|    |            

38

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|15. | COMMITMENTS (Contd)
|--- | --------------------

| |  | 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 five hundred thousand Canadian
      dollars (CDN$500,000);
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                   
| | ii. | 1% of net sales thereafter.                                                                                                                                       

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

| | i.   | in combination or association with the Companys
      intellectual property, the UofT shall receive 10% of any net fees and/or
      net royalties that shall be received by the Company in respect of any
      licenses involving both the rights granted and such Micromem intellectual
      property;   
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                               
| | ii.  | For all other sublicenses of the rights granted to any
      non-affiliate, the UofT shall receive 20% of any net fees and/or net
      royalties that may be received by the Company in respect of such
      sublicenses.                                                                                   
| |      |                                                                                                                                                                                                                                                                                                               
| | iii. | Net fees and/or net royalties shall be received from the
      Company until such time as the UofT has received from the Company an
      aggregate amount of five hundred thousand Canadian dollars (CDN$500,000);
      thereafter the Company shall pay half of the amounts as otherwise noted
      above.

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

39

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|15. | COMMITMENTS (Contd)
|--- | --------------------

| |  | As a condition to entering the License Agreement the
      Company agreed to a research agreement with a funding commitment of five
      hundred thousand Canadian dollars (CDN $500,000), to continue the further
      research and development of the inventions and the Companys intellectual
      property. In August 2005, the Company made an initial payment of CDN
      $250,000 (approximately $200,000 U.S. funds at the then prevailing
      exchange rates) and, in November 2005, the Company made the second payment
      of CDN $250,000 (approximately $200,000 U.S. funds at the then prevailing
      exchange rates) under the terms of this research agreement.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Operating Leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company entered into a 12 month lease commitment with
      respect to its head office. The lease extends through December 31, 2012
      and stipulates a monthly lease obligation of $4,690 plus the proportionate
      cost of operating costs and taxes.                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | c. | Employment and Consulting Contracts:                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company entered into an employment agreement with the
      Chairman through December 31, 2010 as outlined in Note 14 (a) which
      stipulated an annual minimum obligation of $150,000 Canadian funds
      ($152,326 U.S. at average exchange rates). In 2011, this contract was
      extended on a month to month basis. The Company reported $152,326 of
      compensation expense with respect to this employment agreement in 2011
      (2010: $143,877).                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In May 2008 the Company entered into two year agreements
      with the President and the Chief Financial Officer and a three year
      agreement with the President of the Companys subsidiary, MAST. In May
      2010 the agreements with the President and the Chief Financial Officer
      were continued on a month to month basis on the same terms. In May 2011
      the agreement with the President of MAST were continued on a
      month-to-month basis on the same terms.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | These agreements stipulate minimum cash compensation
      obligations as below:                                                                                                                                                                                                                                                                                                                                                                                                           

| | President               | $13,333 |  | Canadian funds
      per month
| | ----------------------- | ------- |  | ------------------------------
| | Chief Financial Officer | $12,500 |  | Canadian funds per month      
| | President  MAST        | $15,000 |  | U.S. funds per
      month    

40

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|15. | COMMITMENTS (Contd)
|--- | --------------------
|    |                     
|    | d.                  
|    |                     
|    |                     
|    |                     
|    |                     

41

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|16. | 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.                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Certain interests under an agreement with a third party
      reverted to that third party on March 9, 2004. On this basis, to the
      extent that future revenues are generated by the Company relating directly
      and specifically to the Vemram Patents, the Company is obligated to pay
      the third party 32% of the gross profit realized less expenses agreed to
      by the parties and 32% of any unit royalties realized less direct
      expenses.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|17. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK
      MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                                               

| | a. | Fair values                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                 
| |    | The fair values for all financial assets and financial
      liabilities approximate their carrying values due to their short-term
      nature.
| |    |                                                                                                                                                 
| | b. | Foreign currency balances                                                                                                                       
| |    |                                                                                                                                                 
| |    | The consolidated financial statements include balances
      that are denominated in Canadian dollars as
follows:                               

| |                                          |   | 2011    |  |   | 2010      |  |   | 2009    | 
| | ---------------------------------------- | - | ------- |  | - | --------- |  | - | ------- | 
| | Cash and cash equivalents                | $ | 20,238  |  | $ | 4,681     |  | $ | 90,307  | 
| | Deposits and other receivables           |   | 21,467  |  |   | 89,238    |  |   | 83,486  | 
| | Accounts payable and accrued liabilities |   | 496,597 |  |   | 1,063,456 |  |   | 450,342 | 
| | Bridge Loans                             |   | 103,733 |  |   | 450,000   |  |   | -       | 

42

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|17. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
      (Contd)
|--- | ------------------------------------------------------------------
|    |                                                                   
|    | c.                                                                
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   
|    |                                                                   

43

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|17. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
      (Contd)
|--- | ------------------------------------------------------------------

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, 2011.

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, 2011, the Company
reports a working capital deficiency of $1,047,228 and has certain financial
commitments (Note 15), the majority of which are due within one year. It must
continue to raise financing in order to meet its current obligations.

|18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP) AND UNITED STATES GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Companys consolidated financial statements have been
      prepared in accordance with Canadian GAAP which, in the case of the
      Company, conforms in all material respects with U.S. GAAP except for the
      accounting for development costs, intangible assets, prior valuations of
      Unit private placements, warrant modification and modification of
      conversion feature of bridge loans. These are discussed below:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                               

44

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP) AND UNITED STATES GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP) (Contd)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                         
|    | b.                                                                                                                                                                                      
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    | c.                                                                                                                                                                                      
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    | d.                                                                                                                                                                                      
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    | e.                                                                                                                                                                                      
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         

45

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP) AND UNITED STATES GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(Contd)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |    | Hence, there was no difference between Canadian and U.S.
      GAAP. Under Canadian GAAP guidance, Loan 1 was treated as an
      extinguishment and an issuance of new debt, however the carrying value of
      the extinguished debt instrument was not materially different from the
      original carrying value, as such no gain or loss was recorded. Under
      Canadian GAAP guidance, Loan 3 did not meet the criteria for
      extinguishment and an issuance of new debt as such it is treated as a
      renegotiation of debt and all previously determined adjustments of the
      original debt are maintained.                                                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The conversion feature change with regards to the debt
      must be analyzed to determine if it should be separated from the debt host
      contract. Per U.S. GAAP guidance, regarding Loan 1 and Loan 3, the
      conversion feature is not an embedded derivative that requires separation.
      These loans were also analyzed to determine if a beneficial conversion
      feature exists that must be accounted for separately. It was determined
      that no beneficial conversion feature exists on these loans under U.S.
      GAAP. Under Canadian GAAP a value of $185,564 was recorded to retained
      earnings with an offsetting charge to contributed surplus to reflect the
      value of the more favourable conversion features (Note 11 (e)).
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | f. | A reconciliation between Canadian and U.S. GAAP in these
      financial statements is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                          |       |   | 2011        |   |   | 2010       |  
| | ---------------------------------------- | ----- | - | ----------- | - | - | ---------- | -
| |                                          |       |   | Balance     |   |   |            |  
| |                                          |       |   | Canadian    |   |   |            |  
| | Balance sheet                            |       |   | GAAP        |   |   | Adjustment |  
| |                                          |       |   |             |   |   |            |  
| | Current assets                           |       | $ | 76,396      |   |   |            |  
| | Property and equipment                   |       |   | 10,201      |   |   |            |  
| | Deferred development costs               | a     |   | 646,606     |   |   | (646,606   | )
| | Intangible asset                         | b     |   | 135,465     |   |   | (135,465   | )
| | Patents                                  |       |   | 37,678      |   |   | -          |  
| |                                          |       | $ | 906,346     |   | $ | (782,071   | )
| |                                          |       |   |             |   |   |            |  
| | Accounts payable and accrued liabilities |       | $ | 1,016,841   |   |   |            |  
| | Bridge loans                             |       |   | 106,783     |   |   |            |  
| |                                          |       |   | 1,123,624   |   |   | -          |  
| |                                          |       |   |             |   |   |            |  
| | Share capital                            | c     |   | 51,774,555  |   |   | (400,659   | )
| | Equity component of bridge loans         |       |   | 558         |   |   |            |  
| | Contributed surplus                      | c,e   |   | 26,851,850  |   |   | 215,095    |  
| | Deficit                                  | a,b,e |   | (78,844,241 | ) |   | (596,507   | )
| |                                          |       | $ | 906,346     |   | $ | (782,071   | )

46

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|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP) AND UNITED STATES GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(Contd)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loss for the
      period                                       |  |   |  |   | 2011        |   |   | 2010       |   |   | 2009       |  
| | --------------------------------------------------------------- |  | - |  | - | ----------- | - | - | ---------- | - | - | ---------- | -
| |                                                                 |  |   |  |   |             |   |   |            |   |   |            |  
| | Net loss for the period - Canadian GAAP                         |  |   |  | $ | (2,573,544  | ) | $ | (4,674,861 | ) | $ | (4,310,939 | )
| | Add back: Write-off in the current year of prior year cost      |  |   |  |   | -           |   |   | 1,869,578  |   |   | -          |  
| | Development cost expensed per U.S. GAAP                         |  | a |  |   | (425,085    | ) |   | (90,488    | ) |   | (2,000,611 | )
| | Intangible assets
      expensed per U.S. GAAP                  |  | b |  |   | (135,465    | ) |   | -          |   |   | -          |  
| | Net loss for the year - U.S. GAAP                               |  |   |  | $ | (3,134,094  | ) | $ | (2,895,771 | ) | $ | (6,311,550 | )
| | Adjustment for the
      modification of warrants per U.S. GAAP |  | d |  |   | (293,020    | ) |   | -          |   |   | -          |  
| | Net loss applicable to common stockholders - U.S. GAAP          |  |   |  |   | (3,427,114  | ) |   | (2,895,771 | ) |   | (6,311,550 | )
| | Loss per share -
      basic and diluted under U.S. GAAP        |  |   |  |   | (0.03       | ) |   | (0.03      | ) |   | (0.07      | )
| |                                                                 |  |   |  |   |             |   |   |            |   |   |            |  
| | Weighted average number of shares outstanding                   |  |   |  |   | 102,301,168 |   |   | 92,225,645 |   |   | 86,400,439 |  
| |                                                                 |  |   |  |   |             |   |   |            |   |   |            |  
| |                                                                 |  |   |  |   |             |   |   |            |   |   |            |  
| | Cash flows                                                      |  |   |  |   | 2011        |   |   | 2010       |   |   | 2009       |  
| |                                                                 |  |   |  |   |             |   |   |            |   |   |            |  
| | Cash flow from operating activities per
      Canadian GAAP     |  |   |  |   | (1,453,508  | ) | $ | (1,616,133 | ) | $ | (2,231,838 | )
| | Expenditure of development costs per U.S. GAAP                  |  | a |  |   | (425,085    | ) |   | (90,488    | ) |   | (2,000,611 | )
| | Expenditure of intangible asset costs per U.S. GAAP             |  | b |  |   | (135,465    | ) |   | -          |   |   | -          |  
| | Cash flows from
      operating activities per U.S. GAAP        |  |   |  | $ | (2,014,058  | ) | $ | (1,706,621 | ) | $ | (4,232,449 | )
| |                                                                 |  |   |  |   |             |   |   |            |   |   |            |  
| |                                                                 |  |   |  |   |             |   |   |            |   |   |            |  
| | Cash flow from investing activities per
      Canadian GAAP     |  |   |  |   | (568,567    | ) | $ | (958,594   | ) | $ | (2,158,129 | )
| | Expenditure of development costs per U.S. GAAP                  |  | a |  |   | 425,085     |   |   | 90,488     |   |   | 2,000,611  |  
| | Expenditure of intangible asset costs per U.S. GAAP             |  | b |  |   | 135,465     |   |   | -          |   |   | -          |  
| | Cash flows from
      investing activites per U.S. GAAP         |  |   |  | $ | (8,017      | ) | $ | (868,106   | ) | $ | (157,518   | )

47

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|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP) AND UNITED STATES GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP) (Contd)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                         
|    | g.                                                                                                                                                                                      
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         
|    | h.                                                                                                                                                                                      
|    |                                                                                                                                                                                         
|    |                                                                                                                                                                                         

48

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP) AND UNITED STATES GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(Contd)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In December 2010, the FASB issued ASU
No. 2010-29, BusinessCombinations (Topic 805)  Disclosure of
Supplementary Pro Forma Information for Business Combinations(ASU
2010-29). This standard update clarifies that, when presenting comparative
financial statements, SEC registrants should disclose revenue and earnings of
the combined entity as though the current period business combinations had
occurred as of the beginning of the comparable prior annual reporting period
only. The update also expands the supplemental pro forma disclosures to include
a description of the nature and amount of material, non-recurring pro forma
adjustments directly attributable to the business combination included in the
reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively
for material (either on an individual or aggregate basis) business combinations
entered into in fiscal years beginning on or after December 15, 2010 with early
adoption permitted. The Company is currently in the process of determining the
impact, if any, of adoption of the provisions of ASU 2010-29.

In May 2011, the Financial Accounting
Standards Board ("FASB") issued ASU No. 2011-04, Topic 820 - Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP
and IFRSs(ASU 2011-04), which amends current fair value measurement and
disclosure guidance to converge with International Financial Reporting Standards
("IFRS") and provides increased transparency around valuation inputs and
investment categorization. This guidance is effective for fiscal years and
interim periods, beginning after December 15, 2011. Early application by public
companies is not permitted. The Company is currently in the process of
determining the impact, if any, of the adoption of the provisions of ASU
2011-04.

In June 2011, the FASB issued ASU No.
2011-05, Topic 220 - Presentation of Comprehensive Income(ASU
2011-05), which requires an entity to present total comprehensive income, the
components of net income, and the components of other comprehensive income
either in a single continuous statement of comprehensive income or in two
separate but consecutive statements and eliminates the option to present the
components of other comprehensive income as part of the statement of changes in
stockholders' equity. This guidance is effective for fiscal years and interim
periods, beginning after December 15, 2011. The Company is currently in the
process of determining the impact, if any, of the adoption of the provisions of
ASU 2011-05.

49

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|18. | RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP) AND UNITED STATES GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(Contd)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In September 2011, the FASB issued ASU
No. 2011-08, Topic 350 - Intangibles - Goodwill and Other ("ASU
2011-08"), which amends Topic 350 to allow an entity to first assess qualitative
factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. An entity would not be required to
calculate the fair value of a reporting unit unless the entity determines, based
the qualitative assessment, that it is more likely than not that its fair value
is less than its carrying amount. This guidance is effective for annual and
interim goodwill tests performed for years beginning after December 15, 2011.
Early adoption is permitted. The Company is currently in the process of
determining the impact, if any, of the adoption of the provisions of ASU
2011-08.

In December 2011, the FASB issued
Accounting Standards Update ("ASU") No. 2011-12, Topic 220 - Comprehensive
Income("ASU 2011-12"), which indefinitely deferred certain provisions of
ASU 2011-05, including the requirement to present reclassification adjustments
out of accumulated other comprehensive income by component in both the statement
in which net income is presented and the statement in which other comprehensive
income is presented. This amendment is effective for both annual and interim
financial statements beginning after December 15, 2011. The Company is currently
in the process of determining the impact, if any, of the adoption of the
provisions of ASU 2011-12.

In December 2011, the FASB issued ASU
No. 2011-11, Topic 2010 - Balance Sheet("ASU 2011-11"), which contains
new disclosure requirements regarding the nature of an entity's rights of set
off and related arrangements associated with its financial instruments and
derivative instruments. Under U.S. GAAP, certain derivative and repurchase
agreement arrangements are granted exceptions from the general off-setting
model. To facilitate comparison between financial statements prepared under U.S.
GAAP and IFRS, the new disclosure requirement will provide financial statement
users information regarding both gross and net exposures. This guidance is
effective for annual and interim financial statements beginning on or after
January 1, 2013. Retrospective application is required. The Company is currently
in the process of determining the impact, if any, of the adoption of the
provisions of ASU 2011-11.

|19. | 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.

50

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|20. | SUBSEQUENT EVENTS
|--- | -----------------
|    |                  
|    | a)               
|    |                  
|    | b)               
|    |                  
|    | c)               
|    |                  
|    | d)               
|    |                  
|    | e)               
|    |                  
|    | f)               
|    |                  
|    | g)               

51

---

|MICROMEM TECHNOLOGIES INC.                         
|---------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                      
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         
|(Expressed in United States dollars)               
|                                                   
|For the years ended October 31, 2011, 2010 and 2009
|                                                   

|21. | COMPARATIVE FIGURES                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                
|    | Certain comparative figures have been reclassified to
      conform with the current year's financial statement
  presentation.

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

52

---

ITEM 18.   Financial Statements

Not applicable.

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).                                                                                                                                                                               

44

---

|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).                                                                                                               

45

---

SIGNATURES

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

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

Dated: February 24, 2012

46

---