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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 20-F

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

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

For The Fiscal Year Ended October 31, 2016

Or

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

or

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

Date of event requiring this shell report

Commission File No. 0-26005

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

Ontario, Canada(Jurisdiction of incorporation
or organization)

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

Joseph Fuda; 416-364-6513, jfuda@micromeminc.com, 121
Richmond Street West, Suite 304 Toronto, ONM5H 2K1(Name, Telephone, E-Mail and/or Facsimile number and Address of Company
Contact Person)

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

1

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Securities registered or to be registered pursuant to Section
12(g) of the Act:Common Shares without par value

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:None

Indicate the number of outstanding shares of each of the
issuer's classes of capital or common stock as of the close of the period
covered by the annual report:204,388,569 Common Shares

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

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

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

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

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

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

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

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

| | 1. | If Other has been checked in response to the
      previous question, indicate by check mark which financial statement item
      the Registrant has elected to follow:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Item 17 [  ]    Item 18
      [  ]                                                                                                                                       

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

2

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TABLE OF CONTENTS

|               |                                                                                    | Page
|-------------- | ---------------------------------------------------------------------------------- | ----
|Part
      I   |                                                                                    | 4   
|               |                                                                                    |     
|Item
      1.  | Identity
      of Directors, Senior Management and Advisors                        | 4   
|Item
      2.  | Offer
      Statistics and Expected Timetable                                      | 4   
|Item
      3.  | Key
      Information                                                              | 4   
|Item
      4.  | Information
      on the Company                                                   | 13  
|Item
      4A. | Unresolved
      Staff Comments                                                    | 21  
|Item
      5.  | Operating
      and Financial Review and Prospects                                 | 21  
|Item
      6.  | Directors,
      Senior Management and Employees                                   | 27  
|Item
      7.  | Major
      Shareholders and Related Party Transactions                            | 33  
|Item
      8.  | Financial
      Information                                                        | 34  
|Item
      9.  | The
      Offer and Listing                                                        | 34  
|Item
      10. | Additional
      Information                                                       | 35  
|Item
      11. | Quantitative
      and Qualitative Disclosures about Market Risk                   | 42  
|Item
      12. | Description
      of Securities Other Than Equity Securities                       | 43  
|               |                                                                                    |     
|Part
      II  |                                                                                    | 43  
|               |                                                                                    |     
|Item
      13. | Defaults,
      Dividend Arrearages and Delinquencies                              | 43  
|Item
      14. | Material
      Modifications to the Rights of Security Holders and Use of Proceeds | 43  
|Item
      15. | Controls
      and Procedures                                                      | 43  
|Item
      16. | [Reserved]                                                                         | 44  
|Item
      16A | Audit
      Committee Financial Expert                                             | 44  
|Item
      16B | Code
      of Ethics                                                               | 44  
|Item
      16C | Principal
      Accountant Fees and Services                                       | 44  
|Item
      16D | Exemptions
      from the Listing Standards for Audit Committees                   | 45  
|Item
      16E | Purchases
      of Equity by the Issuer and Affiliated Purchasers                  | 45  
|Item
      16F | Changes
      in Registrants Certifying Accountant                                | 45  
|Item
      16G | Corporate
      Governance                                                         | 45  
|Item
      16H | Mine
      Safety Disclosure                                                       | 45  
|               |                                                                                    |     
|Part
      III |                                                                                    | 45  
|               |                                                                                    |     
|Item
      17. | Financial
      Statements                                                         | 45  
|Item
      18  | Financial
      Statements                                                         | 45  
|Item
      19. | Exhibits                                                                           | 46  
|Signatures     |                                                                                    | 47  

3

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PART I

INTRODUCTION

Abbreviations

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

Forward Looking and Cautionary Statements

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

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

Not applicable.

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

Not applicable.

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

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

Fiscal Years 2016, 2015, 2014, 2013 and 2012

The following table sets forth our selected consolidated
financial data in United States dollars as of and for each of the fiscal years
ended October 31, 2016, October 31, 2015, October 31, 2014, October 31, 2013 and
October 31, 2012. The selected consolidated financial data has been derived from
our audited consolidated financial statements. All information contained in the
following table should be read in conjunction with our audited consolidated
audited financial statements and the notes thereto in Item 18-Financial
Statements and "Item 5 - Operating and Financial Review and Prospects included
elsewhere in this Annual Report on Form 20-F.

Our consolidated financial statements for the years ended
October 31, 2016, 2015, 2014, 2013 and 2012 have been prepared in accordance
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.

4

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International Financial Reporting Standards

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

|                                  |  | 2016        |   |  | 2015        |   |   | 2014       |  |   | 2013       |  |  | 2012        |  
|--------------------------------- |  | ----------- | - |  | ----------- | - | - | ---------- |  | - | ---------- |  |  | ----------- | -
|                                  |  |             |   |  |             |   |   |            |  |   |            |  |  |             |  
|Working capital (deficiency)      |  | ($4,316,730 | ) |  | ($2,049,302 | ) | $ | 1,034,921  |  | $ | 425,888    |  |  | ($1,793,217 | )
|Capital Assets                    |  | 10,988      |   |  | 15,592      |   |   | 21,483     |  |   | 13,998     |  |  | 5,787       |  
|Total Assets                      |  | 736,043     |   |  | 3,667,866   |   |   | 5,636,605  |  |   | 2,166,455  |  |  | 1,180,278   |  
|Capital Stock                     |  | 75,855,139  |   |  | 74,083,975  |   |   | 70,802,776 |  |   | 57,755,613 |  |  | 54,728,239  |  
|Shareholders' equity (deficiency) |  | ( 3,902,142 | ) |  | 1,403,888   |   |   | 4,862,773  |  |   | 1,536,319  |  |  | (904,030    | )

Selected statement of operations and deficit
information

(all amounts in U.S. dollars)

|                                                             |   | 2016        |   |   | 2015        |   |   | 2014        |   |   | 2013        |   |   | 2012        |  
|------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------- | - | - | ----------- | - | - | ----------- | -
|Interest and other income                                    | $ | -           |   | $ | -           |   | $ | -           |   | $ | -           |   | $ | -           |  
|Research and development
      expenses                      |   | 3,635,613   |   |   | 2,649,019   |   |   | 703,671     |   |   | 160,920     |   |   | 229,840     |  
|General and
      administrative and other expenses          |   | 3,169,922   |   |   | 2,703,650   |   |   | 3,081,947   |   |   | 2,198,466   |   |   | 2,618,792   |  
|(Gain) Loss on revaluation
      of embedded derivatives (1) |   | -           |   |   | -           |   |   | -           |   |   | 3,205,752   |   |   | (1,504,423  | )
|Stock compensation expense (2)                               |   | -           |   |   | 1,163,941   |   |   | 379,253     |   |   | 368,790     |   |   | 430,856     |  
|                                                             |   |             |   |   |             |   |   |             |   |   |             |   |   |             |  
|Loss before
      income taxes                               |   | (6,805,535  | ) |   | (6,516,610  | ) |   | (4,164,871  | ) |   | (5,933,928  | ) |   | (1,775,065  | )
|                                                             |   |             |   |   |             |   |   |             |   |   |             |   |   |             |  
|Provision for income taxes (recovery)                        |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | -           |  
|Net loss                                                     |   | (6,805,535  | ) |   | (6,516,610  | ) |   | (4,164,871  | ) |   | (5,933,928  | ) |   | (1,775,065  | )
|                                                             |   |             |   |   |             |   |   |             |   |   |             |   |   |             |  
|Loss per share-basic and diluted                             |   | (0.03       | ) |   | (0.03       | ) |   | (0.02       | ) |   | (0.04       | ) |   | (0.01       | )
|                                                             |   |             |   |   |             |   |   |             |   |   |             |   |   |             |  
|Weighted average number of basic and diluted
      shares    |   | 199,572,966 |   |   | 192,629,666 |   |   | 171,534,969 |   |   | 146,814,466 |   |   | 123,375,510 |  
|Dividends                                                    |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | -           |  

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

5

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Currency and Exchange Rates

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

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

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.

|                   |  | 2016   |  |  | 2015   |  |  | 2014   |  |  | 2013   |  |  | 2012   | 
|------------------ |  | ------ |  |  | ------ |  |  | ------ |  |  | ------ |  |  | ------ | 
|High for period    |  | 0.7972 |  |  | 0.8501 |  |  | 0.9422 |  |  | 1.0164 |  |  | 1.0281 | 
|Low for period     |  | 0.6854 |  |  | 0.7141 |  |  | 0.8589 |  |  | 0.9348 |  |  | 0.9783 | 
|End of period      |  | 0.7461 |  |  | 0.7233 |  |  | 0.8620 |  |  | 0.9402 |  |  | 0.9872 | 
|Average for period |  | 0.7538 |  |  | 0.7793 |  |  | 0.9054 |  |  | 0.9710 |  |  | 1.0046 | 

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

|     |  | February |  |  | March  |  |  | April  |  |  | May    |  |  | June   |  |  | July   | 
|---- |  | -------- |  |  | ------ |  |  | ------ |  |  | ------ |  |  | ------ |  |  | ------ | 
|     |  | 2016     |  |  | 2016   |  |  | 2016   |  |  | 2016   |  |  | 2016   |  |  | 2016   | 
|High |  | 1.3567   |  |  | 1.3009 |  |  | 1.2588 |  |  | 1.3135 |  |  | 1.3016 |  |  | 1.3185 | 
|Low  |  | 1.3481   |  |  | 1.2859 |  |  | 1.2497 |  |  | 1.3016 |  |  | 1.2914 |  |  | 1.3002 | 

|     |  | August |  |  | September |  |  | October |  |  | November |  |  | December |  |  | January | 
|---- |  | ------ |  |  | --------- |  |  | ------- |  |  | -------- |  |  | -------- |  |  | ------- | 
|     |  | 2016   |  |  | 2016      |  |  | 2016    |  |  | 2016     |  |  | 2016     |  |  | 2017    | 
|High |  | 1.3145 |  |  | 1.3189    |  |  | 1.3424  |  |  | 1.3462   |  |  | 1.3465   |  |  | 1.3084  | 
|Low  |  | 1.3092 |  |  | 1.3088    |  |  | 1.3376  |  |  | 1.3360   |  |  | 1.3401   |  |  | 1.2969  | 

On February 28, 2017 the noon buying rate for one Canadian
dollar, as quoted by the Bank of Canada, was CDN $1.3248 = U.S. $1.00.

|B. | Capitalization and
Indebtedness
|-- | -------------------------------

Not applicable.

|C. | Reasons for the Offer and Use of
  Proceeds
|-- | -------------------------------------------

Not applicable.

|D. | Risk Factors
|-- | ------------

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

6

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

Our consolidated financial statements have been prepared on a
going concern basis do not include any adjustments to the amounts and
classifications of the assets and liabilities that might be necessary should we
be unable to continue in business. If the going concern assumption was not
appropriate for our financial statements then adjustments would be necessary in
the carrying value of assets and liabilities, the reported expenses and the
balance sheet classifications used. Such adjustments could be material.

At October 31, 2016 we had $288,128 cash on hand and our
current monthly cash expenses were approximately $175,000. Our working capital
position is ($4,316,730) at October 31, 2016. Subsequent to October 31, 2016,
through to the date of the filing of this Annual Report on Form 20-F, we have
raised an additional $788,600 through the issuance of convertible debentures and
$143,365 through a series of private placements. Additionally, we collected
$200,000 from development partners with respect to our ongoing joint product
development projects.

We currently have no operating revenue.

We have not yet reported commercial revenues from licensing
fees, royalties or product sales. If we fail to enter into license agreements or
if we do not obtain purchase orders from potential customers, we will have no
revenues. If we enter into such agreements the amount of the revenues we receive
will depend on the terms we are able to secure from each licensee and the
ability of licensees to compete in their particular market.

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

We continued to develop applications of our magnetic sensor
technology in 2016 working with our technical advisors and our strategic
development partners. We are pursuing joint development agreements with
potential strategic partners with the expectation that we will jointly develop
sensor applications for use by these potential strategic partners. We believe
that these current initiatives will result in revenues and cash flow to the
Company in the future but there can be no assurance when and if such revenues
will be achieved.

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

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

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

7

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

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

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

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

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

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

Our future success and competitive position depend in part on
our ability to retain rights to our technology, including any improvements that
may be made on that technology from time to time by us or on our behalf. Our
technology is patented or is subject to pending patent applications in the
United States and abroad and we know of no challenge that has been made either
against our technology or our rights to it. We have no reason to believe that
any such challenge might be made or that the grounds for any such challenge
exist. If any intellectual property litigation were to be commenced against us,
no matter how groundless, the result could be a significant expense to us,
adversely affecting further development, licensing and sales, diverting the
efforts of our technical and management personnel and, in the event of an
adverse outcome, damages and possible restrictions on the further development,
licensing and use of our technology. There can be no assurance that any of our
pending patent applications will be issued as patents or that any issued patent
will not be determined to be invalid at a later date.

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

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

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

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.

8

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

The range of products we intend to commercialize is currently
limited to applications of our sensor technology. If we are not successful in
commercializing our technology platforms, or if there is not adequate demand for
such technology or the market for such technology develops less rapidly than we
anticipate, we may not have the capability to shift our resources to the
development of alternative products, on a timely basis. This could limit future
revenues and profitability.

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

In order to generate revenues from our sensor technology
platforms, we will need to enter into licensing arrangements with third parties
who can integrate our technology into products that will gain acceptance in the
market. We have not yet entered into any licensing agreements, and there is no
assurance that we will be able to do so on acceptable terms in future. To the
extent we are successful in licensing our technology; in general we will seek
upfront payments plus ongoing royalties based on anticipated commercial sales of
the products into which our technology is incorporated. Our ability to realize
royalties will thus depend upon the successful manufacture and commercialization
of such products, which will be primarily within the control of the licensee.
There is no assurance that such licensees will be successful in marketing and
selling such products. In addition, licensees could decide to delay or
discontinue the commercialization of products for financial or other business
reasons. Even if our licensees succeed in developing products that incorporate
our technology, in all likelihood a significant amount of development and
testing will be required before such products can be introduced to market.
Therefore we may not receive royalty income for a substantial period following
the commencement of any licensing arrangements. If our licensees are unable to
commercialize products on a timely basis, they may lose market share to
competing or alternative technologies. Any failure by the companies to which we
license our technologies to successfully develop marketable products would have
an adverse effect on our future royalty payments and financial condition.

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

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

We depend on key personnel.

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

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

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

9

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

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

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

Short product life cycles are inherent in high-technology
companies due to rapid technological change and evolving industry standards. Our
future financial condition and results of operations depend on our ability to
respond effectively to these changes. There can be no assurance that we will be
able to successfully do so or adapt our current products to new technologies or
new industry standards. In addition, our customers may be reluctant to adopt new
technologies and standards or they may prefer competing technologies and
standards. Because the technology market changes so rapidly, it is difficult for
us to predict the rate of adoption of our technology.

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

Our new product development is complex and requires us to
investigate and evaluate multiple alternatives, as well as plan the design and
manufacture of those alternatives selected for further development. Our
development efforts could be adversely affected by hardware and software design
flaws, product development delays, changes in operating systems and changes in
industry standards. The manufacturing of new products involves integrating
complex designs and processes, coordinating with suppliers for parts and
components and managing manufacturing capacities to accommodate forecasted
demand. If we are not successful in meeting these requirements, this could
adversely affect our ability to introduce new products on a timely basis.

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

There can be no assurance that we will be able to continue to
develop new intellectual property or that we will continue to have it developed
for us. We rely on a combination of U.S. patent, copyright, trademark, and trade
secret laws to protect our intellectual property rights. We have decided to file
patent and trademark registration applications with certain foreign governments
but we may not have appropriate coverage in all jurisdictions where we may sell
or license our product in future.

We enter into confidentiality and non-disclosure agreements
relating to our intellectual property with our employees and consultants.
Despite our efforts to protect our intellectual property rights, unauthorized
parties may attempt to copy or otherwise obtain or use our intellectual
property. Monitoring the unauthorized use of our intellectual property is
difficult and we cannot be certain that we will be able to adequately protect
our intellectual property in the future.

There are foreign exchange risks associated with our
Company.

Because we have historically raised funds in both U.S. and
Canadian markets and a portion of our costs are denominated in Canadian dollars,
our funding is subject to foreign exchange risks. A decrease in the value of the
U.S. dollar relative to the Canadian dollar could affect our costs and potential
future profitability. We do not currently hold forward exchange contracts or
other hedging instruments to exchange foreign currencies for U.S. dollars so as
to offset potential currency rate fluctuations.

Risk Factors Related to Our Common Shares

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.

10

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Our common shares constitute penny stock under applicable
regulations of the Securities and Exchange Commission. The penny stock
regulations impose significant restrictions on brokers who sell penny stock to
persons other than established customers and institutional accredited investors.
Broker-dealers participating in sales of our stock will be subject to the so
called penny stock regulations covered by Rule 15g-9 under the Exchange Act.
Under the rule, broker-dealers must furnish to all investors in penny stocks a
risk disclosure document required by the rule, make a special suitability
determination of the purchaser and have received the purchaser's written
agreement to the transaction prior to the sale. The penny stock regulations may
discourage brokers from effecting transactions in the common shares. This would
decrease market liquidity, adversely affect market price and make it difficult
for you to use the common shares as collateral.

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

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

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

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

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

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

11

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There is no limitation imposed by our Articles or other charter
documents on the right of a non-resident to hold or vote our common shares.
However, the Investment Canada Act , also referred to herein as the Investment
Act, as amended by the World Trade Organization Agreement Implementation Act,
also referred to herein as the WTOA Act, generally prohibits implementation of a
reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a Canadian, as
defined in the Investment Act, unless, after review, the minister responsible
for the Investment Act is satisfied that the investment is likely to be a net
benefit to Canada. An investment in our common shares by a non-Canadian would be
reviewable under the Investment Act if it were an investment to acquire direct
control of Micromem, and the value of our assets were CDN $5.0 million or more.
However, an investment in our shares by a national of a country (other than
Canada) that is a member of the World Trade Organization or has a right of
permanent residence in such a country (or by a corporation or other entity that
is a WTO Investor-controlled entity pursuant to detailed rules set out in the
Investment Act) would be reviewable at a higher threshold of CDN $344 million in
assets, except for certain economic sectors with respect to which the lower
threshold would apply. A non-Canadian, whether a national of a WTO member or
otherwise, would acquire control of Micromem for purposes of the Investment Act
if he or she acquired a majority of our common shares. The acquisition of less
than a majority, but at least one-third of our common shares, would also be
presumed to be an acquisition of control of Micromem, unless it could be
established that Micromem was not controlled in fact by the acquirer through the
ownership of voting shares. The United States is a WTO Member for purposes of
the Investment Act. Certain transactions involving our common shares would be
exempt from the Investment Act, including:

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

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

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

We do not anticipate paying dividends.

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

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

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

12

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The price of our common shares and volume of our common
shares may be volatile.

Our shareholders may be unable to sell a significant number of
our common shares on the OTC QX without a significant reduction in the market
price of the shares.

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

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

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

Micromem is a corporation formed under the laws of the Province
of Ontario, Canada, with principal executive offices at 121 Richmond Street
West, Suite 304, Toronto, Ontario M5H 2K1 (416.364.6513) . Micromem was
incorporated on October 21, 1985 as Mine Lake Minerals Inc. We subsequently
changed our name to Avanti Capital Corp. on June 23, 1988, to Avanti Corp
International Inc. on April 30, 1992 and to Micromem Technologies Inc. on
January 11, 1999 in connection with our acquisition of Pageant Technologies
Incorporated, also referred to herein as Pageant International. Our website
address is www.micromeminc.com. The information on our website is not
part of this Annual Report on Form 20-F. We have included our website address in
this document as an inactive textual reference only.

The Evolution of Micromem from Memory to Sensor Based Client
Solutions

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

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

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

13

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

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

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

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

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

By 2015 we had advanced a number of our product development
initiatives under joint product development agreements with our clients Chevron,
Castrol, Flextronics and Eversource Energy. Our pipeline of development projects
expanded. By October 31, 2015 several of our active projects had advanced to the
stage where the proof of concept and the prototype units were completed. We
ended our fiscal year in preparation to advance to field trials of our
production units in 2016.

14

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

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

Update of Product Development
Activity at October 31, 2016

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

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

In 2015, this work was significantly advanced. Chevron funded a
portion of our development activity to the extent of $1,545,132.

The significant developments in fiscal year 2016 are presented
as below:

| | a) | In November 2015, we completed the nanoparticle tracer
      testing in testing facilities in Texas. We worked extensively with key
      subcontractors building towards a laboratory demonstration late in 2016
      designed to differentiate between 8-9 interwell tracers simultaneously.
      These tests provided positive results in the demonstration. We invoiced
      Chevron for $193,901 and received payment in the first quarter of
    2016.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | b) | Our follow up discussions with Chevron continued through
      to late March 2016 as to the go forward steps. At that point, Chevron
      indicated that they wanted to pursue certain specific tracers in the go
      forward work as the next phase of the development project.                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | c) | Our discussions continued through July 2016, at which
      point we executed an addendum to our contractual work with Chevron to
      complete the next round of tracer tests. An initial budget of $400,000 for
      this work was established and we received $200,000 in August,
  2016.                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | d) | We began working with our subcontractor to move forward
      with this phase of the development work. This work progressed well
      throughout the fall and a series of status reports were issued continuing
      through late December.                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | e) | We received an additional $100,000 for this work from
      Chevron in December.                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | f) | In early February 2017, this round of testing was
      completed and we believe that these testing results were successful.
      Chevron is continuing to evaluate these test results. We anticipate
      initial commercial orders once this evaluation is completed.                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | g) | During 2016, we engaged in discussions with a large U.S.
      based process control manufacturing company as a candidate to take forward
      the production of the ultimate commercial units. These discussions
      continue.                                                                                                                                                                                                                             

15

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| | h) | We previously executed a development contract with
      Chevron in April 2015 for the development of a cement integrity sensor
      platform. Given the Companys cash constraints in 2016, this development
      initiative was not substantially pursued in 2016, but continues to form
      part of our go forward pipeline in 2017.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Castrol has commissioned us to produce initial field units for
testing. These units are larger than the ultimate product intended for the
automotive market.

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

The significant developments in fiscal year 2016 are as
presented below:

| | a) | We continued our development work with Castrol through
      March 2016. We invoiced Castrol $250,000 and this amount was collected in
      January, 2016 . We met with the Castrol team in the UK in June 2016. We
      agreed to move forward in the second half of 2016 with the development of
      the fieldable units in the immediate term and we agreed to continue the
      development plans for the miniaturization for automotive use as the final
      end product. These discussions were again confirmed in a follow-up
      in-person meeting in July 2016 with Castrol.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | b) | We worked with our subcontractor to develop an overall
      budget for the next phase of the miniaturization work and for the
      fieldable units. We invoiced Castrol for $100,000 relating to the
      fieldable unit work in late fall. This amount was paid in December,
      2016.                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | c) | We have since engaged with Castrols commercialization
      teams and are pursuing Castrols marine diesel division for the fieldable
      units.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | d) | In September 2016, we met with a large
      manufacturer/marketer of process control equipment and have engaged in
      discussions with that group as a leading candidate to manufacture and
      market the eventual miniaturized end product for the automotive
    sector.                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | e) | We have developed with Castrol a critical path towards
      completion of the miniaturized product for automotive use over the course
      of 2017-2018. The budgets were established and our subcontractor is
      working with us to execute this development program.                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | f) | As a direct result of our Castrol dealings on the
      fieldable units, in November 2016, we were approached by a large European
      energy company who has expressed a direct interest in our fieldable units.
      These discussion and negotiations continue.                                                                                                                                                                                                                                                                                                                          

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

The development contract that was established with Flextronics
in 2014 remains in place. The Company has contracted with Flextronics to conduct
specific work.

16

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It is anticipated that we will engage with Flextronics in the
second quarter of fiscal 2017 to identify the timing for the completion of the
work going forward.

Other projects:

In our fiscal year 2015 annual report we reported that we were
working with Northeast Utilities (or Eversource) for the development of a sensor
platform design to detect partial discharges inside a transformer. Additionally,
we reported that we had begun development work with Northeast Utilities on a low
cost power line conditioning monitoring device designed for transmission power
lines.

Given the timing to market these opportunities, we reflected a
writedown of our investment of $2.27 million against these projects in the
fiscal year ending October 31, 2015. The Company believes that there is
substantial opportunity to further develop these technology applications in
future. It retains the intellectual property on the work that it has completed.
While there were no substantive developments or new progress in 2016, these
projects remain as active in our 2017 pipeline, perhaps with Eversource or with
other utilities.

On July 31, 2016, we wrote down the remaining value of the
deferred development costs to nil while we continue to pursue the continued
development and ultimate commercialization of these projects.

The Company's investment in deferred development costs between
2013-2016 is summarized as below.

|                      | S.A.      | Chevron     | Castrol     | Northeast   | Flextronics | Other     | Total      
|--------------------- | --------- | ----------- | ----------- | ----------- | ----------- | --------- | -----------
|                      |           |             |             |             |             |           |            
|Balance at 10/31/2012 | 364,870   | -           | -           | -           | 205,237     | 148,057   | 718,164    
|Additions             | 236,960   | 89,986      | -           | 10,000      | 208,303     | 132,195   | 677,444    
|Recoveries            | (100,000) | (87,290)    | -           | -           | -           | (46,000)  | (233,290)  
|Writedowns            | -         | -           | -           | -           | -           | (234,241) | (234,241)  
|Balance at 10/31/2013 | 501,830   | 2,696       |             | - 10,000    | 413,540     | 11        | 928,077    
|Additions             | 262,328   | 1,622,554   | 387,519     | 1,427,634   | 116,000     | 120,424   | 3,936,459  
|Recoveries            | (125,000) | (87,290)    | (250,000)   | (200,000)   | -           | -         | (662,290)  
|Writedowns            | (639,158) | -           | -           | -           | -           | (37,632)  | (676,790)  
|Balance at 10/31/2014 | -         | 1,537,960   | 137,519     | 1,237,634   | 529,540     | 82,803    | 3,525,456  
|Additions             | -         | 1,321,015   | 1,027,758   | 1,032,695   | 300,139     | 42,293    | 3,723,900  
|Recoveries            | -         | (1,545,132) | (238,500)   | -           | -           | -         | (1,783,632)
|Writedowns            | -         | -           | -           | (2,270,329) | -           | (125,096) | (2,395,425)
|Balance at 10/31/2015 | -         | 1,313,843   | 926,777     | -           | 829,679     | -         | 3,070,299  
|Additions             | -         | 451,828     | 460,403     | -           | 299,489     | -         | 1,211,720  
|Recoveries            | -         | (393,901)   | (250,000)   | -           | -           | -         | (643,901)  
|Writedowns            | -         | (1,171,700) | (1,337,250) | -           | (1,129,168) | -         | (3,638,118)
|Balance at 10/31/2016 | -         | -           | -           | -           | -           | -         | -          

17

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On July 31, 2016, we reserved the total balance of deferred
development costs and recorded a writedown of $3,638,118. The Company continues
to pursue all of our active projects and our product pipeline opportunities;
however, the decision to reserve these balances was made due to the uncertainty
of timing of realization of these assets.

Intellectual Property

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

The Company has been active in building its intellectual
property portfolio during 2016 as it has furthered the above-noted development
projects. We have engaged a Washington, DC based law firm to assist us in these
efforts. The Company incurred $192,873 of patent related costs in 2016.

We believe that the Company has broad and valuable interests in
its intellectual property that it has developed through October 31, 2016.
Specifically, we note that:

| | a) | Four patents have been issued to date by the U.S. patent
      office for our Multimodal condition sensor platform and system thereof. We
      expect two additional patents to be awarded in 2017. We also have
      provisional patents filed in various international jurisdictions for this
      intellectual property.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                               
| | b) | U.S. patent filings have also been submitted and are
      pending for:                                                                                                                                                                                                                                                       

| | i.   | System and method to monitor power lines. We have also
      filed provisional patents in several international jurisdictions for the
      system and method to monitor power lines.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                      
| | ii.  | System for real time monitoring of power line
      transformers.                                                                                                                    
| |      |                                                                                                                                                                                      
| | iii. | MEMS sensor and methods to determine cement
    integrity.                                                                                                                           
| |      |                                                                                                                                                                                      
| | iv.  | MEMS implementation of a LIBS detection of wear metals in
      lubricants.                                                                                                          

| | c) | In June 2016, we settled the litigation with Dreifus
      Associates Limited (DAL) which had been pending since late 2014. As part
      of the settlement, the Company received the full assignment of DALs
      alleged interests in our Multimodal condition sensor platform and system
      thereof.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

18

---

Share Capital

At October 31, 2016 the Company had 204,388,569 common shares
outstanding (2015: 197,176,368). Additionally, the Company has 4,395,000 stock
options outstanding with a weighted average exercise price of $0.45 per share
(2015: 9,817,000 options outstanding with a weighted average exercise price of
$0.31 per share).

Changes to Our Board of Directors and Management:

Our 2015 Annual Meeting of Shareholders was held on April 26,
2016. Joseph Fuda, David Sharpless, Steven Van Fleet, Oliver Nepomuceno, Larry
Blue, Alex Dey, and Brian Von Herzen were reelected to serve on our Board of
Directors. Salvatore Fuda did not stand for reelection to our Board of
Directors. Craig Carlson resigned as a Director of the Company in June 2015.
Messrs. Joseph Fuda, Dan Amadori and Steven Van Fleet continue to serve as
officers of the Company.

Equity Financing Transactions:

In the fiscal year ending October 31, 2016, the Company
completed two private placements for cash and received gross proceeds of
$110,000 and issued a total of 366,668 common shares.

In the fiscal year ending October 31, 2016, the Company raised
$751,273 from the exercise by officers, directors and employees of 3,756,366
common share options.

During the 2016 fiscal year, the Company secured additional
financing of $2,490,333 through fourteen (14) bridge loans from investors. The
maturity dates of these loans at inception varied from two to six months. The
prescribed interest rates vary from 1% to 3% per month. A conversion feature has
been provided in each case whereby the investor has the option to convert the
loan into common shares at a conversion price prescribed at the inception of the
loan. Seven (7) of these bridge loans are denominated in $CDN and the remaining
seven bridge loans are denominated in $USD. In certain cases the terms of the
bridge loans were renegotiated at their maturity dates with new terms
established.

Of the bridge loans secured in 2016, two $USD loans totaling
$60,000 were repaid at their maturity dates and a third bridge loan in the
amount of $107,000 (principal and interest) was converted to common shares at
its maturity date. The remaining bridge loans secured were extended at their
maturity dates. These loans are outstanding at October 31, 2016 with new
maturity dates ranging from June 2017 to November 2017.

In 2016 the Company issued 1,517,143 common shares to two (2)
creditors to settle outstanding accounts payable due to these creditors in the
amount of $295,312. Additionally, the Company issued 312,500 common shares with
a value of $62,500 as partial consideration of the settlement of the 2014
litigation with DAL. This litigation was settled on June 29, 2016.

During 2015, the Company raised $565,777 from the exercise by
warrant holders of 2,988,876 common share purchase warrants. On October 31,
2015, there were no remaining warrants outstanding.

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

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

Between August to October 2015, the Company secured a series of
bridge loans from investors totaling $1,287,500 CDN ($976,673 US). These loans
are secured by a floating charge on the assets of the Company. The maturity date
of the loans were originally set as 30 days in each case and have been renewed
by the investors through November 2015. The interest rate on the loans ranges
from 2% to 3% per month. These bridge loans were not convertible into common shares as at October 31, 2015. One of the bridge loans
obtained in the amount of $300,000 CDN ($229,446 US) plus accrued interest of
$6,000 CDN ($4,588 US) was repaid on September 4, 2015. In 2016 these bridge
loans were extended with revised terms. At October 31, 2016 the total amount
outstanding is $1,196,638 with an interest rate of 2% per month, convertible to
common shares at a price of $0.25 CDN ($0.19 USD) per share. The loans have been
extended to October 31, 2017.

19

---

In August 2015, the Company secured a bridge loan of $200,000
  from an investor. The loan is secured by a floating charge on the assets of the
  Company within a maturity date of November 1, 2015. The interest rate on the
  loan is calculated at 3% per month, payable is arrears. This bridge loan was not
  convertible into common shares at October 31, 2015. In 2016 this bridge loan was
  extended with revised terms. At October 31, 2016, the total amount outstanding
  is $205,828 with an interest rate of 2% per month, convertible to common shares
  at a price of $0.30 per share. This loan has been extended to November 2, 2017.

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

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

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

Intangible Assets:

Intangible assets comprise the costs which the Company has
capitalized relating to the technical expertise and knowhow that the Company has
developed with respect to the commercialization efforts relating to its sensor
technology. In 2012, the Company determined that it had sufficiently advanced
its expertise and product knowledge relating to the general commercialization
efforts for its sensor technology in multiple industry vertical applications. In
2016, we recorded $19,352 of amortization expense during the year and reserved
the balance of $38,075 at fiscal year end, leaving a nil balance at October 31,
2016.

Environmental Matters:

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

| | C. | Organizational Structure
| | -- | ------------------------

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

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

We have a wholly-owned subsidiary, Pageant International, which
was incorporated under the laws of the Turks & Caicos Islands and continued
to Barbados on May 25, 2001. Pageant International has a wholly-owned
subsidiary, Pageant Technologies (USA) Inc., a corporation incorporated in the
State of Utah. Pageant Technologies USA has been inactive since 2002.

20

---

We have a wholly-owned subsidiary, Memtech International Inc.,
incorporated under the laws of the Bahamas, which in turn has a wholly-owned
subsidiary, Memtech International (USA) Inc., a corporation incorporated in the
State of Delaware. We also have a wholly-owned subsidiary Micromem Holdings
(Barbados) Inc. These subsidiaries have been inactive since inception.

| | D. | Property, Plant and
Equipment
| | -- | -----------------------------

We maintain our corporate headquarters in Toronto, Ontario,
Canada. We occupy 2,500 square feet of commercial office space pursuant to a
lease that we extended in February, 2017 for five years through 2021.

The Company made nil capital expenditures in 2016; $1,274 of
capital expenditures in 2015; and $16,508 of capital expenditure in 2014.

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

None.

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

This section of the Form 20-F has been prepared to provide a
more substantive discussion of our business and to assist the reader in
analyzing the audited consolidated financial statements for the years ended
October 31, 2016, October 31, 2015 and October 31, 2014. This discussion and
analysis of financial condition and results of operations should be read in
conjunction with the consolidated financial statements and related notes in this
Annual Report, which are prepared in accordance with IFRS and are stated in
United States dollars.

21

---

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

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

Selected statement of operations and deficit information

|                                         |   | 2016      |  |   | 2015      |  |   | 2014      | 
|---------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
|Administration                           | $ | 395,340   |  | $ | 389,647   |  | $ | 302,933   | 
|Professional and other fees and salaries |   | 1,739,401 |  |   | 1,952,302 |  |   | 2,360,867 | 
|Travel and entertainment                 |   | 180,767   |  |   | 193,861   |  |   | 329,779   | 
|Other expenses                           |   | 4,490,027 |  |   | 2,816,859 |  |   | 792,039   | 
|Stock compensation expense               |   | -         |  |   | 1,163,941 |  |   | 379,253   | 
|Loss for the year                        |   | 6,805,535 |  |   | 6,516,610 |  |   | 4,164,871 | 
|Loss per share - basic and diluted       |   | 0.03      |  |   | 0.03      |  |   | 0.02      | 

Selected balance sheet information

|                                   |   | 2016       |   |   | 2015       |   |   | 2014      | 
|---------------------------------- | - | ---------- | - | - | ---------- | - | - | --------- | 
|Working capital
      (deficiency) | $ | (4,316,730 | ) | $ | (2,049,302 | ) | $ | 1,034,921 | 
|Other Assets                       |   | 414,588    |   |   | 3,453,190  |   |   | 3,827,852 | 
|Total Assets                       |   | 736,043    |   |   | 3,667,866  |   |   | 5,636,605 | 
|Shareholders equity (deficiency)  |   | (3,902,142 | ) |   | 1,403,888  |   |   | 4,862,773 | 

Fiscal 2016 Compared to Fiscal 2015

The Company reported a loss of $6,805,535 in 2016 versus a loss
of $6,516,610 in 2015. The change in loss from operations in 2016 from 2015
resulted from several components, including:

| | a. | Administration expenses were $395,340 in 2016 versus
      $389,647 in 2015. These expenses include rent, insurance, communications,
      investor relations and filing fees and are comparable between the two
      years.                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | b. | Professional fees including audit and legal expenses were
      $328,851 in 2016 versus $466,411 in 2015 primarily as a result of of costs
      incurred in 2015 relating to the DAL litigation which was settled in 2016.
      Additionally, we incurred higher costs in 2015 relating to contracts with
      our development partners.                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | c. | Consulting fees were $1,028,600 in 2016 versus $1,039,316
      in 2015. In 2016 this included $110,000 of investor relations fees to a
      firm hired in 2016 (2015: nil), management bonuses of nil to the President
      of MAST in 2016 (2015 - $244,000).                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | d. | Salaries and benefits expenses were $381,951 in 2016
      versus $446,565 in 2015. Staff bonuses were $20,000 in 2016 versus $55,000
      in 2015.                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | e. | Travel and entertainment expenses were $180,767 in 2016
      versus $193,861 in 2015.                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | f. | Other expenses in 2016 totaled $4,490,027 (2015 -
      $2,816,859). The largest components of this increase include an impairment
      reserve on development costs of $3,638,118 (2015: $2,395,425), interest
      expense on the bridge loans of $561,608 (2015: $36,714), accretion expense
      of $514,560 on the bridge loans (2015: nil), and other development costs,
      net of recoveries of ($2,505) (2015: $250,594).

22

---

| | g. | Stock compensation expense was nil in 2016 versus
      $1,163,941 in 2015 which related to the issuance of stock options in
      2015.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------

Fiscal 2015 Compared to Fiscal 2014

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

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

| | (a) | Professional fees including audit and legal expenses were
      $466,411 in 2015 (2014: $420,902). Our costs were higher in 2015 as a
      result of the audit of our internal controls over financial reporting
      required by the Sarbanes-Oxley Act, additional legal costs incurred with
      respect to contract negotiations with our development partners, and the
      pending litigation matter discussed below in ITEM 8  Financial
      Information below.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Consulting fees totaled $1,039,316 in 2015 (2014:
      $1,535,522); in 2014 the Company paid additional compensation to the CEO
      of $542,615 above the CEOs base compensation (in 2015: nil).                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Salaries expense was $446,575 in 2015 (2014:
      $404,445).                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The advance reported at October 31, 2014 to Mr. Steven
      Van Fleet, the President of MAST, in the amount of $244,074 was converted
      in February 2015 to performance based additional compensation. There were
      no outstanding advances to the senior management team at October 31, 2015
      (2014: $244,074).                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | In 2015, other expenses included an impairment reserve of
      $2,270,329 relating to one of the Companys deferred development projects.
      The Company also incurred additional development costs of $178,000
      pertaining to one specific project that it initiated in 2015, but which
      project did not ultimately go forward.                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | In 2014 the Company had an impairment reserve of $639,158
      ($764,158 of costs incurred less recoveries of $125,000) on one of its
      deferred development projects.                                                                                                                                                                                                                                                                                                  

| | (b) | The remaining costs categorized as other expenses
      include:
| | --- | ----------------------------------------------------------------
| |     |                                                                 
| |     | (i)                                                             
| |     |                                                                 
| |     | (ii)                                                            

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

23

---

Balance Sheet Data:

|(a) | At October 31, 2016, the Company had working capital of
      ($4,316,730) compared to ($2,049,302) at October 31, 2015. The increase in
      working capital deficiency was primarily the result of the writedown of
      $3,613,118 in deferred development costs.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                       
|(b) | The investment in deferred development costs by project
      for the four-year period from 2013  2016 is summarized in ITEM 4.B.
      Business Overview above.                                                                                                    
|    |                                                                                                                                                                                                                                                                       
|(c) | The Company completed equity and bridge loan financings
      in 2016, 2015 and 2014 as summarized in ITEM 4.B.- Business Overview
      above.                                                                                                                       

|Unaudited quarterly financial information |          |              |                |                | 
|----------------------------------------- | -------- | ------------ | -------------- | -------------- | 
|                                          |          |              |                |                | 
|Three months ended                        |          |              |                |                | 
|(unaudited)                               | Revenues | **Expenses** | Loss in period | Loss per share | 
|                                          | $        | $            | $              | $              | 
|January 31, 2015                          | -        | 638,088      | (638,088)      | -              | 
|April 30, 2015                            | -        | 1,102,664    | (1,102,664)    | (0.01)         | 
|July 31, 2015                             | -        | 1,175,706    | (1,175,706)    | (0.01)         | 
|October 31, 2015                          | -        | 3,600,152    | (3,600,152)    | (0.01)         | 
|January 31, 2016                          | -        | 611,687      | (611,687)      | -              | 
|April 30, 2016                            | -        | 750,938      | (750,938)      | -              | 
|July 31, 2016                             | -        | 4,610,433    | (4,610,433)    | (0.02)         | 
|October 31, 2016                          | -        | 832,477      | (832,477)      | -              | 

|B. | Liquidity and Capital
Resources:
|-- | --------------------------------

Liquidity

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

We currently have no lines of credit available. We have, to
date, relied on obtaining equity financing from investors through private
placements, through the exercise by shareholders of common share purchase
warrants, through the exercise of common stock options by officers and
directors, and through bridge loans that the Company has secured in order to
meet our cash flow needs until we can generate sustainable revenues. At October
31, 2016 we had a working capital deficiency of $4,316,730 (2015: $2,049,302)
including cash on hand of $288,128 (2015: $158,568) and our monthly overhead
cash expenses approximate $175,000. Since October 31, 2016 we have raised an
additional $788,600 of bridge loan financing and $143,365 of financing from six
private placements. We have also received $200,000 of additional funding from
our development partners.

24

---

We have granted to our directors, officers and other employees
a number of options to purchase shares at prices that are at or above market
price on the date of grant. None of the optionees has any obligation to exercise
their options and there can be no guarantee that we will realize any funds from
these options.

Capital Resources

We had nil capital expenditures in 2016; in 2015, we made
$1,287 of capital expenditures; and in 2014 we made $16,508 of capital
expenditures.

|C. | Research and Development:
|-- | -------------------------

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

|D. | Trend Information:
|-- | ------------------

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

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

|E. | Off-Balance Sheet
Arrangements:
|-- | -------------------------------

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

|F. | Tabular Disclosure of Contractual
    Obligations:
|-- | --------------------------------------------------

A summary of our financial commitments as of October 31, 2016
is as below:

|                            |   | Payments due
      by period | 
|--------------------------- | - | ---------------------------- | 
|                            |   | Total                        | 
|                            |   |                              | 
|Operating lease obligations | $ | 204,652                      | 
|                            |   |                              | 
|Purchase obligations        |   | 4,023,776                    | 
|                            |   |                              | 
|Total:                      | $ | 4,228,428                    | 

25

---

In addition to these financial commitments, the Company has
management agreements with its senior executives which are operative on a month
to month basis. At October 31, 2016 these agreements stipulate the following
monthly obligations for the Companys senior management team:

President
    $21,333 USDPresident, MAST
    $19,000 USDCFO
    $12,500 CDN ($9,438 USD)


Critical Accounting Policies:

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

Our consolidated financial statements for the period have been
prepared in accordance with IFRS which, in our case conforms in all material
respects with U.S. GAAP except for the accounting for development expenditures
reported, for intangible assets, warrant modification and modification of the
conversion feature of bridge loans reported in the fiscal years ended October
31, 2016, 2015 and 2014.

We have not yet realized commercial revenues from the
exploitation of our technology. Under IFRS, research costs are expensed in the
period incurred. Development expenses are expensed as incurred unless they meet
the criteria for deferral and amortization under IFRS which is the translation
of research findings or other knowledge into a plan for the technology prior to
commercial production or use. Under U.S. GAAP all development expenditures are
expensed as incurred. As at October 31, 2016, the Company capitalized $nil
(2015: $3,070,299) of development costs and capitalized nil (2015: $58,057) as
intangible assets under IFRS.

Management is required to make estimates and assumptions which
can affect the reported balances. In determining estimates of net recoverable
amounts and net realizable values, or whether there has been a permanent
impairment in value, we rely on assumptions regarding applicable industry
performance and prospects, as well as general business and economic conditions
that prevail and are expected to prevail. Assumptions underlying asset
valuations are limited by the availability of reliable comparable data and the
uncertainty of predictions concerning future events.

Accounts recorded in foreign currency have been converted to
United States dollars as follows: current assets and current liabilities at the
prevailing exchange rates at the end of the year; other assets at historical
rates; revenues and expenses are translated at the three month average monthly
exchange rate per quarter which rate approximates the rate of exchange
prevailing at the transaction dates; and gains and losses resulting from the
fluctuation of foreign exchange rates are included in the determination of
income.

|G. | Contingencies:
|-- | --------------

|A. | We have agreed to indemnify our directors and officers
      and certain of our employees in accordance with our By-laws. We maintain
      insurance policies that may provide coverage against certain
  claims.                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                        
|B. | The Company may be subject to litigation, claims and
      governmental and regulatory proceedings arising in the ordinary course of
      business. In such cases, the Company would accrue a loss contingency for
      these matters when it is probable that a loss has been incurred and the
      amount of the loss can be reasonably
estimated.

|H. | Translation of Foreign
  Currencies:
|-- | ------------------------------------

Our functional and reporting currency is the United States
dollar. Accounts recorded in foreign currency have been converted to United
States dollars as follows: Monetary assets and liabilities are translated at
exchange rates at the consolidated balance sheet dates; non-monetary assets are
translated using the historical rate of exchange in effect at the translation
dates; revenues and expenses are translated using the three month average rate
of exchange per quarter, which rate approximates the rate of exchange
prevailing at the transaction dates; and gains and losses resulting from the
translation are included in the determination of net loss for the period.

26

---

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

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

The Directors and Executive Officers of Micromem as at February
28, 2017 are set forth below:

|Name              | Age | Position                                       
|----------------- | --- | -----------------------------------------------
|                  |     |                                                
|Joseph Fuda       | 55  | President, Chief Executive Officer and Director
|Dan Amadori       | 65  | Chief Financial Officer                        
|Steven Van Fleet  | 62  | Director and President of MAST, Inc.           
|David Sharpless   | 66  | Director                                       
|Larry Blue        | 60  | Director                                       
|Oliver Nepomuceno | 49  | Director                                       
|Alex Dey          | 73  | Director                                       
|Brian Von Herzen  | 57  | Director                                       

Joseph Fuda has been President, Chief Executive Officer
and Director since February 13, 2002. Previously he served as Manager of
Strategic Alliances for Micromem since February 2001. Prior thereto, he served
as a consultant to Micromem since November 2000. Prior thereto he served as a
Vice-President and a Director of IPO Capital Corp since April 1999. He was a
director of Leader Capital Corp. until June 2007 and also served as a director
of Echo Energy Canada Inc, and of Echo Power Generational Inc until June
2004.

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

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

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

27

---

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

Oliver Nepomucenohas served as a director of Micromem
since June 26, 2006. He is a resident of Switzerland and continues to serve as a
Financial Advisor and is located in Switzerland. He actively assists
corporations in the development of new business opportunities in new markets.

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

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

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

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

|                             | Annual Compensation | Long-Term Compensation
|---------------------------- | ------------------- | ----------------------
|                             |                     |                       
|                             |                     |                       
|                             | Fiscal              | Salary                
|Name and                     | Year                | (US$)                 
|Principal Position           |                     |                       
|                             |                     |                       
|Joseph Fuda                  | 2014                | 234,107               
|Chief Executive Officer      |                     |                       
|                             | 2015                | 150,786               
|                             |                     |                       
|                             | 2016                | 353,787               
|                             |                     |                       
|Salvatore Fuda,              | 2014                | 137,172               
|Former Chairman of the Board |                     |                       
|of Directors (5)             | 2015                | 119,707               
|                             |                     |                       
|                             | 2016                | 113,266               
|                             |                     |                       
|David Sharpless              | 2014                | -                     
|Director                     |                     |                       
|                             | 2015                | -                     
|                             |                     |                       
|                             | 2016                | -                     
|                             | 2014                | 230,193               
|Steven Van Fleet             |                     |                       
|Director and President of    | 2015                | 227,648               
|MAST, Inc.                   |                     |                       
|                             | 2016                | 231,309               
|Dan Amadori                  | 2014                | 151,063               
|Chief Financial Officer      |                     |                       
|                             | 2015                | 119,707               
|                             |                     |                       
|                             | 2016                | 113,266               
|Larry Blue                   | 2014                | 23,877                
|Director                     |                     |                       
|                             | 2015                | -                     
|                             |                     |                       
|                             | 2016                | -                     
|                             |                     |                       
|Oliver Nepomuceno            | 2014                | -                     
|Director                     |                     |                       
|                             | 2015                | -                     
|                             |                     |                       
|                             | 2016                | -                     
|Alex Dey                     | 2014                | -                     
|Director                     |                     |                       
|                             | 2015                | -                     
|                             |                     |                       
|                             | 2016                | -                     
|Craig Carlson                | 2014                | 14,866                
|Director (7)                 |                     |                       
|                             | 2015                | 34,705                
|                             |                     |                       
|                             | 2016                | -                     
|                             |                     |                       
|Brian Von Herzen             | 2014                | (2)                   
|Director (2)                 |                     |                       
|                             | 2015                | (2)                   
|                             |                     |                       
|                             | 2016                | -                     

29

---

Notes:

| | 1. | Each option entitles the holder to purchase one common
      share at a price of $0.64 per share prior to expiration in April
    2019.                                                                                                                                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Brian Von Herzen became a director in February 2014.
      Rapid Prototypes, Inc., a company whose major shareholder is Mr. Von
      Herzen, invoices the Company for engineering, product development and
      design services. In 2016 the total charges invoiced to the Company by
      Rapid Prototypes was nil; (2015 - $1,049,524; 2014 -
$1,843,643).
| | 3. | Each option entitles the holder to purchase one common
      share at a price of $0.46 per share prior to expiration in August
    2020.                                                                                                                                                                                                                       
| | 4. | Each option entitles the holder to purchase one common
      share at a price of $0.49 per share prior to expiration.                                                                                                                                                                                                                                          
| | 5. | Salvatore Fuda did not stand for reelection to the Board
      of Directors at the Annual General Meeting held at April 26,
  2016.                                                                                                                                                                                                                            
| | 6. | Consists of 300,000 options to purchase one common share
      at a price of $0.85 per share prior to expiration in February 2019 and
      25,000 options to purchase one common share at a price of $0.64 per share
      prior to expiration in April 2019.                                                                                                 
| | 7. | Craig Carlson resigned as a Director of the Company in
      June 2015.                                                                                                                                                                                                                                                                                        

Options are offered to directors, executive officers and
employees to purchase our common shares at an exercise price equal to or above
the market price for the common shares at the date that the options are granted.
These options are approved by the Compensation Committee. None of the directors
have agreements that provide for benefits upon termination of service.

In 2016 no stock options were issued.

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

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

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

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

Our Board of Directors meets on an as required basis during the
fiscal year. Our Board of Directors met formally in April 2016. The Board was
also convened informally as of each quarter end.

Our Audit Committee met regularly during fiscal 2016 for the
purpose of approving and recommending to the Board the quarterly financial
statements and our yearend financial statements. In addition, our Audit
Committee receives regular periodic reports from management.

Our Compensation Committee met regularly in 2016 and
additionally receive regular reports from management. Our Compensation Committee
approves Management and Director Compensation and all stock option grants for
recommendation to the Board of Directors.

Our Disclosure Committee met as required in 2016 to review our
various press release disclosures and to monitor our general practices relating
to our disclosure requirements.

30

---

Audit Committee

The Board of Directors has appointed an Audit Committee
consisting of three independent directors. The members of the Audit Committee
are Alex Dey, Oliver Nepomuceno and David Sharpless (Chairman), each of whom
serves in such capacity until the Board of Directors next annual meeting. The
Audit Committee is responsible for the integrity of our internal accounting and
control systems. The committee receives and reviews our financial statements and
makes recommendations thereon to the Board of Directors prior to its approval by
the full Board of Directors. The Audit Committee communicates directly with our
external auditors in order to discuss audit and related matters whenever
appropriate. In 2016 the Audit Committee met formally in January, February
March, June, September and October.

Compensation Committee

The Board of Directors has appointed a Compensation Committee
which meets on executive compensation matters as and when required. Our
Compensation Committee includes Oliver Nepomuceno and Alex Dey as outside
directors. The Compensation Committee met on a quarterly basis in 2016.

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 Joseph Fuda, the Companys CEO, and Alex Dey, an
outside director.

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

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

31

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

|NAME                 | SHARES    | OPTIONS | OPTION   | EXPIRATION | **% OF TOTAL**1
|-------------------- | --------- | ------- | -------- | ---------- | ---------------
|                     | OWNED     | HELD    | EXERCISE | DATE       |                
|                     |           |         | PRICE    |            |                
|Joseph Fuda          | 747,478   | 22,500  | $0.46    | 08/20/2020 | 0.37%          
|Chief Executive      |           |         |          |            | (769,978)      
|Officer and Director |           |         |          |            |                
|David Sharpless      | 325,000   | 375,000 | $0.49    | 06/04/2020 | 0.34 %         
|Director             |           |         |          |            | (700,000)      
|                     |           |         |          |            |                
|Steven Van Fleet     | -         | 500,000 | $0.35    | 04/10/2017 | 0.33 %         
|Director and         |           | 75,000  | $0.30    | 01/22/2018 | (675,000)      
|President of MAST,   |           | 65,000  | $0.27    | 09/16/2018 |                
|Inc.                 |           | 35,000  | $0.64    | 04/25/2019 |                
|Dan Amadori          | 612,5172  | 75,000  | $0.30    | 01/22/2018 | 0.38 %         
|Chief Financial      |           | 65,000  | $0.27    | 09/16/2018 | (772,517)      
|Officer              |           | 20,000  | $0.64    | 04/25/2019 |                
|                     |           |         |          |            |                
|Larry Blue           | 193,600   | 25,000  | $0.64    | 04/25/2019 | 0.25%          
|Director             |           | 300,000 | $0.49    | 06/04/2020 | (518,600)      
|                     |           |         |          |            |                
|Oliver Nepomuceno    | 1,078,572 | 190,000 | $0.35    | 04/10/2017 | 0.70%          
|Director             |           | 75,000  | $0.30    | 01/22/2018 | (1,433,572)    
|                     |           | 65,000  | $0.27    | 09/16/2018 |                
|                     |           | 25,000  | $0.64    | 04/25/2019 |                
|                     |           |         |          |            |                
|Alex Dey             | 776,3733  | 75,000  | $0.30    | 01/22/2018 | 0.46%          
|Director             |           | 65,000  | $0.27    | 09/16/2018 | (946,373)      
|                     |           | 30,000  | $0.64    | 04/25/2019 |                
|                     |           |         |          |            |                
|Brian Von Herzen     | -         | 300,000 | $0.85    | 02/10/2019 | 0.16%          
|                     |           | 25,000  | $0.64    | 04/25/2019 | (325,000)      

|1 | Calculated based on shares owned plus options held as a
      percentage total of shares outstanding as of October 31, 2016, plus
      options held.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|2 | 215,716 shares are held by a corporation controlled by
      Mr. Amadori.                                                                            
|3 | 254,863 shares are held by a corporation wholly owned by
      Mr. Dey.                                                                              

32

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|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS
|------- | -------------------------------------------------------

|A. | Major Shareholders:
|-- | -------------------

No shareholder holds greater than 5% of the common shares
outstanding. As of the date of this Annual Report approximately 58% of the
issued and outstanding common shares are held by Canadian investors;
approximately 21% of the issued and outstanding shares are held by U.S.
investors; and approximately 21% are held by investors outside of Canada and the
U.S.

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

The Company reports the following
related party transactions:

| | (a) | Mr. Salvatore Fuda: Our Former Chairman of the Board
      received cash compensation on a month to month basis calculated at an
      annual rate of $150,000. Mr. Fuda did not stand for reelection to the
      Board of Directors in April, 2016.                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                       
| |     | In 2016, Mr. Fuda was granted nil stock options; in 2015
      he was granted 187,500 stock options at an average exercise price of
      $0.46; he was not granted any stock options in 2014.                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                       
| |     | The total compensation paid to our Former Chairman during
      the year ended October 31, 2016 was $113,266 of cash compensation (2015 -
      $119,707 of cash compensation and $64,721 stock based compensation; 2014 -
      $137,172 of cash compensation and nil of stock based
  compensation).

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

2016Cash compensation
    $
    845,510Less portion capitalized to deferred
      development costs
    
    (4,869
    )840,641Share compensation
    
    -Stock based compensation
    
    -$
    840,641


In 2016 these parties were awarded a total of nil stock options
(2015  975,000 stock options at an average price of $0.49 CDN per share; and
412,500 stock options at an average price of $0.46 per share; 2014  540,000
stock options at an average exercise price of $0.76 CDN per share).

33

---

In 2016 the Company was invoiced nil (2015: $1,049,324: 2014:
$1,843,634 ) by Rapid Prototypes, Inc (RPI), a company whose major shareholder
is Brian Von Herzen, who has served as a director of the Company since February
2014 and who also serves as our Chief Technology Officer. These charges have
been capitalized as deferred development costs. Included in accounts payable at
October 31, 2016 is $167,000 owing to RPI.

Between November 2015 and January, 2016 our CEO was provided
with short term non-interest bearing advances of $42,144. These advances were
settled at January 31,2016 through the allocation of compensation to the
CEO.

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

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

Our consolidated financial statements for the years ended
October 31, 2016, 2015 and 2014 have been prepared in accordance with IFRS.

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

In June 2016, we settled the litigation with DAL which had been
pending since late 2014. As part of the settlement, the Company received the
full assignment of DALs alleged interests in our Multimodal condition sensor
platform and system thereof. Additionally, the Company issued 312,500 common
shares with a value of $62,500 as partial consideration of the settlement.

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

Significant Changes since October 31, 2016 are as presented in
Note 23 to the Companys Consolidated Financial Statements. See ITEM 18 
Financial Statements.

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

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

The table below sets forth the high and low sales prices for
common shares in U.S. Dollars as reported for the periods specified. Our fiscal
year end October 31.

34

---

Period
    
    High
    
    
    LowLast six months:February 2017
    
    0.30
    
    
    0.25January 2017
    
    0.31
    
    
    0.21December 2016
    
    0.25
    
    
    0.17November 2016
    
    0.26
    
    
    0.18October 2016
    
    0.27
    
    
    0.21September 2016
    
    0.33
    
    
    0.18Last eight quarters:Q4 2016
    
    0.33
    
    
    0.18Q3 2016
    
    0.38
    
    
    0.16Q2 2016
    
    0.45
    
    
    0.24Q1 2016
    
    0.45
    
    
    0.22Q4 2015
    
    0.55
    
    
    0.34Q3 2015
    
    0.64
    
    
    0.41Q2 2015
    
    0.60
    
    
    0.41Q1 2015
    
    0.80
    
    
    0.47Last five years:2016
    
    0.45
    
    
    0.162015
    
    0.80
    
    
    0.342014
    
    1.50
    
    
    0.402013
    
    1.33
    
    
    0.162012
    
    0.49
    
    
    0.10


On February 24, 2017, the last reported sale price for our
common shares on the OTC QX was $0.36.

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

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

Our authorized capital consists of an unlimited number of
common shares, of which 204,388,569 shares were issued and outstanding as of
October 31, 2016, and 2,000,000 special, redeemable, voting preference shares,
referred to herein as special shares, none of which were outstanding, as of
October 31, 2016.

Additionally, the Company has 4,395,000 stock options
outstanding with a weighted average exercise price of $0.45 (2015: 9,817,000
options outstanding with a weighted average exercise price of $0.31)

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

Articles of IncorporationIncorporation Details
and Objects of Micromem Technologies Inc.

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

35

---

Summary of Directors Powers and Authorities

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

The Articles of Incorporation provide for a minimum of three
and a maximum of 12 directors. The Business Corporations Act (Ontario)
prescribes that an offering corporation must have a minimum of three directors,
at least twenty five percent (25%), or if they are less than 4, at least one of
whom are Canadian residents and at least one third of whom are not officers or
employees of us or our affiliates. The Board of Directors may, between annual
shareholders meetings, appoint one or more additional directors to serve until
the next annual shareholders meeting provided that the number of directors so
added may not exceed by one-third (1/3) the number of directors required to have
been elected at the last annual meeting of shareholders.

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

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

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

A person is qualified to be or stand for election as a director
provided such person is at least 18 years of age, is not a bankrupt and is not
found to be of unsound mind by a court in Canada or elsewhere. There is no
requirement for a director to hold common shares.

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.

36

---

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

Rights and Privileges of Shareholders

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

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

|C. | Material Contracts
|-- | ------------------

In 2010 the Company entered into a month to month contract with
Mr. Dan Amadori, its CFO, at the expiration of the employment agreement signed
in 2008. These month to month arrangements continue at October 31, 2016. Under
the terms of the contract, Mr. Amadori receives $12,500 CDN ($9,438 US at
current exchange rates) in monthly compensation and additional compensation at
the discretion of the Compensation Committee.

In 2010 the Company entered into a month to month contract with
Mr. Joseph Fuda, its President and CEO, at the expiration of the employment
agreement signed in 2008. In 2014 the base amount was changed to $21,333 USD per
month .These month to month arrangements continue at October 31, 2016. Under the
terms of the contract, in 2016 Mr. Fuda received $21,333 USD in monthly
compensation and additional compensation at the discretion of the Compensation
Committee.

In 2011 the Company entered into a month to month contract with
Mr. Steven Van Fleet, the President of MAST at the expiration of the employment
agreement signed in 2008. This month to month arrangement continues at October
31, 2016. Under the terms of the contract, Mr. Van Fleet receives $19,000 USD in
monthly compensation and additional compensation at the discretion of the
Compensation Committee.

In 2011 the Company entered into a month to month contract with
its Chairman of the Board, Mr. Salvatore Fuda, at the expiration of the
employment agreement signed in 2005. This month to month arrangement ended on
October 31, 2016. Under the terms of the contract, Mr. Fuda received $12,500 CDN
($9,438 USD at current exchange rates) in monthly compensation in 2016.

37

---

The total continuing monthly commitment under these month to
month arrangements is $68,771 at October 31, 2016.

In 2011-2012 the Company, through its wholly-owned subsidiary,
Micromem Applied Sensor Technologies, Inc. entered into consulting and product
development agreements with Rapid Prototypes, Inc. (RPI) whose major shareholder
is Mr. Brian Von Herzen. Mr.Von Herzen was appointed to the Board of Directors
of the Company in February 2014. He also serves as the Companys Chief
Technology Officer. RPI has invoiced the Company for professional engineering
design and product development services since 2011; since becoming a director of
the Company, RPI has invoiced the Company total fees of $3,893,167.

|D. | Exchange Controls
|-- | -----------------

As of the date hereof, we are not aware of any governmental
laws, decrees or regulations in Canada that restrict the export or import of
capital, including, but not limited to, foreign exchange controls, or that
affect the remittance of dividends or other payments to nonresident holders of
our common shares.

We are not aware of any limitations under the laws of Canada or
the Province of Ontario, or in the Articles of Incorporation or any other of our
constituent documents on the right of nonresidents of Canada or persons who are
not Canadian citizens to hold and/or vote common shares.

|E. | Taxation
|-- | --------

Certain Canadian Income Tax Consequences

This discussion under this heading summarizes the principal
Canadian federal income tax consequences of acquiring, holding and disposing of
common shares for a shareholder who is not a resident of Canada but is a
resident of the United States and who will acquire and hold a common share as
capital property for the purposes of the Income Tax Canada, also referred to as
the Canadian Tax Act. This summary does not apply to a shareholder who carries
on business in Canada through a permanent establishment situated in Canada or
performs independent personal services in Canada through a fixed base in Canada
if the shareholder is effectively connected with such permanent establishment or
fixed base. This summary is based on the provisions of the Canadian Tax Act and
the regulations there under and on an understanding of the administrative
practices of Canada Customs & Revenue Agency, and takes into account all
specific proposals to amend the Canadian Tax Act or regulations made by the
Minister of Finance of Canada as of the date hereof. It has been assumed that
there will be no other relevant amendments of any governing law although no
assurance can be given in this respect. This discussion is general only and is
not a substitute for independent advice from a shareholder's own Canadian and US
tax advisors.

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

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.

38

---

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

Dispositions of Common Shares

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

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

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

Certain United States Federal Income Tax Consequences

The following is a general summary of certain United States
federal income tax consequences, under current law, generally applicable to a US
Holder (as defined below). This summary does not address all potentially
relevant United States federal income tax matters and it does not address
consequences peculiar to persons subject to special provisions of United States
federal income tax law, such as those described below as excluded from the
definition of a US Holder. United States alternative minimum tax considerations
are not addressed in this summary. In addition, this summary does not cover any
state, local or foreign tax consequences, nor any U.S. federal gift, estate or
generation-skipping transfer tax consequences. (Certain, but not all, foreign
tax consequences are described above under Taxation - Certain Canadian Income
Tax Consequences.)

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

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.

39

---

CIRCULAR 230 DISCLOSURE

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

US Holders

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

Distributions to US Holders Who Own Common Shares

Subject to the discussion below concerning the potential status
of the Company (or any of its subsidiaries that are classified as corporations
for United States federal income tax purposes (Related Entities)) as a
passive foreign investment company (PFIC), the gross amount of any
distribution by the Company (including any Canadian taxes withheld therefrom)
with respect to common shares generally should be included in the gross income
of a US Holder as foreign source dividend income to the extent such distribution
is paid out of current or accumulated earnings and profits of the Company, as
determined under United States federal income tax principles. To the extent that
the amount of any distribution exceeds the Company's current and accumulated
earnings and profits in that taxable year, the distribution is treated as a
tax-free return of capital to the extent of the US Holder's adjusted tax basis
in the common shares. Thereafter, to the extent that such distribution exceeds
the US Holder's adjusted tax basis in the common shares, it is taxed as a
capital gain.

Dividends received by non-corporate US Holders may be subject
to United States federal income tax at lower rates (generally 15%) than other
types of ordinary income in taxable years beginning on or before December 31,
2013, if certain conditions are met. These conditions include neither the
Company nor a Related Entity being classified as a PFIC (discussed below), the
Company being a qualified foreign corporation, the US Holder's satisfaction of
a holding period requirement, and the US Holder not treating the distribution as
investment income for purposes of the investment interest deduction rules.

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

Dispositions of Common Shares of the Company

Subject to the discussion below regarding PFICs, gain or loss,
if any, realized by a US Holder on the sale or other disposition of common
shares generally is subject to United States federal income taxation as capital
gain or loss in an amount equal to the difference between the US Holder's
adjusted tax basis in the common shares and the amount realized on the
disposition. Net capital gain (i.e., capital gain in excess of capital loss)
recognized by a non-corporate US Holder upon a sale or other disposition of
common shares that have been held for more than one year is generally subject to
a maximum United States federal income tax rate of 15% in taxable years
beginning on or before December 31, 2013. Deductions for capital losses are
subject to limitations.

40

---

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.

41

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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.govthat 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.comthat 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
|-------- | ----------------------------------------------------------------

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

42

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

Not Applicable.

PART II

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

None.

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

None.

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

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, referred to herein as the
Exchange Act) as of October 31, 2016. Based on management's evaluation in
2016, our Chief Executive Officer and Chief Financial Officer concluded that, as
of October 31, 2016, 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, 2016. 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, 2016, our internal control over financial
reporting were effective.

43

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Attestation Report of the Registered Public Accounting
Firm.

Micromems internal control over financial reporting as of
October 31, 2016 has been audited by Collins Barrow Toronto LLP, an independent
registered public accounting firm in Toronto, Canada, as stated in their report
which is included under Item 18Financial Statements of this Annual
Report.

Changes in Internal Control Over Financial Reporting

No changes in our internal controls over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, occurred
during the fiscal year ended October 31, 2016 that has materially affected or is
reasonably likely to materially affect our internal controls over financial
reporting.

|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, 2016 and 2015, and fees billed for
other services rendered by our auditors including our offerings of securities
and tax services.

Fiscal
      2016
    
    
    Fiscal
      2015Audit Fees
    $
    160,000
    
    $
    150,133Audit Related Fees
    
    -
    
    
    -Tax Fees
    $
    4,000
    
    $
    4,000All Other Fees
    
    -
    
    
    -


Audit Fees

In 2016, we incurred a total of $160,000 to Collins Barrow
Toronto LLP for audit services; in 2015 we incurred a total of $150,133 to
Collins Barrow Toronto LLP for audit services.

Audit Related Fees

None

44

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Tax Fees

We paid $4,000 of tax-related fees for services in 2016 and
$4,000 of tax related fees in 2015 to Chiampou Travis LLP.

All Other Fees

None

Pre-approval policies

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

|ITEM 16D.                    | Exemptions from the Listing Standards for
      Audit Committees  
|---------------------------- | ------------------------------------------------------------------
|                             |                                                                   
|Not applicable.              |                                                                   
|                             |                                                                   
|ITEM 16E.                    | Purchases of Equity by the Issuer and
      Affiliated Purchasers.
|                             |                                                                   
|None.                        |                                                                   
|                             |                                                                   
|ITEM 16F.                    | Change in Registrants Certifying
      Accountant.                
|                             |                                                                   
|None.                        |                                                                   
|                             |                                                                   
|ITEM 16G.                    | Corporate Governance                                              
|                             |                                                                   
|Not applicable.              |                                                                   
|                             |                                                                   
|ITEM 16H.                    | Mine Safety Disclosure                                            
|                             |                                                                   
|Not applicable.              |                                                                   
|                             |                                                                   
|ITEM 17.                     | Financial Statements                                              
|                             |                                                                   
|Not applicable, see Item 18.
|                            
|ITEM 18.                     | Financial Statements                                              

45

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|Consolidated Financial Statements of         
|---------------------------------------------
|                                             
|MICROMEM TECHNOLOGIES INC.                   
|                                             
|For the years ended October 31, 2016 and 2015
|                                             
|(Expressed in United States Dollars)         

---



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

INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM

To the Shareholders of Micromem Technologies Inc.:

We have audited the accompanying consolidated financial
statements of Micromem Technologies Inc. and its subsidiaries, which comprise
the consolidated statements of financial position as at October 31, 2016 and
October 31, 2015 and the consolidated statements of loss and comprehensive loss,
changes in shareholders equity (deficit) and cash flows for the years ended
October 31, 2016, October 31, 2015 and October 31, 2014 and notes comprising a
summary of significant accounting policies and other explanatory information.

Managements Responsibility for the Consolidated Financial
Statements

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

Auditors Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

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

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

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Micromem Technologies Inc. and its subsidiaries as at October 31, 2016 and
October 31, 2015, and its consolidated financial performance and its
consolidated cash flows for the years ended October 31, 2016, October 31, 2015
and October 31, 2014 in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

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

1

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

---

Other Matter

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of October 31, 2016, based on the
criteria established in Internal Control  Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated March 2, 2017 expressed an unmodified (unqualified) opinion on
the effectiveness of the Companys internal control over financial reporting.



Chartered Professional Accountants Licensed Public
Accountants Toronto, Canada March 2, 2017

2



---



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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Micromem Technologies Inc.:

We have audited the internal control over financial reporting
of Micromem Technologies Inc. and subsidiaries (the "Company") as of October 31,
2016, based on criteria established in the Internal ControlIntegrated Framework
(2013)issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included under the heading Disclosure Controls/Internal Controls under the
title Compliance Related Reporting Matters in the accompanying Managements
Discussion and Analysis. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.

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

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

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

In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of October 31,
2016, based on criteria established in the Internal Control  Integrated
Framework (2013) issued by Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statements of financial
position of the Company as at October 31, 2016 and 2015 and the consolidated
statements of loss and comprehensive loss, changes in shareholders equity
(deficit) and cash flows for the years ended October 31, 2016, October 31, 2015
and October 31, 2014, and notes comprising a summary of significant accounting
policies and other explanatory information and our report dated March 2, 2017
expressed an unqualified audit opinion on those consolidated financial
statements.



Chartered Professional Accountants Licensed Public
Accountants Toronto, Canada March 2, 2017

3

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

---

|MICROMEM TECHNOLOGIES INC.                
|------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|TABLE OF CONTENTS                         
|                                          

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

4

---

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

|                                                                                                              |   | October 31,  |   |   | October 31, |  
|------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ----------- | -
|                                                                                                              |   | 2016         |   |   | 2015        |  
|Assets                                                                                                        |   |              |   |   |             |  
|Current assets:                                                                                               |   |              |   |   |             |  
|Cash                                                                                                          | $ | 288,128      |   | $ | 158,568     |  
|Deposits and other
      receivables (Note 8)                                                                 |   | 33,327       |   |   | 56,108      |  
|                                                                                                              |   | 321,455      |   |   | 214,676     |  
|                                                                                                              |   |              |   |   |             |  
|Property and equipment, net
      (Note 9)                                                                    |   | 10,988       |   |   | 15,592      |  
|Deferred development costs (Note 10)                                                                          |   | -            |   |   | 3,070,299   |  
|Intangible assets, net (Note
      11)                                                                        |   | -            |   |   | 58,057      |  
|Patents, net (Note 11)                                                                                        |   | 403,600      |   |   | 309,242     |  
|                                                                                                              | $ | 736,043      |   | $ | 3,667,866   |  
|                                                                                                              |   |              |   |   |             |  
|Liabilities and
      Shareholders' Equity                                                                    |   |              |   |   |             |  
|Current liabilities:                                                                                          |   |              |   |   |             |  
|Accounts payable and accrued liabilities                                                                      | $ | 917,179      |   | $ | 1,297,390   |  
|Bridge loans (Note
      14)                                                                                  |   | 3,637,008    |   |   | 966,588     |  
|Derivative liability (note 14)                                                                                |   | 83,998       |   |   | -           |  
|                                                                                                              | $ | 4,638,185    |   | $ | 2,263,978   |  
|Shareholders' Equity
      (Deficit)                                                                          |   |              |   |   |             |  
|Share capital:
      (Note 12)                                                                                |   |              |   |   |             |  
|Authorized:                                                                                                   |   |              |   |   |             |  
|2,000,000 special preference shares, redeemable, voting Unlimited common
      shares without par
      value |   |              |   |   |             |  
|Issued
      and
      outstanding:                                                                           |   |              |   |   |             |  
|204,388,569 common shares (2015: 197,176,368) (Note 12)                                                       | $ | 75,855,139   |   | $ | 74,083,975  |  
|Equity component
      of bridge loans (note 14)                                                              |   | 23,075       |   |   | -           |  
|Contributed surplus (Note 15)                                                                                 |   | 26,918,470   |   |   | 27,213,204  |  
|Deficit                                                                                                       |   | (106,698,826 | ) |   | (99,893,291 | )
|                                                                                                              |   | (3,902,142   | ) |   | 1,403,888   |  
|                                                                                                              |   |              |   |   |             |  
|                                                                                                              | $ | 736,043      |   | $ | 3,667,866   |  

Going Concern (Note 2) Commitments (Note 19)
Contingencies (Note 20) Subsequent events (Note 23)

"Joseph Fuda"
      (Signed)Joseph Fuda, Director"David Sharpless"
      (Signed)David Sharpless, DirectorSee accompanying notes.


5

---

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

|**For the years ended October
      31,**                   |   |             |   |   |             |   |   |             |  
|----------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                            |   | 2016        |   |   | 2015        |   |   | 2014        |  
|                                                            |   |             |   |   |             |   |   |             |  
|Costs and expenses
      :                                  |   |             |   |   |             |   |   |             |  
|Administration (Note 17)                                    | $ | 395,340     |   | $ | 389,647     |   | $ | 302,933     |  
|Professional,
      other fees and salaries (Note 17)       |   | 1,739,401   |   |   | 1,952,302   |   |   | 2,360,867   |  
|Stock based compensation (Note
      12)                    |   | -           |   |   | 1,163,941   |   |   | 379,253     |  
|Development
      costs (Note 17)                           |   | 3,635,613   |   |   | 2,646,019   |   |   | 703,671     |  
|Travel and entertainment                                    |   | 180,767     |   |   | 193,861     |   |   | 329,779     |  
|Amortization of
      property and equipment (Note 9)       |   | 5,270       |   |   | 7,177       |   |   | 7,357       |  
|Amortization of patents (Note
      11)                     |   | 26,527      |   |   | -           |   |   | -           |  
|Amortization of
      intangible assets (Note 11)           |   | 4,838       |   |   | -           |   |   | -           |  
|Write-down of patents (Note 11)                             |   | -           |   |   | 67,262      |   |   | -           |  
|Write-down of
      intangible assets (Note 11)             |   | 38,705      |   |   |             |   |   |             |  
|Foreign exchange loss (gain)                                |   | (1,478      | ) |   | 59,687      |   |   | 58,491      |  
|Loss from
      operations                                  |   | 6,024,983   |   |   | 6,479,896   |   |   | 4,142,351   |  
|                                                            |   |             |   |   |             |   |   |             |  
|Other income and
      expenses                             |   |             |   |   |             |   |   |             |  
|Interest expense (Note 14)                                  |   | 561,608     |   |   | 36,714      |   |   | 22,520      |  
|Accretion
      expense (Note 14)                           |   | 514,560     |   |   | -           |   |   | -           |  
|Gain on revaluation of
      derivative liability (Note 14) |   | (295,616    | ) |   | -           |   |   | -           |  
|                                                            |   |             |   |   |             |   |   |             |  
|Net loss before income taxes                                |   | (6,805,535  | ) |   | (6,516,610  | ) |   | (4,164,871  | )
|                                                            |   |             |   |   |             |   |   |             |  
|Income taxes (Note 16)                                      |   | -           |   |   | -           |   |   | -           |  
|                                                            |   |             |   |   |             |   |   |             |  
|Net loss and comprehensive loss                             | $ | (6,805,535  | ) | $ | (6,516,610  | ) |   | (4,164,871  | )
|                                                            |   |             |   |   |             |   |   |             |  
|Loss per share - basic and diluted (Note 12)                | $ | (0.03       | ) | $ | (0.03       | ) | $ | (0.02       | )
|                                                            |   |             |   |   |             |   |   |             |  
|Weighted average number of shares (Note 12)                 |   | 199,572,966 |   |   | 192,629,666 |   |   | 171,534,969 |  

See accompanying notes.

6

---

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

|For the years ended October 31,                                                              |   |            |   |   |            |   |   |            |  
|-------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                                             |   |            |   |   |            |   |   |            |  
|                                                                                             |   | 2016       |   |   | 2015       |   |   | 2014       |  
|Cash flows from
      operating activities:                                                  |   |            |   |   |            |   |   |            |  
|Net loss                                                                                     | $ | (6,805,535 | ) | $ | (6,516,610 | ) | $ | (4,164,871 | )
|Adjustments to
      reconcile loss for the period to net cash used in operating activities: |   |            |   |   |            |   |   |            |  
|Amortization of patents intangible assets                                                    |   | 31,365     |   |   | -          |   |   | -          |  
|Amortization of property and equipment                                                       |   | 5,270      |   |   | 7,177      |   |   | 7,357      |  
|Write-down of intangible assets                                                              |   | 38,705     |   |   | -          |   |   | -          |  
|Development costs                                                                            |   | 3,638,118  |   |   | 2,395,425  |   |   | 676,790    |  
|Accounts
      payable and accrued liabilities relating to development costs                 |   | (374,539   | ) |   | -          |   |   | -          |  
|Accretion expense                                                                            |   | 514,560    |   |   | -          |   |   | -          |  
|Bridge loan interest accrued                                                                 |   | 172,744    |   |   | -          |   |   | -          |  
|Bridge loan interest added to principal                                                      |   | 413,245    |   |   | 19,361     |   |   | -          |  
|Gain on revaluation of derivative liabilities                                                |   | (295,616   | ) |   | -          |   |   | -          |  
|Stock based compensation                                                                     |   | -          |   |   | 1,163,941  |   |   | 379,253    |  
|Write-down of patents                                                                        |   | -          |   |   | 67,262     |   |   | -          |  
|Reversal of patent provision                                                                 |   | -          |   |   | (19,598    | ) |   | -          |  
|Conversion of advances receivables to salaries                                               |   | -          |   |   | 263,819    |   |   | -          |  
|Shares issued for legal settlement                                                           |   | 62,500     |   |   | -          |   |   | -          |  
|Gain on settlement of accounts payable                                                       |   | (60,623    | ) |   | -          |   |   | -          |  
|Loss on disposal of property and equipment                                                   |   | 608        |   |   | -          |   |   | -          |  
|Increase (decrease) in deposits and other receivables                                        |   | 5,899      |   |   | 455,265    |   |   | (235,757   | )
|Increase in accounts payable and accrued
      liabilities                                   |   | 350,263    |   |   | 523,558    |   |   | 454,149    |  
|Net cash used in operating
      activities                                                  |   | (2,303,036 | ) |   | (1,640,400 | ) |   | (2,883,079 | )
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash flows from investing
      activities:                                                  |   |            |   |   |            |   |   |            |  
|Purchase of property and equipment                                                           |   | (1,274     | ) |   | (1,286     | ) |   | (14,842    | )
|Patents                                                                                      |   | (192,873   | ) |   | (213,820   | ) |   | (176,381   | )
|Deferred development costs                                                                   |   | (1,125,218 | ) |   | (3,662,271 | ) |   | (3,872,635 | )
|Recovery of deferred development costs                                                       |   | 643,901    |   |   | 1,783,632  |   |   | 662,290    |  
|Recovery of patents costs                                                                    |   | -          |   |   | 18,140     |   |   | -          |  
|Net cash used in investing
      activities                                                  |   | (675,464   | ) |   | (2,075,605 | ) |   | (3,401,568 | )
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash flows from financing
      activities:                                                  |   |            |   |   |            |   |   |            |  
|Issue of common shares                                                                       |   | 861,273    |   |   | 1,893,784  |   |   | 6,801,619  |  
|Bridge
      loans advances                                                                  |   | 2,490,333  |   |   | 1,176,673  |   |   | -          |  
|Bridge loan repayments                                                                       |   | (260,428   | ) |   | (229,446   | ) |   | -          |  
|Short-term
      loan advance                                                                |   | 180,000    |   |   | -          |   |   | -          |  
|Short-term loan repayment                                                                    |   | (180,000   | ) |   | -          |   |   | -          |  
|Advances to
      related parties                                                            |   | (50,952    | ) |   | (981,395   | ) |   | (480,304   | )
|Repayments from related parties                                                              |   | 67,834     |   |   | 1,078,970  |   |   | 78,036     |  
|Net cash provided by financing
      activities                                              |   | 3,108,060  |   |   | 2,938,586  |   |   | 6,399,351  |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|Increase (decrease) in cash                                                                  |   | 129,560    |   |   | (777,419   | ) |   | 114,704    |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash, beginning of year                                                                      |   | 158,568    |   |   | 935,987    |   |   | 821,283    |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|Cash, end of year                                                                            | $ | 288,128    |   | $ | 158,568    |   | $ | 935,987    |  
|                                                                                             |   |            |   |   |            |   |   |            |  
|Supplemental cash flow information:                                                          |   |            |   |   |            |   |   |            |  
|Interest paid (classified in operating activities)                                           | $ | 200,428    |   | $ | 17,354     |   | $ | 17,071     |  
|Income
      taxes paid                                                                      | $ | -          |   |   | -          |   | $ | -          |  
|Shares issued on settlement of account payable                                               | $ | 295,312    |   | $ | -          |   | $ | -          |  
|Shares
      issued on settlement of legal claim                                             | $ | 62,500     |   | $ | -          |   | $ | -          |  
|Shares issued on conversion of bridge loan                                                   | $ | 107,000    |   | $ | -          |   | $ | -          |  

See accompanying notes.

7

---

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

|                                                          |  | Number of shares |  |   | Share capital |   |   | Contributed  |   |   | Equity component     |   |   | Deficit      |   |   | Total      |  
|--------------------------------------------------------- |  | ---------------- |  | - | ------------- | - | - | ------------ | - | - | -------------------- | - | - | ------------ | - | - | ---------- | -
|                                                          |  | Shares           |  |   |               |   |   | surplus      |   |   | of
      Bridge loan |   |   |              |   |   |            |  
|Balance at November 01, 2013                              |  | 158,491,425      |  | $ | 57,755,613    |   | $ | 32,822,327   |   | $ | 1,557                |   | $ | (89,043,178  | ) | $ | 1,536,319  |  
|                                                          |  |                  |  |   |               |   |   |              |   |   |                      |   |   |              |   |   |            |  
|Stock based compensation (Note 12)                        |  | -                |  |   |               |   |   | 379,253      |   |   | -                    |   |   | -            |   |   | 379,253    |  
|Warrants extended (Note 13)                               |  | -                |  |   |               |   |   | 168,632      |   |   | -                    |   |   | (168,632     | ) |   | -          |  
|Warrants exercised                                        |  | 27,410,717       |  |   | 6,801,619     |   |   | -            |   |   | -                    |   |   | -            |   |   | 6,801,619  |  
|Fair value of warrants exercised                          |  | -                |  |   | 6,078,497     |   |   | (6,078,497   | ) |   | -                    |   |   | -            |   |   | -          |  
|Bridge loan converted                                     |  | 2,517,501        |  |   | 302,100       |   |   | 1,557        |   |   | (1,557               | ) |   | -            |   |   | 302,100    |  
|Warrants issued on conversion of bridge loan              |  | -                |  |   | (143,406      | ) |   | 143,406      |   |   | -                    |   |   | -            |   |   | -          |  
|Shares issued on settlement of accounts payable           |  | 17,081           |  |   | 8,353         |   |   | -            |   |   | -                    |   |   | -            |   |   | 8,353      |  
|Net loss and comprehensive loss                           |  | -                |  |   | -             |   |   | -            |   |   | -                    |   |   | (4,164,871   | ) |   | (4,164,871 | )
|Balance at October 31, 2014                               |  | 188,436,724      |  | $ | 70,802,776    |   | $ | 27,436,678   |   | $ | -                    |   | $ | (93,376,681  | ) | $ | 4,862,773  |  
|                                                          |  |                  |  |   |               |   |   |              |   |   |                      |   |   |              |   |   |            |  
|                                                          |  |                  |  |   |               |   |   |              |   |   |                      |   |   |              |   |   |            |  
|Private placements of shares for cash (Note 13)           |  | 422,768          |  |   | 175,000       |   |   | -            |   |   | -                    |   |   | -            |   |   | 175,000    |  
|Share compensation (Note 12)                              |  | 900,000          |  |   | 387,000       |   |   | -            |   |   | -                    |   |   | -            |   |   | 387,000    |  
|Warrants exercised (Note 13)                              |  | 2,988,876        |  |   | 565,777       |   |   | -            |   |   | -                    |   |   | -            |   |   | 565,777    |  
|Fair value of warrants exercised                          |  | -                |  |   | 271,553       |   |   | (271,553     | ) |   | -                    |   |   | -            |   |   | -          |  
|Options exercised (Note 12)                               |  | 4,428,000        |  |   | 1,153,007     |   |   | -            |   |   | -                    |   |   | -            |   |   | 1,153,007  |  
|Fair value of options exercised                           |  | -                |  |   | 728,862       |   |   | (728,862     | ) |   | -                    |   |   | -            |   |   | -          |  
|Stock options compensation (Note 12)                      |  | -                |  |   | -             |   |   | 776,941      |   |   | -                    |   |   | -            |   |   | 776,941    |  
|Net loss and comprehensive loss                           |  | -                |  |   | -             |   |   | -            |   |   | -                    |   |   | (6,516,610   | ) |   | (6,516,610 | )
|Balance at October 31, 2015                               |  | 197,176,368      |  | $ | 74,083,975    |   | $ | 27,213,204   |   |   | -                    |   | $ | (99,893,291  | ) | $ | 1,403,888  |  
|                                                          |  |                  |  |   |               |   |   |              |   |   |                      |   |   |              |   |   |            |  
|Private placements of shares for cash (Note 13)           |  | 366,668          |  |   | 110,000       |   |   | -            |   |   | -                    |   |   | -            |   |   | 110,000    |  
|Options exercised (Note 12)                               |  | 3,756,366        |  |   | 751,273       |   |   | -            |   |   | -                    |   |   | -            |   |   | 751,273    |  
|Fair value of options exercised                           |  | -                |  |   | 443,252       |   |   | (443,252     | ) |   | -                    |   |   | -            |   |   | -          |  
|Shares issued on settlement of accounts payable (Note 12) |  | 1,517,143        |  |   | 295,312       |   |   | -            |   |   | -                    |   |   | -            |   |   | 295,312    |  
|Shares issued on settlement of legal claim (Note 12)      |  | 312,500          |  |   | 62,500        |   |   | -            |   |   | -                    |   |   | -            |   |   | 62,500     |  
|Shares issued on conversion of bridge loan (Note 12)      |  | 509,524          |  |   | 108,827       |   |   | -            |   |   | (1,827               | ) |   | -            |   |   | 107,000    |  
|Equity component of bridge loans (Note 14)                |  | -                |  |   | -             |   |   | -            |   |   | 173,420              |   |   | -            |   |   | 173,420    |  
|Expiry of bridge loan equity conversion option (Note 14)  |  | -                |  |   | -             |   |   | 148,518      |   |   | (148,518             | ) |   | -            |   |   | -          |  
|Treasury shares to be cancelled (Note 12)                 |  | 750,000          |  |   | -             |   |   | -            |   |   | -                    |   |   | -            |   |   | -          |  
|Net loss and comprehensive loss                           |  | -                |  |   | -             |   |   | -            |   |   | -                    |   |   | (6,805,535   | ) |   | (6,805,535 | )
|Balance at October 31, 2016                               |  | 204,388,569      |  | $ | 75,855,139    |   | $ | 26,918,470 $ |   |   | 23,075               |   | $ | (106,698,826 | ) | $ | (3,902,142 | )

8

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

The Company develops, based upon
proprietary technology, customized magnetic sensor applications for companies
(referred to as development partners) operating internationally in various
industry segments. The Company has not generated commercial revenues through
October 31, 2016 and is devoting substantially all its efforts to securing
commercial revenue opportunities.

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

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

These consolidated financial statements
were authorized for issuance and release by the Companys Board of Directors on
March 2, 2017.

9

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

These consolidated financial statements
have been prepared on the going concern basis in accordance with International
Financial Reporting Standards (IFRS), which presumes that the Company will be
able to realize its assets and discharge its liabilities in the normal course of
business for the foreseeable future.

There are material uncertainties
related to conditions and events that cast significant doubt about the Companys
ability to continue as a going concern for a reasonable period of time in
future. During the year ended October 31, 2016, the Company reported a net loss
and comprehensive loss of $6,805,535 (2015 - $6,516,610; 2014 - $4,164,871) and
negative cash flow from operations of $2,303,036 (2015 - $1,640,400; 2014 -
$2,883,079). The Companys working capital deficiency as at October 31, 2016 is
$4,316,730 (2015  $2,049,302).

The Companys success depends on the
profitable commercialization of its proprietary magnetic sensor technology.
There is no assurance that the Company will be successful in the profitable
commercialization of its technology. Based upon its current operating and
financial plans, management of the Company believes that it will have sufficient
access to financial resources to fund the Companys planned operations through
fiscal 2017; however, the ability of the Company to continue as a going concern
is dependent upon its ability to secure additional financing and/or profitably
commercialize its technology. These consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the possible inability of the Company to
continue as a going concern.

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

10

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | a) | Statement of compliance:                                                                                                                                                                                                                                                                                                                          
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | These consolidated financial statements have been
      prepared in accordance with IFRS and its interpretations adopted by
      International Accounting Standards Board (IASB).                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                   
| | b) | Basis of measurement:                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | The consolidated financial statements have been prepared
      on the historical cost basis, except for financial instruments designated
      at fair value through profit and loss, which are stated at their fair
      value.                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                   
| | c) | Functional and presentation currency:                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | These consolidated financial statements are presented in
      United States dollars (U.S. dollars), which is also the Companys and
      wholly-owned subsidiaries functional currency.                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                   
| | d) | Use of estimates and judgments:                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | The preparation of the consolidated financial statements
      in conformity with IFRS requires management to make judgments, estimates
      and assumptions that affect the application of accounting policies and the
      reported amounts of assets, liabilities, income and expenses. Actual
      results may differ from these estimates.
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | Estimates and underlying assumptions are reviewed on an
      ongoing basis. Revisions to accounting estimates are recognized in the
      period in which the estimates are revised and in any future periods
      affected.                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | Information about judgments, assumptions and estimation
      uncertainties that have a significant risk of resulting in a material
      adjustment are as follows:                                                                                                                                                                              

| | i) | The Company makes estimates and utilizes assumptions in
      determining the fair value for stock based compensation expense, warrants,
      the (gain) loss on the revaluation of the derivative liability, and the
      bifurcation of convertible debt (e.g. inputs to the Black-Scholes option
      pricing model and interest rates for compound
  instruments).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| | ii)   | The Company makes estimates related to the recovery of
      deferred development costs based on the expectation and assumption of
      realizing revenues from future commercial agreements that it anticipates
      will develop with the companies for whom these projects have been
      undertaken. Changes in these expectations and assumptions could result in
      a change in the recoverable amount calculated.                                                                                                                                                                                                                                                                                                                                                          
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iii)  | The Company applies judgment when establishing whether
      the capitalization criteria under IAS 38, Intangible Assets, for
      internally developed intangible assets, have been met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iv)   | Long-lived assets are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset exceeds its recoverable amount or if the long-lived assets are not
      yet in use. The recoverable amount is determined with reference to the
      fair value of the long-lived assets less costs to sell or the value-in-use
      calculations. Where recoverable amount is determined to be less than the
      carrying amount, an impairment loss may arise. An impairment loss is
      measured as the difference between the asset's carrying amount and the
      recoverable amount. Management exercises significant judgment and
      assumptions when determining the recoverable amount of long-lived
      assets
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | v)    | Deferred income tax assets are recognized for all
      deductible temporary differences, carry-forward of unused tax assets and
      unused tax losses, to the extent that it is probable that future taxable
      profit will be available against which the deductible temporary
      differences and carry-forward of unused tax assets and unused tax losses
      can be utilized. At October 31, 2016, the Company has assessed that it is
      not probable that sufficient taxable profit will be available to use
      deferred income tax assets based on operating losses in prior years,
      therefore, there are no balances carried in the consolidated statements of
      financial position for such assets.                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | vi)   | The Company applies judgment in assessing whether
      material uncertainties exist that would cause doubt as to the whether the
      Company could continue as a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | vii)  | The Company applies judgment in assessing the functional
      currency of each entity consolidated in these financial
  statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | viii) | The Company applies judgement in determining whether a
      joint arrangement exists and is classified as a joint operation or joint
      venture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

12

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | a) | Basis of consolidation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Subsidiaries are legal entities controlled by the
      Company. Control exists when the Company is exposed, or has rights to
      variable returns from an investee and has the ability to affect those
      returns through its power over the investee. The financial statements of
      the subsidiaries are included in the consolidated financial statements
      from the date that control commences until the date control
  ceases.                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries. All
      inter-company transactions and balances have been eliminated. The
      accounting policies have been consistently applied by the Companys
      subsidiaries.                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b) | Foreign currency translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | IFRS requires that the functional currency of each entity
      in the consolidated entity be determined separately in accordance with
      specific indicators and should be measured using the currency of the
      primary economic environment in which the entity operates (the functional
      currency). As a result of an assessment of the primary indicators,
      management assessed the functional currency of the Company and its
      subsidiaries to be U.S. dollar (USD). The consolidated financial
      statements of the Company are prepared and presented using the
  USD.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Foreign currency transactions denominated in other than
      U.S. dollars are translated into the functional currency on the following
      basis:                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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

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

13

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | c) | Financial Instruments: Recognition, Measurement,
      Disclosure and Presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company initially recognizes loans and receivables
      and deposits on the date that they are originated. All other financial
      assets including assets designated at fair value through profit or loss
      (FVTPL) are recognized initially on the trade date at which the Company
      becomes a party to the contractual provisions of the instrument.                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company derecognizes a financial asset when the
      contractual rights to the cash flows from the asset expire.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Financial assets and liabilities are offset and the net
      amount presented in the statement of financial position only when the
      Company has the legal right to offset the amounts and intends either to
      settle on a net basis or to realize the asset and settle the liability
      simultaneously.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Companys financial assets consist of cash and
      deposits and other receivables and the Companys financial liabilities
      consist of accounts payable and accrued liabilities, bridge loans and
      derivative liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company classifies cash as FVTPL. Deposits and other
      receivables are classified as loans and receivables, and are initially
      measured at fair value and subsequently at amortized cost using the
      effective interest rate method. Accounts payable and accrued liabilities
      and the liability portion of bridge loans are classified as other
      financial liabilities, and initially measured at fair value and
      subsequently measured at amortized cost using the effective interest rate
      method. The derivative liability is classified at FVTPL and is measured at
      fair value with unrealized gains or losses reported in the consolidated
      statement of loss and comprehensive loss.                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Interest, dividends, losses and gains relating to the
      financial liability are recognized in profit or loss except for borrowing
      costs on qualifying assets which are added to asset cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | To the extent there are changes to the terms of
      outstanding financial liability these changes may be recorded as a
      modification or an extinguishment of financial liabilities. A substantial
      modification of the terms of an existing financial liability is accounted
      for as an extinguishment of the original financial liability and the
      recognition of a new financial liability. The terms are substantially
      different if the discounted present value of the cash flows under the new
      terms is at least 10% different from the discounted present value of the
      remaining cash flows of the original financial liability. A modification
      of the original financial liability is accounted for as an
adjustment to the effective interest rate.

14

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | d) | Compound Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Compound financial instruments issued by the Company
      comprise convertible notes (bridge loans) that can be converted to share
      capital at the option of the holder and the number of shares to be issued
      does not vary with changes in their fair value.                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The liability component of a compound financial
      instrument is recognized initially at the fair value of a similar
      liability that does not have an equity conversion option.                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The equity component, if the conversion feature of the
      convertible note is in US dollars, is recognized initially as the
      difference between the fair value of the compound financial instrument as
      a whole and the fair value of the liability component. Any directly
      attributable transaction costs are allocated to the liability and equity
      components in proportion to their initial carrying amounts.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Subsequent to initial recognition, the liability
      component of a compound financial instrument is measured at amortized cost
      using the effective interest rate method. The equity component of a
      compound financial instrument is not remeasured subsequent to initial
      recognition.                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | e) | Hybrid Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Financial instruments with embedded derivative
      liabilities are accounted for as hybrid financial instruments. The Company
      has hybrid financial instruments when the embedded derivative conversion
      option of the convertible notes (bridge loans) gives the right to the
      holder to convert the convertible note (bridge loan) into common shares in
      Canadian dollars (CDN).                              

15

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | e) | Hybrid Financial Instruments: (Contd)                                                                                                                                                                                                                                                                                             
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                    
| |    | An embedded derivative is a feature within a contract,
      such that the cash flows associated with that feature behave in a similar
      fashion as a stand- alone derivative. An embedded derivative is separated
      from its host contract and accounted for as a derivative only when three
      criteria are satisfied:

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

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

The Companys derivative financial
instruments consist of derivative liabilities in relation to its convertible
bridge loans and previously issued share purchase warrants.

| | i) | Derivative Warrant Liability:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company has issued share purchase warrants in
      conjunction with private placements for the purchase of common shares of
      the Company. Share purchase warrants issued with an exercise price in CDN,
      rather than USD (the reporting and functional currency of the Company) are
      considered to be derivative instruments. The Company is required to
      re-measure the fair value of these at each reporting date. The fair value
      of these CDN share purchase warrants are re-measured at each financial
      position date using the Black Scholes option-pricing model using the
      exchange rates at the financial position date and measured over their
      remaining life. Adjustments to the fair value of the derivative warrant
      liability as at the financial position date are recorded in the statement
      of loss and comprehensive loss as (gain) loss on revaluation of derivative
      warrant liability. Share purchase warrants that have expired or have been
      forfeited are adjusted to the statement of loss and comprehensive loss as
      (gain) loss on revaluation of derivative warrant liability.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Consideration received upon the exercise of warrants is
      credited to share capital and the related amount is transferred from
      contributed surplus (USD warrants) or derivative liability (CDN warrants)
      to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

16

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| | ii) | Conversion Feature of Bridge Loans:                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                  
| |     | The conversion feature on the bridge loans allows the
      holder of the option to convert the outstanding principal and interest
      from time to time to common shares at CDN conversion rates. The Company,
      using the Black Scholes option-pricing model, accounts for bridge loans as
      follows:

| | (ii.1) | At date of origination, the bifurcation of the total
      balance of the loan between the loan and the conversion feature is
      calculated. If the conversion feature of the bridge loan is in CDN there
      is no equity component, instead resulting in an embedded derivative
      liability. Accretion expense is recorded over the term of the loan. If the
      conversion feature of the loan is in USD, the instrument is accounted for
      as a compound financial instrument (see Note 4 (d)).
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |        | Canadian Conversion Features:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (ii.2) | The total loan proceeds are allocated between the bridge
      loans and the related embedded derivative liability based on the residual
      method (i.e. first to the embedded derivative and residual to the bridge
      loan). The embedded derivative liability conversion feature is shown as a
      derivative liability in the statement of financial position.                                                                                                                                        
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (ii.3) | The embedded derivative liability conversion feature is
      revalued at the end of the reporting period and any adjustment is
      reflected in the statement of loss.                                                                                                                                                                                                                                                                                                                                         

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

17

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | g) | Joint Arrangements: (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The interests in joint arrangements that are classified
      as joint operations are accounted for by the Company recording its pro
      rata share of the assets, liabilities, revenues, costs and cash
    flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The interests in joint arrangements that are classified
      as joint ventures are accounted for using the equity method and presented
      as an investment in the consolidated statement of financial
    position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | h) | Intangible Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Costs for the general development of the Companys sensor
      technology are expensed unless they meet the criteria for deferral.
      Expenditures are capitalized if the Company can demonstrate each of the
      following criteria: (i) the technical feasibility of completing the
      intangible asset so that it will be available for use or sale, (ii) its
      intention to complete the intangible asset and use or sell it, (iii) its
      ability to use or sell the intangible asset, (iv) how the intangible asset
      will generate probable future economic benefits, (v) the availability of
      adequate technical, financial and other resources to complete the
      development and to use or sell the intangible asset, and (vi) its ability
      to measure reliably the expenditure attributable to the intangible asset
      during its development; otherwise, they are expensed as incurred.
      Amortization is provided on a 7 year straight-line basis. Commencing in
      2014, amortization expense of intangible assets is capitalized as deferred
      development costs as these charges are directly related to
    development.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | i) | Property and Equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Property and equipment are recorded at cost and are
      amortized over their estimated useful lives at the following annual rates
      and methods:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Computers
    30% declining
      balance basisOffice equipment
    30% declining balance basis


18

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | j) | Impairment of Long-lived Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Long-lived assets consist of property and equipment,
      patents, intangible assets, and deferred development costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The carrying amounts of property and equipment, patents
      and intangible assets are reviewed for impairment when events or changes
      in circumstances indicate that the carrying amounts may not be
      recoverable. When the carrying amount exceeds the estimated recoverable
      amount, the assets are written down to their recoverable amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Internally generated intangible assets that are under
      development (deferred development costs) are not amortized and are
      reviewed for impairment annually by comparing the carrying amount with its
      recoverable amount. Any impairment loss is recognized in profit or loss
      when their recoverable amount is less than their net carrying
    amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The recoverable amount of long-lived assets is the
      greater of fair value less costs to sell and value in use. In assessing
      value in use, estimated future cash flows are discounted to their present
      value using a pre-tax discount rate that reflects current market
      assessments of the time value of money and the risks specific to the
      asset. Impairment losses are recognized in the consolidated statements of
      loss and comprehensive loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | An assessment is made at each reporting date as to
      whether there is any indication that previously recognized impairment
      losses may no longer exist or may have decreased. If such indication
      exists, the recoverable amount is estimated. A previously recognized
      impairment loss is reversed only if there has been a change in the
      estimates used to determine the assets recoverable amount since the last
      impairment loss was recognized. If that is the case, the carrying amount
      of the asset is increased to its recoverable amount. That increased amount
      cannot exceed the carrying amount that would have been determined, net of
      amortization, had no impairment loss been recognized for the asset in
      prior years. Such reversal is recognized in the consolidated statements of
      loss and comprehensive loss. Following the recognition or reversal of an
      impairment loss, the amortization charge applicable to the asset is
      adjusted prospectively in order to systematically allocate the revised
      carrying amount, net of any residual value, over the estimated useful
      life.

19

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| | k) | Deferred Development Costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Research costs are expensed in the period incurred.
      Development costs are expensed as incurred unless they meet the criteria
      for deferral. Expenditures during the development phase are capitalized if
      the Company can demonstrate each of the following criteria: (i) the
      technical feasibility of completing the asset so that it will be available
      for use or sale, (ii) its intention to complete the asset and use or sell
      it, (iii) its ability to use or sell the asset, (iv) how the asset will
      generate probable future economic benefits, (v) the availability of
      adequate technical, financial and other resources to complete the
      development and to use or sell the asset, and (vi) its ability to measure
      reliably the expenditure attributable to the asset during its development;
      otherwise, these costs are expensed as incurred. Development costs will be
      amortized on an appropriate basis at the time each of the developed assets
      is available for use.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Payments received from development partners on projects
      are recorded to deferred development costs as a recovery of cost
      incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | l) | Patents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Patents are recorded at cost and are amortized on a
      straight line basis over their estimated useful lives of 5 years. Patents
      are recorded net of accumulated amortization with amortization expense
      capitalized as deferred development costs since the patents are directly
      related to development. Amortization is expensed if there are no
      capitalized deferred development costs on the consolidated statement of
      financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | m) | Unit Private Placements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company uses the relative fair value approach in
      accounting for the value assigned to the common shares and the common
      share purchase warrants which it had made available in the unit private
      placement financings that it secured, calculated in accordance with the
      Black Scholes option-pricing model.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

20

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | n) | Stock based Compensation and Other Stock based
      Payments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | The Company applies the fair value based method of
      accounting for all stock based payments to employees and non-employees and
      all direct awards of stock. Where share based payments are issued to
      non-employees, they are recorded at the fair value of the goods or
      services received in the statement of loss and comprehensive loss. If the
      fair value cannot be estimated reliably the amount is based on the fair
      value of the equity instrument granted. Stock based compensation is
      charged to operations over the vesting period and the offset is credited
      to contributed surplus.                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Consideration received upon the exercise of stock options
      is credited to share capital and the related amount is transferred from
      contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | The fair value of stock options and warrants is
      determined by the Black Scholes option- pricing model with assumptions for
      risk free interest rates, dividend yields, volatility factors of the
      expected market price of the Companys common shares and an expected life
      of the option or warrant issued. A forfeiture rate is estimated on the
      grant date and is adjusted to reflect the actual number of options that
      vest. In the event that vested stock options expire, previously recognized
      stock based compensation is not reversed. In the event that stock options
      are forfeited, previously recognized stock based compensation associated
      with the unvested portion of the stock options forfeited is reversed. The
      fair value of direct awards of stock is determined by the quoted market
      price of the Companys common shares.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | o) | Income Taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Income tax expense comprises current and deferred tax.
      Current tax and deferred tax are recognized in profit or loss except to
      the extent that it relates to items recognized directly in equity or in
      other comprehensive income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Current tax is the expected tax payable or receivable on
      the taxable income or loss for the year, using tax rates enacted or
      substantively enacted at the reporting date and any adjustment to tax
      payable in respect of previous years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

21

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | o) | Income Taxes: (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Deferred tax is recognized in respect of temporary
      differences between the carrying amounts of assets and liabilities for
      financial reporting purposes and the amounts used for taxation purposes.
      Deferred tax is not recognized for the following temporary differences:
      the initial recognition of assets or liabilities in a transaction that is
      not a business combination and that affects neither accounting nor taxable
      income or loss and differences relating to investments in subsidiaries and
      jointly controlled entities to the extent that it is probable that they
      will not reverse in the foreseeable future. In addition, deferred tax is
      not recognized for taxable temporary differences arising on the initial
      recognition of goodwill.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Deferred tax is measured at the tax rates that are
      expected to be applied to temporary differences when they reverse, based
      on the rates that have been enacted or substantively enacted by the
      reporting date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Deferred tax assets and liabilities are offset if there
      is a legally enforceable right to offset current tax liabilities and
      assets and they relate to income taxes levied by the same tax authority on
      the same taxable entity, or on different tax entities, but they intend to
      settle current tax liabilities and assets on a net basis or their tax
      assets and liabilities will be realized simultaneously.                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | A deferred tax asset is recognized for unused tax losses,
      tax credits and deductible temporary differences, to the extent that it is
      probable that future taxable profits will be available against which they
      can be utilized. Deferred tax assets are reviewed at each reporting date
      and are reduced to the extent that it is no longer probable that the
      related tax benefit will be realized.                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | p) | Earnings or Loss Per Share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Basic earnings (loss) per share are computed by dividing
      net earnings (loss) by the weighted average number of common shares
      outstanding for the period. Diluted earnings (loss) per share is computed
      by adjusting the weighted average number of number of common shares
      outstanding for the effects of all dilutive potential common shares, which
      are comprised of outstanding warrants, conversion options and vested stock
      options. Diluted earnings (loss) per common share assume that any proceeds
      received for in-the-money warrants and options would be used to buy common
      shares at the average market price for the period.                                                                                                                               

22

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| | a) | IFRS 15  Revenue from Contracts with Customers,
      which will replace IAS 11  Construction Contracts, IAS 18 
      Revenue, IFRIC 13  Customer Loyalty Programmes, IFRIC 15 
      Agreements for the Construction of Real Estate, IFRIC 18 
      Transfer of Assets from Customers, and SIC 31 Revenue  Barter
      Transactions Involving Advertising Services.The new standard will be
      mandatorily effective for fiscal years beginning on or after January 1,
      2018, and interim periods within that year. Earlier application is
      permitted.                                                                                                                                                                                                                                                                                                                                                                
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | The core principle of the new standard is for companies
      to recognize revenue to depict the transfer of goods or services to
      customers in amounts that reflect the consideration to which the Company
      expects to be entitled in exchange for those goods or services. The new
      standard will also result in enhanced disclosures about revenue, provide
      guidance for transactions that were not previously addressed
      comprehensively and improve guidance for multiple deliverable
      arrangements.                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | b) | IFRS 9  Financial Instruments, was issued by the
      IASB in July 2014 and will replace IAS 39, Financial Instruments:
      recognition and measurement(IAS 39). IFRS 9 utilizes a single
      approach to determine whether a financial asset is measured at amortized
      cost or fair value and a new mixed measurement model for debt instruments
      having only two categories: amortized cost and fair value. The approach in
      IFRS 9 is based on how an entity manages its financial instruments in the
      context of its business model and the contractual cash flow
      characteristics of the financial assets. Final amendments released in July
      2014 also introduce a new expected loss impairment model and limited
      changes to the classification and measurement requirements for financial
      assets. IFRS 9 is effective for annual periods beginning on or after
      January 1, 2018.

23

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | c) | IAS 7  Disclosure Initiative (Amendments to IAS 7
      Statement of Cash Flows) these amendments require that the following
      changes in liabilities arising from financing activities are disclosed (to
      the extent necessary): (i) changes from financing cash flows; (ii) changes
      arising from obtaining or losing control of subsidiaries or other
      businesses; (iii) the effect of changes in foreign exchanges rates; (iv)
      changes in fair values; and (v) other changes. One way to fulfil the new
      disclosure requirement is to provide a reconciliation between the opening
      and closing balances in the statement of financial position for
      liabilities arising from financing activities. Finally, the amendments
      state that changes in liabilities arising from financing activities must
      be disclosed separately from changes in other assets and liabilities.
      These amendments are effective for reporting periods beginning on or after
      January 1, 2017.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | d) | IFRS 16  Leases This standard was issued in
      January 2016 and specifies how an IFRS reporter will recognize, measure,
      present and disclose leases. The standard provides a single lessee
      accounting model, requiring lessees to recognize assets and liabilities
      for all leases unless the lease term is 12 months or less or the
      underlying asset has a low value. Lessors continue to classify leases as
      operating or finance, with IFRS 16s approach to lessor accounting
      substantially unchanged from its predecessor, IAS 17. This standard is
      effective for reporting periods beginning on or after January 1,
    2019.                                                                                                                                                                                                                                                                                                                                                            

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

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

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

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

24

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

|6. | FAIR VALUE DISCLOSURES
(Contd)
|-- | -------------------------------

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.

Cash is measured at Level 1 of the fair
value hierarchy. The derivative liability is measured Level 2 of the fair value
hierarchy.

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

The Companys objective when managing
capital is to maintain its ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders. The
Company includes equity, comprised of issued share capital, equity component of
bridge loans, contributed surplus and deficit, in the definition of capital. The
Companys primary objective with respect to its capital management is to ensure
that it has sufficient cash resources to further develop and market its
technologies and to maintain its ongoing operations. To secure the additional
capital necessary to pursue these plans, the Company may attempt to raise
additional funds through the issuance of equity and warrants or by securing
strategic partners. The Company is not subject to externally imposed capital
requirements and there has been no change with respect to the overall capital
risk management strategy during the year ended October 31, 2016.

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

The balance reported as Deposits and
Other Receivables consists of:

| |                             |   | 2016   |  |   | 2015   | 
| | --------------------------- | - | ------ |  | - | ------ | 
| |                             |   |        |  |   |        | 
| | Advances to employees       |   | 7,586  |  |   | 26,060 | 
| | Prepaid insurance and other |   | 25,741 |  |   | 30,048 | 
| |                             | $ | 33,327 |  | $ | 56,108 | 

As at October 31, 2016, advances to
employees consisted of an advance to an employee of $7,586 (2015: two employees,
$26,060). These advances are non-interest-bearing, unsecured and due on demand.

25

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| |                             |   | Computers |   |   | Furniture and |  |   | Total   |  
| | --------------------------- | - | --------- | - | - | ------------- |  | - | ------- | -
| |                             |   |           |   |   | Equipment     |  |   |         |  
| | Cost                        |   |           |   |   |               |  |   |         |  
| |                             |   |           |   |   |               |  |   |         |  
| | At November 1, 2013         | $ | 49,213    |   | $ | 25,989        |  | $ | 75,202  |  
| | Additions                   |   | 16,508    |   |   | -             |  |   | 16,508  |  
| | Disposals                   |   | (13,436   | ) |   | -             |  |   | (13,436 | )
| | Year ended October 31, 2014 | $ | 52,285    |   | $ | 25,989        |  | $ | 78,274  |  
| |                             |   |           |   |   |               |  |   |         |  
| | At November 1, 2014         | $ | 52,285    |   |   | 25,989        |  | $ | 78,274  |  
| | Additions                   |   | 1,286     |   |   | -             |  | $ | 1,286   |  
| | Year ended October 31, 2015 | $ | 53,571    |   | $ | 25,989        |  | $ | 79,560  |  
| |                             |   |           |   |   |               |  |   |         |  
| | At November 1, 2015         | $ | 53,571    |   |   | 25,989        |  | $ | 79,560  |  
| | Additions                   |   | 1,274     |   |   | -             |  | $ | 1,274   |  
| | Disposals                   |   | (1,582    | ) |   | -             |  | $ | (1,582  | )
| | Year ended October 31, 2016 | $ | 53,263    |   | $ | 25,989        |  | $ | 79,252  |  

| | Accumulated amortization                 |   | Computers |   |   | Furniture and |  |   | Total   |  
| | ---------------------------------------- | - | --------- | - | - | ------------- |  | - | ------- | -
| |                                          |   |           |   |   | Equipment     |  |   |         |  
| | At November 1, 2013                      | $ | 35,215    |   | $ | 25,989        |  | $ | 61,204  |  
| | Amortization for the year                |   | 7,357     |   |   | -             |  | $ | 7,357   |  
| | Adjustment for disposals                 |   | (11,770   | ) |   | -             |  |   | (11,770 | )
| | Year ended October 31, 2014              | $ | 30,802    |   | $ | 25,989        |  | $ | 56,791  |  
| |                                          |   |           |   |   |               |  |   |         |  
| | At November 1, 2014                      | $ | 30,802    |   |   | 25,989        |  | $ | 56,791  |  
| | Amortization for the year                |   | 7,177     |   |   | -             |  |   | 7,177   |  
| | Year ended October 31, 2015              | $ | 37,979    |   | $ | 25,989        |  | $ | 63,968  |  
| |                                          |   |           |   |   |               |  |   |         |  
| | At November 1, 2015                      | $ | 37,979    |   |   | 25,989        |  | $ | 63,968  |  
| | Amortization for the year                |   | 5,270     |   |   | -             |  |   | 5,270   |  
| | Adjustment for disposals                 |   | (974      | ) |   | -             |  |   | (974    | )
| | Year ended October 31, 2016              | $ | 42,275    |   | $ | 25,989        |  | $ | 68,264  |  
| |                                          |   |           |   |   |               |  |   |         |  
| | Net book value at October
      31, 2014 | $ | 21,483    |   |   | -             |  | $ | 21,483  |  
| | Net book value at October 31, 2015       | $ | 15,592    |   |   | -             |  | $ | 15,592  |  
| | Net book value at October 31, 2016       | $ | 10,988    |   |   | -             |  | $ | 10,988  |  

26

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| |                                   |   | 2016       |   |   | 2015       |  
| | --------------------------------- | - | ---------- | - | - | ---------- | -
| |                                   |   |            |   |   |            |  
| | Opening balance                   | $ | 3,070,299  |   | $ | 3,525,456  |  
| | Additional project costs incurred |   | 1,211,720  |   |   | 3,723,900  |  
| | Recovery of development costs     |   | (643,901   | ) |   | (1,783,632 | )
| | Write-off of project costs        |   | (3,638,118 | ) |   | (2,395,425 | )
| | Closing balance                   |   | -          |   | $ | 3,070,299  |  

Additions to deferred development costs
include patent amortization of $71,989 (2015 - $58,105; 2014 - $44,472), and
also includes intangible asset amortization of $14,514 (2015 -$19,352; 2014 -
$19,352).

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

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

The Company wrote-off the capitalized
cost of $3,638,118 in the third quarter of the year ended October 31, 2016 to
reduce the carrying value of those projects to a value of nil. The Company
anticipates that it may realize commercial economic benefits from the
exploitation of these development projects in the future. However, given the
uncertainty of realization of these costs, the Company wrote-off the capitalized
costs.

27

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| | Intangible Assets                        |   |         | 
| | ---------------------------------------- | - | ------- | 
| |                                          |   |         | 
| | Cost                                     |   |         | 
| |                                          |   |         | 
| | At November 01, 2013                     | $ | 135,465 | 
| | Additions                                |   | -       | 
| | Year ended October 31, 2014              | $ | 135,465 | 
| |                                          |   |         | 
| | At November 1, 2014                      | $ | 135,465 | 
| | Additions                                |   | -       | 
| | Year ended October 31, 2015              | $ | 135,465 | 
| |                                          |   |         | 
| | At November 1, 2015                      | $ | 135,465 | 
| | Additions                                |   | -       | 
| | Year ended October 31, 2016              | $ | 135,465 | 
| |                                          |   |         | 
| | Accumulated
      amortization           |   |         | 
| |                                          |   |         | 
| | At November 01, 2013                     | $ | 38,704  | 
| | Amortization for the year                |   | 19,352  | 
| | Year ended October 31, 2014              | $ | 58,056  | 
| |                                          |   |         | 
| | At November 1, 2014                      | $ | 58,056  | 
| | Amortization for the year                |   | 19,352  | 
| | Year ended October 31, 2015              | $ | 77,408  | 
| |                                          |   |         | 
| | At November 1, 2015                      | $ | 77,408  | 
| | Amortization for the year                |   | 19,352  | 
| | Write-off                                |   | 38,705  | 
| | Year ended October 31, 2016              | $ | 135,465 | 
| |                                          |   |         | 
| | Net book value at October 31, 2014       | $ | 77,409  | 
| | Net book value at October
      31, 2015 | $ | 58,057  | 
| | Net book value at October 31, 2016       | $ | -       | 

Amortization of intangible assets for
the year ended October 31, 2015 and up to the third quarter of the year ended
October 31, 2016 was capitalized to deferred development costs.

28

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

The Company wrote-off the capitalized
cost carrying value of $38,705 in the fourth quarter of the year ended October
31, 2016 to reduce the carrying value of intangible assets to a value of nil.
The Company anticipates that it may realize commercial economic benefits from
the exploitation of these intangible assets in the future. However, given the
uncertainty of realization of these costs, the Company wrote-off the capitalized
costs.

| | Patents                                  |   |         |  
| | ---------------------------------------- | - | ------- | -
| |                                          |   |         |  
| | Cost                                     |   |         |  
| |                                          |   |         |  
| | At November 1, 2013                      | $ | 134,172 |  
| | Additions                                |   | 176,381 |  
| | Year ended October 31, 2014              | $ | 310,553 |  
| |                                          |   |         |  
| | At November 1, 2014                      | $ | 310,553 |  
| | Additions                                |   | 213,820 |  
| | Writedown of costs incurred              |   | (77,925 | )
| | Recovered from development partner       |   | (18,140 | )
| | Year ended October 31, 2015              | $ | 428,308 |  
| |                                          |   |         |  
| | At November 1, 2015                      | $ | 428,308 |  
| | Additions                                |   | 192,873 |  
| | Year ended October 31, 2016              | $ | 621,181 |  
| |                                          |   |         |  
| | Amortization                             |   |         |  
| |                                          |   |         |  
| | At November 1, 2013                      | $ | 62,577  |  
| | Amortization for the year                |   | 44,472  |  
| | Year ended October 31, 2014              | $ | 107,049 |  
| |                                          |   |         |  
| | At November 1, 2014                      | $ | 107,049 |  
| | Adjust for writedown                     |   | (46,088 | )
| | Amortization for the year                |   | 58,105  |  
| | Year ended October 31, 2015              | $ | 119,066 |  
| |                                          |   |         |  
| | At November 1, 2015                      | $ | 119,066 |  
| | Amortization for the year                |   | 98,515  |  
| | Year ended October 31, 2016              | $ | 217,581 |  
| |                                          |   |         |  
| | Net book value at October 31, 2014       | $ | 203,504 |  
| | Net book value at October
      31, 2015 | $ | 309,242 |  
| | Net book value at October 31, 2016       | $ | 403,600 |  

Amortization of patents for the year
ended October 31, 2015 and up to the third quarter of the year ended October 31,
2016 was capitalized to deferred development costs.

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

29

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | a) | Share Capital              
| | -- | ---------------------------
| |    | Authorized and outstanding:

The Company has two classes of shares
as follows:

| | i)  | Special redeemable voting preference shares, 2,000,000
      authorized, none are issued and outstanding.
| | --- | ---------------------------------------------------------------------------------------------------------
| |     |                                                                                                          
| | ii) | Common shares without par value  an unlimited number
      authorized.                                  

Share Capital

| |                                                            |  | Number of   |  |   | Amount     | 
| | ---------------------------------------------------------- |  | ----------- |  | - | ---------- | 
| |                                                            |  | Shares      |  |   | $          | 
| |                                                            |  |             |  |   |            | 
| | Balance at November 1,
      2014                          |  | 188,436,724 |  | $ | 70,802,776 | 
| |                                                            |  |             |  |   |            | 
| | Private placement of shares
      for cash (Note 13)       |  | 422,768     |  |   | 175,000    | 
| | Warrants exercised (Note 13)                               |  | 2,988,876   |  |   | 565,777    | 
| | Fair value of warrants
      exercised                     |  | -           |  |   | 271,553    | 
| | Options exercised                                          |  | 4,428,000   |  |   | 1,153,007  | 
| | Fair value of options
      exercised                      |  | -           |  |   | 728,862    | 
| | Share compensation(i)                                      |  | 900,000     |  |   | 387,000    | 
| | Balance at October 31,
      2015                          |  | 197,176,368 |  | $ | 74,083,975 | 
| |                                                            |  |             |  |   |            | 
| | Private placement of shares
      for cash (Note 13)       |  | 366,668     |  |   | 110,000    | 
| | Options exercised                                          |  | 3,756,366   |  |   | 751,273    | 
| | Fair value of options
      exercised                      |  |             |  |   | 443,252    | 
| | Shares issued on settlement of accounts
      payable (ii) |  | 1,517,143   |  |   | 295,312    | 
| | Shares issued on settlement
      of legal claim (iii)     |  | 312,500     |  |   | 62,500     | 
| | Shares issued on settlement of bridge loan
      (iv)      |  | 509,524     |  |   | 107,000    | 
| | Equity component of bridge
      loan (iv)                 |  | -           |  |   | 1,827      | 
| | Treasury shares to be cancelled (v)                        |  | 750,000     |  |   | -          | 
| |                                                            |  |             |  |   |            | 
| | Balance at October 31, 2016                                |  | 204,388,569 |  | $ | 75,855,139 | 

2015 Activity:

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

30

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

2016 Activity:

| | ii)  | A total of 1,517,143 common shares were issued to three
      arms length service providers as settlement of trade accounts payable
      totaling $295,312. The common shares issued were valued based on the trade
      accounts payable owing to these three arms length service
    providers.                                                                                                                                                                                                                                                                                                                                               
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | iii) | 312,500 common shares were issued as part of the
      settlement of the legal claim as described in Note 20(a). The common
      shares were valued based on the common shares price of $0.20 on the date
      of the settlement agreement.                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | iv)  | 509,524 common shares were issued to an arms length
      investor who had provided bridge loan financing to the Company in 2016 and
      who elected to convert the bridge loan into common shares at the maturity
      date of the loan (Note 14). The value of the bridge loan at the time of
      conversion was $107,000. The equity component of the bridge loan on the
      date of conversion in the amount of $1,827 was reclassified from equity
      component of bridge loans to share capital.                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | v)   | In July 2016, the Company negotiated the settlement of a
      trade payable with an arms length service provider as settlement of trade
      account payable in the amount of $170,300 (included in (ii) above) through
      the issuance of 1,000,000 common shares. The Company also issued an
      additional 1,000,000 common shares to settle up to an additional $200,000
      of services to be rendered by the arms length service provider between
      July and December 2016. These 1,000,000 shares were held in trust by the
      Company to be released in tranches of 250,000 common shares as services
      were rendered.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | Between July and September 2016, $56,861 of services were
      provided under this arrangement and the Company released 250,000 common
      shares as settlement of the services rendered (included in (ii)
    above).                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | In October 2016, this settlement arrangement was
      cancelled by mutual consent. Accordingly, the Company is proceeding to
      return the remaining 750,000 common shares to treasury for cancellation.
      The 750,000 common shares remained outstanding as issued but not released
      as at October 31, 2016.                                                                                                                                                                                                                                                                                                                          

31

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

Stock option plan:

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

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

A summary of the status of the
Companys fixed stock option plan through October 31, 2016 and changes during
the periods is as follows:

| |                                      |  |         |   |  | Weighted |   |   |           | 
| | ------------------------------------ |  | ------- | - |  | -------- | - | - | --------- | 
| |                                      |  |         |   |  | average  |   |   |           | 
| |                                      |  |         |   |  | exercise |   |   | Proceeds  | 
| |                                      |  | Options |   |  | price    |   |   | realized  | 
| |                                      |  | (000    | ) |  | **$**    |   |   | **$**     | 
| | Outstanding, November 01,
      2014 |  | 12,105  |   |  | 0.27     |   |   |           | 
| | Granted                              |  | 2,165   |   |  | 0.47     |   |   |           | 
| | Exercised                            |  | (4,428  | ) |  | (0.27    | ) |   | 1,153,007 | 
| | Expired                              |  | (25     | ) |  | (0.64    | ) |   |           | 
| | Outstanding, October 31,
      2015  |  | 9,817   |   |  | 0.31     |   |   |           | 
| | Granted                              |  | -       |   |  | -        |   |   |           | 
| | Exercised                            |  | (3,756  | ) |  | (0.20    | ) | $ | 751,273   | 
| | Expired                              |  | (1,666  | ) |  | (0.21    | ) |   |           | 
| | Outstanding, October 31, 2016        |  | 4,395   |   |  | 0.45     |   |   |           | 

The weighted average share price on
the dates of exercise was $0.27 (2015 - $0.48) .

32

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

During the year ended October 31, 2016
the Company issued a total of nil stock options.

During the year ended October 31, 2015
the Company issued a total of 2,165,000 stock options. All options vest
immediately upon issuance. This total consisted of 1,185,000 stock options
issued to directors and officers, 730,000 stock options issued to employees and
250,000 stock options to a third party advisor.

The Company has the following stock
options outstanding at October 31, 2016:

| |                    |  |           |  |  |              |  |  | Weighted       |  |  |                          | 
| | ------------------ |  | --------- |  |  | ------------ |  |  | -------------- |  |  | ------------------------ | 
| |                    |  |           |  |  |              |  |  | average        |  |  |                          | 
| |                    |  |           |  |  |              |  |  | remaining life |  |  |                          | 
| | Date of issue      |  | # Issued  |  |  | Strike Price |  |  | (in years)     |  |  | Expiry Date              | 
| |                    |  |           |  |  |              |  |  |                |  |  |                          | 
| | April 10, 2012     |  | 690,000   |  |  | 0.35         |  |  | 0.4            |  |  | April 10, 2017           | 
| | January 22, 2013   |  | 440,000   |  |  | 0.30 CDN     |  |  | 1.2            |  |  | January 22, 2018         | 
| | September 16, 2013 |  | 520,000   |  |  | 0.27 CDN     |  |  | 1.9            |  |  | September 16,
      2018 | 
| | February 10, 2014  |  | 350,000   |  |  | 0.85         |  |  | 2.3            |  |  | February 10, 2019        | 
| | April 25, 2014     |  | 230,000   |  |  | 0.64         |  |  | 2.5            |  |  | April 25, 2019           | 
| | June 4, 2015       |  | 975,000   |  |  | 0.49         |  |  | 3.6            |  |  | June 4, 2020             | 
| | August 20, 2015    |  | 940,000   |  |  | 0.46         |  |  | 3.8            |  |  | August 20, 2020          | 
| | September 30, 2015 |  | 250,000   |  |  | 0.40         |  |  | 3.9            |  |  | September 30, 2020       | 
| |                    |  | 4,395,000 |  |  |              |  |  |                |  |  |                          | 

All outstanding options at October 31,
2016 are exercisable. In 2016, the Company recorded a total expense of $nil
(2015 - $776,941; 2014 - $379,253) with respect to the issuance of options
issued during the year, calculated in accordance with the Black Scholes
option-pricing model.

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

| |                                                          |   | 2015              |  |   | 2014              | 
| | -------------------------------------------------------- | - | ----------------- |  | - | ----------------- | 
| | Share price                                              | $ | 0.37 -
      0.49 |  | $ | 0.63 -
      0.85 | 
| | Volatility factor (based on historical
      volatility) |   | 109% - 114%       |  |   | 112% - 113%       | 
| | Risk free interest rate                                  |   | 0.73% - 0.90%     |  |   | 1.60%             | 
| | Expected life                                            |   | 5 years           |  |   | 5 years           | 
| | Dividend yield                                           |   | 0%                |  |   | 0%                | 
| | Forfeiture rate                                          |   | 0%                |  |   | 0%                | 

Subsequent to October 31, 2016 the
Company issued additional stock options to certain directors, officers and
employees (Note 23).

33

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

The calculation of basic and diluted
loss per share for the year ended October 31, 2016 was based on the loss
attributable to common shareholders of $6,805,535 (2015 - $6,516,610; 2014 -
$4,164,871) divided by the weighted average number of common shares outstanding
of 199,572,966 (2015  192,629,666; 2014 - 171,534,969).

Diluted loss per share does not
include the effect of 4,395,000 stock options outstanding as they are
anti-dilutive.

|13. | PRIVATE PLACEMENTS AND COMMON SHARE PURCHASE
      WARRANTS
|--- | -----------------------------------------------------------

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

| | i)  | The Company did not complete any private placements in
      2014.                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ii) | In 2014 the Company extended the expiry date on a total
      of 1,405,026 common share purchase warrants which would have otherwise
      expired in the period. These warrants were extended for a period of three
      to six months in each case. The strike price of 1,105,026 of these
      warrants was changed from $0.41 and $0.45 per warrant to $0.50 per
      warrant. The strike price remained unchanged for the balance of the
      warrants at $0.55 per warrant.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The Company calculated the charge associated with the
      extension of warrants in accordance with the Black Scholes option-pricing
      model. The Company reported a total charge to deficit of $168,632 and an
      offsetting charge to contributed surplus of $168,632 for warrants
      extended.                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The incremental fair value of these warrants extended was
      estimated using the Black Scholes option-pricing model with the following
      assumptions:                                                                                                                                                                                                                                                                                                                         

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

34

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| | iii) | In 2015, the Company completed two private placements
      with investors consisting of common shares, with no warrants, pursuant to
      prospectus and registration exemptions set forth in applicable securities
      law. The Company received gross proceeds of $175,000 and issued a total of
      422,768 common shares.  
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                      
| | iv)  | In 2016, the Company completed two private placements
      with an investor consisting of common shares with no warrants, pursuant to
      prospectus and registration exemptions set forth in applicable securities
      law. The Company received gross proceeds of $ 110,000 and issued a total
      of 366,668 common shares.
| |      |                                                                                                                                                                                                                                                                                                                                      
| |      | Subsequent to October 31, 2016 the Company completed
      additional private placement financings (Note
23).                                                                                                                                                                                                                        

| | b) | Share Purchase
Warrants
| | -- | -----------------------

| |                                               |  |            |   |   | Weighted         |     |  |                         | 
| | --------------------------------------------- |  | ---------- | - | - | ---------------- | --- |  | ----------------------- | 
| |                                               |  |            |   |   | average exercise |     |  | Proceeds
      Realized | 
| |                                               |  | Warrants   |   |   | price            |     |  |                         | 
| |                                               |  |            |   |   |                  |     |  |                         | 
| | Balance outstanding at
      October 31, 2014 |  | 4,485,463  |   | $ | 0.37             |     |  |                         | 
| | Exercised                                     |  | (2,988,876 | ) |   | ($0.19           | ) $ |  | 565,777                 | 
| | Expired                                       |  | (1,496,587 | ) |   | ($0.73           | )   |  |                         | 
| | Granted                                       |  | -          |   |   | -                |     |  |                         | 
| | Balance at October 31, 2015 and 2016          |  | -          |   |   | -                |     |  | -                       | 

The weighted average share price on
the date of exercise of the warrants was $0.60.

35

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

2015 Bridge Loans:

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

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

36

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

|14. | BRIDGE LOANS (Contd)
|--- | ---------------------

2016 Bridge Loans:

| | (1) | The bridge loans outstanding at October 31, 2016 and for
      the year then ended are summarized as below.
| | --- | -----------------------------------------------------------------------------------------------------------

| |                                      |  | October 31,2016   | 
| | ------------------------------------ |  | ----------------- | 
| |                                      |  | $USD              | 
| |                                      |  | denominated loans | 
| |                                      |  | ($US)             | 
| |                                      |  |                   | 
| | Debt obligations                     |  | 824,670           | 
| | Equity portion of bridge loans       |  | 23,075            | 
| | Derivative Liability                 |  | -                 | 
| | Interest payable at October 31, 2016 |  | 29,804            | 

| |                                           |  | Year ended October 31, 2016 | 
| | ----------------------------------------- |  | --------------------------- | 
| |                                           |  | $USD                        | 
| |                                           |  | denominated loans           | 
| |                                           |  | ($US)                       | 
| |                                           |  |                             | 
| | Accretion expense                         |  | 87,184                      | 
| | Interest expense                          |  | 193,254                     | 
| | (Gain)/loss on foreign
      exchange     |  | -                           | 
| | Gain/(loss) on revaluation of derivatives |  | -                           | 

| | (2) | The Company completed the following bridge loan
      transactions in the 2016 fiscal year:
| | --- | -------------------------------------------------------------------------------------------

| | (a) | The 2015 bridge loans were extended on several occasions
      during 2016, ultimately through October 31, 2017.                                                                                                                    
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                     
| | (b) | It secured an additional 7 bridge loans denominated in
      $USD. These loans were of a short term nature and were extended on several
      occasions during 2016; these loans have now been extended to June-November
      2017.
| |     |                                                                                                                                                                                                                                     
| | (c) | It secured an additional 6 bridge loans denominated in
      $CDN. These loans were of a short term nature and were extended on several
      occasions during 2016; these loans have now been extended to June-November
      2017.

37

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

|14. | BRIDGE LOANS (Contd)
|--- | ---------------------

2016 Bridge Loans:(Contd)

| | (3) | At October 31, 2016 and for the year ended, the Company
      reports the following with respect to the outstanding $USD convertible
      bridge loans:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

$ USDBridgeLoans

|                                        |   | 2015 Loan   |  |   | 2016 Loans | 
|--------------------------------------- | - | ----------- |  | - | ---------- | 
|                                        |   |             |  |   | #1         | 
|Date of origination                     |   | 8/31/2015   |  |   | 11/30/2015 | 
|Principal amount at origination         | $ | 200,000     |  | $ | 250,000    | 
|Monthly interest rate                   |   | 3.00%       |  |   | 2.00%      | 
|Effective annual interest rate          |   | 40.00%      |  |   | 40.00%     | 
|Conversion price to common
      shares |   | 0.31        |  |   | 0.21       | 
|Current maturity date                   |   | 11/2/2017 6 |  |   | 6/2/2017 6 | 
|Outstanding at October
      31/2016:   |   |             |  |   |            | 
|Principal                               | $ | 200,025     |  | $ | 245,389    | 
|Interest                                |   | 5,803       |  |   | 5,027      | 
|                                        | $ | 205,828     |  | $ | 250,416    | 

|(1) | This loan was not convertible until November 2,
    2015.                                                          
|--- | -------------------------------------------------------------------------------------------------------------------
|(2) | This loan was converted to shares on August
  2,2016.                                                              
|(3) | This loan was converted to $CDN on July 15,2016. It is
      presented as $CDN loan #4 in 2016 as of July 15, 2016.
|(4) | This loan was repaid on Oct 24,2016.                                                                               
|(5) | This loan was repaid on August 2,2016.                                                                             
|(6) | These loans were extended subsequent to year
  end.                                                                

38

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

|14. | BRIDGE LOANS (Contd)
|--- | ---------------------

2016 Bridge Loans:(Contd)

| | (3) | (Contd)
| | --- | --------

A) Consolidated Statement of
Loss, year ending October 31,2016

| |                   |   | 2015 Loan |  |   | 2016 Loans | 
| | ----------------- | - | --------- |  | - | ---------- | 
| |                   |   |           |  |   | #1         | 
| |                   |   |           |  |   |            | 
| |                   |   |           |  |   |            | 
| | Accretion expense | $ | 3,625     |  |   | 37,346     | 
| | Interest          |   |           |  |   |            | 
| | Paid              |   | 66,000    |  |   | 35,000     | 
| | Accrued           |   | 5,803     |  |   | 5,027      | 
| |                   | $ | 71,803    |  | $ | 40,027     | 

B) Consolidated Statement of
Financial Position at October 31,2016

| |                               |  | 2015 Loan |  |  | 2016 Loans | 
| | ----------------------------- |  | --------- |  |  | ---------- | 
| |                               |  |           |  |  | #1         | 
| |                               |  |           |  |  |            | 
| | Debt obligation               |  | 200,025$  |  |  | 245,389    | 
| | Equity portion of bridge loan |  | 3,600     |  |  | 8,671      | 
| | Interest payable              |  | 5,803     |  |  | 5,027      | 

39

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

|14. | BRIDGE LOANS (Contd)
|--- | ---------------------

2016 Bridge Loans:(Contd)

| | (4) | At October 31, 2016 and for the year then ended, the
      Company reports the following with respect to the outstanding $CDN
      convertible bridge loans.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                         |   | **$ CDN Bridge
      Loans.** | 
| | --------------------------------------- | - | ----------------------------- | 
| |                                         |   | 2015 Loan                     | 
| |                                         |   |                               | 
| | Date of Origination                     |   | Aug 15 to Oct 15              | 
| | Principal amount at origination         | $ | 973,673                       | 
| | Monthly interest rate                   |   | 2-3%                          | 
| | Effective annual Interest rate          |   | N/A                           | 
| | Conversion price to common
      shares |   | none                          | 
| | Current maturity date                   |   | 1                             | 
| | Outstanding at October
      31/2016:   |   |                               | 
| | Principal                               |   | -                             | 
| | Interest                                |   | -                             | 
| | Total                                   | $ | -                             | 

| | (1) | This loan was converted to $USD on March 15, 2016. It is
      presented as USD loan # 5 in 2016 through July 15 , 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------
| | (2) | This loan was not convertible at October
  31,2016.                                                                     

A) Consolidated Statement of
Loss, year ending October 31, 2016.

| |                                                          |   | 2016 Loans |  
| | -------------------------------------------------------- | - | ---------- | -
| |                                                          |   | #1         |  
| |                                                          |   |            |  
| |                                                          |   |            |  
| | Accretion Expense                                        | $ | 181,963    |  
| |                                                          |   |            |  
| | (Gain)lLoss on revaluation of
      derivative liability |   | (180,503   | )
| |                                                          |   |            |  
| | (Gain) loss on foreign
      exchange                    |   | 10,626     |  
| |                                                          |   |            |  
| | Interest expense                                         |   |            |  
| | Paid                                                     |   | 11,307     |  
| | Accrued                                                  |   | 55,639     |  
| | Total                                                    | $ | 66,946     |  

40

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

|14. | BRIDGE LOANS (Contd)
|--- | ---------------------

2016 Bridge Loans:(Contd)

B) Consolidated Statement of
Financial Position at October, 31 2016

| |                      |   | 2016 Loans | 
| | -------------------- | - | ---------- | 
| |                      |   | #1         | 
| |                      |   |            | 
| | Derivative liability | $ | -          | 
| | Debt obligation      |   | 427,444    | 
| | Total obligation     |   | 427,444    | 
| | Interest payable     | $ | 20,587     | 

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

| | Balance outstanding
      at November 01, 2014                                       | $ | 27,436,678 |  
| | ------------------------------------------------------------------------------------ | - | ---------- | -
| |                                                                                      |   |            |  
| | Stock based compensation
      expense relating to stock options issued (Note 12(b)) |   | 776,941    |  
| | Fair value of options exercised                                                      |   | (728,862   | )
| | Fair value of warrants exercised                                                     |   | (271,553   | )
| | Balance at October 31, 2015                                                          | $ | 27,213,204 |  
| | Fair value of options
      exercised                                                |   | (443,252   | )
| | Expiry of bridge loan conversion option (Note 14)                                    |   | 148,518    |  
| | Balance at October 31, 2016                                                          | $ | 26,918,470 |  

41

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | (a) | The Company has non-capital losses of approximately $23.9
      million available to reduce future taxable income, the benefit of which
      has not been recognized in these consolidated financial statements. As of
      October 31, 2016 the tax losses expire as
follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      |   |            |  |   | Other     |  |   |            | 
| | ---- | - | ---------- |  | - | --------- |  | - | ---------- | 
| |      |   | Canada     |  |   | foreign   |  |   | Total      | 
| | 2022 |   | -          |  |   | 7,301     |  |   | 7,301      | 
| | 2023 |   | -          |  |   | 9,667     |  |   | 9,667      | 
| | 2025 |   | -          |  |   | 14,471    |  |   | 14,471     | 
| | 2026 |   | 1,791,571  |  |   | 5,254     |  |   | 1,796,825  | 
| | 2027 |   | 1,506,571  |  |   | 3,459     |  |   | 1,510,030  | 
| | 2028 |   | 7,812      |  |   | 55,519    |  |   | 63,331     | 
| | 2029 |   | 1,544,035  |  |   | 463,610   |  |   | 2,007,645  | 
| | 2030 |   | 2,083,306  |  |   | 1,886,778 |  |   | 3,970,084  | 
| | 2031 |   | 1,255,127  |  |   | 48,808    |  |   | 1,303,935  | 
| | 2032 |   | 1,391,007  |  |   | 333,962   |  |   | 1,724,969  | 
| | 2033 |   | 1,686,037  |  |   | 160,550   |  |   | 1,846,587  | 
| | 2034 |   | 2,439,124  |  |   | 682,878   |  |   | 3,122,002  | 
| | 2035 |   | 2,827,284  |  |   | 573,235   |  |   | 3,400,519  | 
| | 2036 |   | 2,574,031  |  |   | 580,898   |  |   | 3,154,929  | 
| |      | $ | 19,105,905 |  | $ | 4,826,390 |  | $ | 23,932,295 | 

| | (b) | In addition the Company has available capital loss carry
      forwards of approximately $1.2 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | (c) | Deferred income taxes reflect the net tax effect of
      temporary differences between carrying amount of assets and liabilities
      for financial reporting purposes and the amounts used for income tax
      purposes. Significant components of the Companys deferred tax assets and
      liabilities are as follows:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                    |       | October 31, |   |   | October 31, |   |   | October 31 |  
| | ------------------------------------------------------------------ | ----- | ----------- | - | - | ----------- | - | - | ---------- | -
| |                                                                    |       | **2016**    |   |   | 2015        |   |   | 2014       |  
| | Non-capital losses and other                                       | $     | 7,139,329   |   | $ | 7,963,343   |   | $ | 7,792,685  |  
| | Capital losses                                                     |       | 165,164     |   |   | 169,395     |   |   | 196,505    |  
| | Property ,equipment
      ,intangibles, patents and deferred costs |       | 1,769,064   |   |   | 602,246     |   |   | 661,960    |  
| | Share issue costs                                                  |       | 1,881       |   |   | 4,633       |   |   | 9,095      |  
| |                                                                    | $     | 9,075,438   |   |   | 8,739,617   |   |   | 8,660,245  |  
| | Deferred tax assets not recognized                                 |       | (9,075,438  | ) |   | (8,739,617  | ) |   | (8,660,245 | )
| |                                                                    | **$** | **-**       |   | $ | -           |   | $ | -          |  

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

| |                                                                    |   | October 31, |   |   | October 31, |   |   | October 31 |  
| | ------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ---------- | -
| |                                                                    |   | 2016        |   |   | 2015        |   |   | 2014       |  
| |                                                                    |   |             |   |   |             |   |   |            |  
| | Loss before income taxes                                           | $ | 6,805,535   |   | $ | (6,516,610  | ) | $ | (4,164,871 | )
| | Statutory rate                                                     |   | 26.50%      |   |   | 26.50%      |   |   | 26.50%     |  
| |                                                                    |   |             |   |   |             |   |   |            |  
| | Expected income tax recovery                                       |   | (1,803,467  | ) |   | (1,726,902  | ) |   | (1,103,691 | )
| | Non-deductible expenses and
      other items                      |   | 130,211     |   |   | 270,214     |   |   | 112,727    |  
| | Effect of exchange rate on future tax assets
      carried forward |   |             |   |   |             |   |   |            |  
| | from previous years                                                |   | 142,518     |   |   | 978,598     |   |   | 572,542    |  
| | Expiry of non-capital losses                                       |   | -           |   |   | 755,041     |   |   | 259,122    |  
| | Effect of higher tax rates in
      foreign jurisdiction           |   | (446,821    | ) |   | (356,323    | ) |   | (11,247    | )
| | Adjustment to non-capital losses                                   |   | 1,641,738   |   |   | -           |   |   | -          |  
| | Change in deferred tax assets not recognized                       |   | 335,821     |   |   | 79,371      |   |   | 170,547    |  
| |                                                                    |   | -           |   | $ | -           |   | $ | -          |  

43

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

Administration

The components of general and
administration expenses are as follows:

| |                                                    |   | 2016    |  |   | 2015    |  |   | 2014    | 
| | -------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- | 
| |                                                    |   |         |  |   |         |  |   |         | 
| | General
      and administrative                   | $ | 177,725 |  | $ | 141,721 |  | $ | 69,122  | 
| | Rent and occupancy cost                            |   | 72,317  |  |   | 74,524  |  |   | 84,816  | 
| | Office
      insurance                             |   | 60,195  |  |   | 58,835  |  |   | 61,578  | 
| | Telephone                                          |   | 12,187  |  |   | 17,740  |  |   | 22,537  | 
| | Investor relations, listing and
      filling fees |   | 72,916  |  |   | 96,826  |  |   | 64,880  | 
| |                                                    | $ | 395,340 |  | $ | 389,646 |  | $ | 302,933 | 

Professional, Other Fees and
Salaries

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

| |                       |   | 2016      |  |   | 2015      |  |   | 2014      | 
| | --------------------- | - | --------- |  | - | --------- |  | - | --------- | 
| |                       |   |           |  |   |           |  |   |           | 
| | Professional fees     | $ | 328,850   |  | $ | 466,411   |  | $ | 420,902   | 
| | Consulting fees       |   | 1,028,600 |  |   | 1,039,316 |  |   | 1,535,520 | 
| | Salaries and benefits |   | 381,951   |  |   | 446,575   |  |   | 404,445   | 
| |                       | $ | 1,739,401 |  | $ | 1,952,302 |  | $ | 2,360,867 | 

Development Costs

The components of development expenses
reported are as follows:

| |                                             |  | 2016      |   |  | 2015      |  |  | 2014    | 
| | ------------------------------------------- |  | --------- | - |  | --------- |  |  | ------- | 
| |                                             |  |           |   |  |           |  |  |         | 
| | Expenses incurred, net                      |  | (2,505    | ) |  | 250,594   |  |  | 26,882  | 
| | Write-off of deferred development (Note 10) |  | 3,638,118 |   |  | 2,395,425 |  |  | 676,789 | 
| |                                             |  | 3,635,613 |   |  | 2,646,019 |  |  | 703,671 | 

44

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

The Company reports the following
related party transactions:

| | (a) | Chairman:                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                              
| |     | The Chairmans term expired on April 26, 2016; his
      compensation for services rendered was extended until October 31, 2016 and
      was then terminated. He received cash compensation on a month to month
      basis totaling $113,266 ($CDN 150,000) in 2016.                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                              
| |     | In 2016 the Chairman was not awarded any stock options
      (2015 the Chairman was awarded a total of 187,500 stock options an average
      price of $0.46 per share; 2014: the Chairman was not granted any stock
      options).                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                              
| |     | The total compensation paid to the Chairman during the
      year ended October 31, 2016 was $113,266 of cash compensation (2015 -
      $119,707 of cash compensation and $64,271 of stock based compensation;
      2014 - $137,172 of cash compensation).                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                              
| |     | The Company provided short term non-interest bearing
      advances of $198,673 to the Chairman during 2015 and the Chairman made
      repayments totaling $236,757 to leave no outstanding advances receivable
      as at October 31, 2015.                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                              
| |     | In 2016 the Chairman exercised 700,000 stock options and
      the Company realized proceeds of $140,000.                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                              
| | (b) | Management and consulting fees:                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                              
| |     | Included in professional fees, other fees and salaries as
      reported are management fees and consulting fees paid or payable to
      individuals (or companies controlled by such individuals) who served as
      officers, directors and employees of the Company. The total compensation
      paid to such parties is summarized as:

45

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | (b) | Management and consulting fees
(Contd):
| | --- | ----------------------------------------

| |                                                              |   | 2016    |   |   | 2015      |   |   | 2014      |  
| | ------------------------------------------------------------ | - | ------- | - | - | --------- | - | - | --------- | -
| | Cash compensation                                            | $ | 845,510 |   | $ | 936,199   |   | $ | 1,482,153 |  
| | Less portion capitalized to deferred
      development costs |   | (4,869  | ) |   | (122,804  | ) |   | (169,664  | )
| |                                                              |   | 840,641 |   |   | 813,395   |   |   | 1,312,489 |  
| |                                                              |   |         |   |   |           |   |   |           |  
| | Share compensation                                           |   | -       |   |   | 220,500   |   |   | -         |  
| | Stock based compensation                                     |   | -       |   |   | 524,583   |   |   | 325,074   |  
| |                                                              |   |         |   |   |           |   |   |           |  
| |                                                              | $ | 840,641 |   | $ | 1,558,478 |   | $ | 1,637,563 |  

In 2016, these parties were awarded a
total of nil options (2015: 975,000 options at an exercise price of $0.49 per
share and 412,500 options at an exercise price of $0.46; 2014: 540,000 options
at an average exercise price of $0.76CDN per share).

In 2016, officers, directors and a
senior employee exercised 3,056,366 options resulting in proceeds to the Company
of $611,273.

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

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

46

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | (c) | Related party deferred development cost:                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In 2015, the Company was invoiced $1,049,524 (2014:
      $1,843,643) by a company whose major shareholder is a director of the
      Company and who also serves as its Chief Technology Officer. This
      individual was elected as a director on February 19, 2014 and these
      related party transactions disclosed are transactions incurred from that
      date forward. These charges had been capitalized as deferred development
      costs.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In 2016, no invoices were submitted to the Company by
      this party.                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | As at October 31, 2016 the Company includes $167,000 in
      accounts payable and accrued liabilities owing to this company (2015:
      $227,215).                                                                                                                                                                                                                                                                                                        

| | (d) | Advances:                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------
| |     |                                                                                                        
| |     | In 2015 the following advances were provided to officers,
      directors and employees of the Company:

| | (1) | The CEO was provided short term non-interest bearing
      advances of $550,972 during the year and made repayments totaling $542,615
      and the remaining $8,357 was settled through the allocation of
      compensation due to the CEO. There are no advances receivable from the CEO
      as at October 31, 2015.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                          
| | (2) | The President of MAST met performance targets in February
      2015 settling his advances receivable from 2014 of $244,074, the advance
      receivable was converted to salaries at that time. There were no advances
      to the President of MAST during 2015.                                                     
| |     |                                                                                                                                                                                                                                                                                                                          
| | (3) | A senior employee was provided short term non-interest
      bearing advances of $166,366 during the year and made repayments totaling
      $247,252 resulting in no outstanding advances receivable as at October 31,
      2015.                                                                                      

In 2016, the CEO was provided short
term non-interest bearing advances of $42,144 between November 1, 2015 and
January 31, 2016. These advances were settled at January 31, 2016 through the
allocation of compensation due to the CEO.

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

47

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | (d) | Accounts payable:                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                      
| |     | At October 31, 2016 the Company reports in accounts
      payable and accrued liabilities a balance owing to the President of MAST
      of $120,332 which amount represents outstanding expense reports and a
      short term non-interest bearing advance provided to the Company.
| |     |                                                                                                                                                                                                                                                                                      
| | (e) | Bridge loan:                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                      
| |     | The CEO of the Company provided a bridge loan of $100,000
      CDN on September 2, 2016; this bridge loan is included in Note 14 as 2016
      Bridge loan CDN, Loan No. 3.                                                                                                         
| |     |                                                                                                                                                                                                                                                                                      
| | (f) | Subsequent event:                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                      
| |     | In December 2016 the Company issued stock options to
      certain officers, directors and employees (note
23).                                                                                                                                                                      

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

The Company has extended its lease for
premises through July 2022. The lease term is for 5 years and stipulates base
monthly rental expenses of $4,005 CDN. Lease commitments are as follows 
commitments less than one year of $34,202 CDN, years 2-5: $206,136 CDN,
thereafter $36,051.

The Company has certain outstanding
commitments to 3rd party subcontractors with respect to deferred
development costs. These commitments are as follows  commitments less than one
year of $2,899,593; commitments between years 2-5 total of $1,124,183.

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

| | (a) | Legal matters:                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                              
| |     | On June 29, 2016 the lawsuit that was initiated in 2014
      between the Company and Dreifus Associates Limited and Henry Dreifus
      (Defendants) was settled through arbitration. Under the terms of
      settlement:

| | i) | The Company made a series of payments between July 29,
      2016 and October 31 (Note 12(a)), 2016 totaling $50,000 and issued 312,500
      common shares with a value of $62,500 to the
Defendants.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

|20. | CONTINGENCIES (Contd)
|--- | ----------------------

| | (a) | Legal matters: (Contd)
| | --- | -----------------------

| | ii) | The Defendants dropped their counterclaims of
      approximately $270,000 of disputed charges for services allegedly
      rendered. The Defendants also dropped all previously alleged claims of
      inventorship status on one of the Companys patents and assigned to the
      Company any and all of their future entitlements to the Companys
      patents.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | The Company has agreed to indemnify its directors and
      officers and certain of its employees in accordance with the Companys
      by-laws. The Company maintains insurance policies that may provide
      coverage against certain claims.                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                               
| | (c) | In addition to the above, the Company may be subject to
      litigation, claims and governmental and regulatory proceedings arising in
      the ordinary course of business. In such cases, the Company accrues a loss
      contingency for these matters when it is probable that a loss has been
      incurred and the amount of the loss can be reasonably
  estimated.

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

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

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

| | i. | Foreign Exchange Risk:                                                                                                                                                                                               
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                      
| |    | The Company currently incurs expenses in Canadian
      dollars. Management monitors the Canadian position of these monetary
      financial instruments on a periodic basis throughout the course of the
      year.

49

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

| | i. | Foreign Exchange Risk: (Contd)
| | -- | -------------------------------

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

| |                                                | $ | CDN       |  | $ | CDN       | 
| | ---------------------------------------------- | - | --------- |  | - | --------- | 
| |                                                |   | 2016      |  |   | 2015      | 
| |                                                |   |           |  |   |           | 
| | Cash                                           | $ | 377,534   |  | $ | 148,767   | 
| | Deposits and other receivables                 |   | 44,695    |  |   | 73,361    | 
| | Accounts payable and accrued
      liabilities |   | 289,099   |  |   | 335,813   | 
| | Bridge loans                                   |   | 3,405,824 |  |   | 1,002,313 | 

A 10% strengthening of the US dollar
against the Canadian dollar would serve to decrease the loss by $438,726 at
October 31, 2016 (2015  decrease the loss by $132,625). A 10% weakening of the
US dollar against the Canadian dollar at October 31, 2016 would have had the
equal but opposite effect.

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

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

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

The Company is exposed to interest
price risk on its interest bearing bridge loans and related party advances. This
exposure is limited due to the short-term nature of the bridge loans and related
party advances.

50

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | (c) | Liquidity Risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Liquidity risk is the risk that the Company will not be
      able to meet its obligations as they fall due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Company manages its liquidity risk by forecasting
      cash flows from operations and anticipated investing and financing
      activities. Senior management is actively involved in the review and
      approval of planned expenditures.                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | All financial liabilities are due within 1 year from the
      balance sheet at October 31, 2016.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | As at October 31, 2016, the Company reports a working
      capital deficiency of $4,316,730 and has certain financial commitments
      (Note 19), the majority of which are due within one year. It must continue
      to raise financing in order to meet its current obligations (Note
    23).                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (d) | Credit Risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Credit risk is the risk of financial loss to the Company
      if a customer or counterparty to a financial instrument fails to meet its
      contractual obligations, and arises principally from the Companys cash
      and deposits and other receivables. The carrying amount of financial
      assets represents maximum credit exposure. The Company reduces its credit
      risk by maintaining its primary bank accounts at large financial
      institutions and assesses the credit quality of counterparties, taking
      into account their financial position, past experience and other
      factors.

51

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

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

Geographic information  Non-current
assets

| |               |   | October 31, |  |   | October 31, | 
| | ------------- | - | ----------- |  | - | ----------- | 
| |               |   | 2016        |  |   | 2015        | 
| |               |   |             |  |   |             | 
| | Canada        | $ | 408,985     |  | $ | 784,713     | 
| | United States |   | 5,603       |  |   | 2,668,477   | 
| |               | $ | 414,588     |  | $ | 3,453,190   | 

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

| | (1) | On December 30, 2016, the Company issued 2,890,000 common
      stock options to certain officers, directors and employees. The options
      vest upon issuance and have a five year term. The exercise price was set
      at a strike price of $0.25 USD ($0.34 CDN).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                         
| | (2) | The Company secured 11 additional $CDN bridge loans
      between November 1, 2016 and March 2, 2017. The total additional financing
      raise was $1,048,000 CDN ($788,660                                                                                           

A summary of the terms of these bridge
loans is provided as below:

2017 $ CDN Bridge
Loans.

| |                                   |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Loan     |  |   | Total      | 
| | --------------------------------- | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | ---------- | 
| |                                   |   | 1        |  |   | 2        |  |   | 3        |  |   | 4        |  |   | 5        |  |   | 6        |  |   | 7        |  |   | 8        |  |   | 9        |  |   | 10       |  |   | 11       |  |   | Loans 1-11 | 
| | Date of Origination               |   | 11/02/16 |  |   | 12/02/16 |  |   | 12/21/16 |  |   | 01/13/17 |  |   | 01/13/17 |  |   | 01/20/17 |  |   | 01/20/17 |  |   | 01/20/17 |  |   | 01/26/17 |  |   | 01/26/17 |  |   | 02/09/17 |  |   |            | 
| | Principal amount at origination   |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |            | 
| | ($CDN)                            | $ | 200,000  |  | $ | 30,000   |  | $ | 160,000  |  | $ | 60,000   |  | $ | 50,000   |  | $ | 150,000  |  | $ | 30,000   |  | $ | 133,000  |  | $ | 30,000   |  | $ | 25,000   |  | $ | 180,000  |  | $ | 1,048,000  | 
| | ($US)                             | $ | 149,365  |  | $ | 22,560   |  | $ | 119,394  |  | $ | 45,679   |  | $ | 38,066   |  | $ | 112,452  |  | $ | 22,490   |  |   | 99,708   |  | $ | 22,893   |  | $ | 19,078   |  | $ | 136,975  |  | $ | 788,660    | 
| | Monthly interest rate             |   | 1.00%    |  |   | 1.00%    |  |   | 1.00%    |  |   | 1.00%    |  |   | 2.00%    |  |   | 1.00%    |  |   | 1.00%    |  |   | 1.00%    |  |   | 1.00%    |  |   | 1.00%    |  |   | 1.00%    |  |   | 1.00%      | 
| | Conversion price to common shares |   | 0.30 CDN |  |   | 0.30 CDN |  |   | 0.30 CDN |  |   | 0.30 CDN |  |   | N/A      |  |   | 0.30 CDN |  |   | 0.30 CDN |  |   | 0.30 CDN |  |   | 0.30CDN  |  |   | 0.30 CDN |  |   | 0.30 CDN |  |   | 0.30 CDN   | 
| | Current maturity date             |   | 11/02/17 |  |   | 12/02/17 |  |   | 12/21/17 |  |   | 01/31/18 |  |   | 01/13/18 |  |   | 01/20/18 |  |   | 01/20/18 |  |   | 01/20/18 |  |   | 01/26/18 |  |   | 01/26/18 |  |   | 02/09/18 |  |   |            | 

52

---

MICROMEM TECHNOLOGIES INC.

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

|For the years ended October 31, 2016, 2015 and 2014
|---------------------------------------------------
|                                                   

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

| | (3) | On November 1, 2016, the 2016 $CDN bridge loan #7 (Note
      14(4)), which was a non- convertible loan at October 31, 2016, was amended
      to include a conversion feature at a price of $0.30 CDN. Additionally, the
      interest rate was reduced from 2% to 1% per month and the loan was
      extended to November 1, 2017.  
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                         
| | (4) | The Company completed six private placements with
      investors consisting of common shares with no warrants, pursuant to
      prospectus and registration exemptions set forth in applicable securities
      law. The Company received gross proceeds of $143,365 ($CDN 191,150) and
      issued a total of 651,666 common shares.
| |     |                                                                                                                                                                                                                                                                                                                                         
| | (5) | On November 7, 2016, the Company issued 26,667 common
      shares to settle accounts payable of $5,983 ($CDN
8,000).                                                                                                                                                                                                                   

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

53

---

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

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

|Exhibit No. 1.1  | Articles of
      Incorporation of Micromem Technologies Inc. and amendments thereto in
      effect as of January 11, 2000, (Incorporated herein by reference to the
  Company's Form 20-F filed with the Commission on January 11, 2000).                                                                                                                                                   
|---------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.2  | Articles of Incorporation of
      Amendment of Micromem Technologies Inc. dated as of October 17, 2001
      amending the Articles of Incorporation of Micromem Technologies Inc. to
      increase the number of directors to a minimum of three and a maximum of
      ten (Incorporated herein by reference to the Company's Form 20-F filed
      with the Commission on March 26, 2003).
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.3  | Articles of Incorporation of
      Amendment of Micromem Technologies Inc. dated as of June 24, 2002 amending
      the Articles of Incorporation of Micromem Technologies Inc. to increase
      the number of directors to a minimum of 3 and a maximum of 12
      (Incorporated herein by reference to the Company's Form 20-F filed with
      the Commission on March 26, 2003).        
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.5  | By-Laws of Micromem
      Technologies Inc. in effect as of January 11, 2002, (Incorporated herein
      by reference to the Company's Form 20-F filed with the Commission on
      January 11, 2000).                                                                                                                                                                                        
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 1.6  | Amendment to the By-Laws of
      Micromem Technologies Inc. approved by shareholders on June 29, 2000,
      deleting the requirement from the By-Laws that the President shall be
      appointed from amongst the directors (Incorporated herein by reference to
      the Company's Form 20-F filed with the Commission on March 26, 2003).                                               
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.1  | Employment Agreement by and
      between Micromem Technologies, Inc. and Salvatore Fuda dated May 29, 2005.
      (Incorporated herein by reference to the Company's Form 20-F filed with
      the Commission on February 28, 2006).                                                                                                                                                        
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.2  | Employment Agreement by and
      between Micromem Technologies and Joseph Fuda dated May 28, 2008
      (Incorporated by reference to the Companys Form 20-F filed with the
      Commission on February 24, 2009).                                                                                                                                                                         
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.3  | Employment Agreement by and
      between Micromem Technologies and Dan Amadori dated May 28, 2008
      (Incorporated by reference to the Companys Form 20-F filed with the
      Commission on February 24, 2009).                                                                                                                                                                         
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 4.4  | Employment Agreement by and
      between Micromem Technologies and Steven Van Fleet dated May 28, 2008
      (Incorporated by reference to the Companys Form 20-F filed with the
      Commission on February 24, 2009).                                                                                                                                                                    
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 8.1  | List of Subsidiaries
      (Incorporated by reference to the Companys Annual Report on Form 20-F
      filed with the Commission on March 1, 2010)                                                                                                                                                                                                                                           
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 12.1 | Officer's Certification
      pursuant to Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                       
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 12.2 | Officer's Certification
      pursuant to Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                       
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 13.1 | Officer's Certification
      pursuant to Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                       
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 13.2 | Officer's Certification
      pursuant to Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                       
|                 |                                                                                                                                                                                                                                                                                                                                                                                               
|Exhibit No. 15.1 | Consent of Collins Barrow LLP
    (filed herewith)                                                                                                                                                                                                                                                                                                                                            

46

---

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:                             
| | Name:                           
| | Title:                          
| |                                 
| | By:                             
| | Name:                           
| | Title:                          

Dated: March 10, 2017

47

---