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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, 2018

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:259,602,699 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 [   ] | Non-Accelerated Filer [X]
|----------------------------- | ----------------------- | -------------------------

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

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


| | 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                                   | 28  
|Item 7.    | Major Shareholders and
      Related Party Transactions                            | 32  
|Item 8.    | Financial
      Information                                                        | 32  
|Item 9.    | The Offer and Listing                                                              | 33  
|Item 10.   | Additional
      Information                                                       | 33  
|Item 11.   | Quantitative and Qualitative
      Disclosures about Market Risk                   | 41  
|Item 12.   | Description
      of Securities Other Than Equity Securities                       | 41  
|           |                                                                                    |     
|Part II    |                                                                                    | 41  
|           |                                                                                    |     
|Item 13.   | Defaults,
      Dividend Arrearages and Delinquencies                              | 41  
|Item 14.   | Material Modifications to
      the Rights of Security Holders and Use of Proceeds | 41  
|Item 15.   | Controls and
      Procedures                                                      | 41  
|Item 16.   | [Reserved]                                                                         | 42  
|Item 16A   | Audit
      Committee Financial Expert                                             | 42  
|Item 16B   | Code of Ethics                                                                     | 43  
|Item 16C   | Principal
      Accountant Fees and Services                                       | 43  
|Item 16D   | Exemptions from the Listing
      Standards for Audit Committees                   | 43  
|Item 16E   | Purchases of
      Equity by the Issuer and Affiliated Purchasers                  | 43  
|Item 16F   | Changes in Registrants
      Certifying Accountant                                | 44  
|Item 16G   | Corporate
      Governance                                                         | 44  
|Item 16H   | Mine Safety Disclosure                                                             | 44  
|           |                                                                                    |     
|Part III   |                                                                                    | 44  
|           |                                                                                    |     
|Item 17.   | Financial Statements                                                               | 44  
|Item 18    | Financial
      Statements                                                         | 44  
|Item 19.   | Exhibits                                                                           | 45  
|Signatures |                                                                                    | 46  

3

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PART I

INTRODUCTION

Abbreviations

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

Forward Looking and Cautionary Statements

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

**ITEM
1.**           
 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

**ITEM
2.**           
 OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

**ITEM
3.**           
 KEY INFORMATION

A.            
Selected Financial Data

Fiscal Years 2018, 2017, 2016, 2015 and 2014

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, 2018, October 31, 2017, October 31, 2016, October 31, 2015 and
October 31, 2014 . 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, 2018, 2017, 2016, 2015 and 2014 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)

|                                  |  | 2018       |   |  | 2017       |   |  | 2016        |   |  | 2015        |   |  | 2014       | 
|--------------------------------- |  | ---------- | - |  | ---------- | - |  | ----------- | - |  | ----------- | - |  | ---------- | 
|                                  |  |            |   |  |            |   |  |             |   |  |             |   |  |            | 
|Working capital (deficiency)      |  | (3,828,503 | ) |  | (3,865,390 | ) |  | ($4,316,730 | ) |  | ($2,049,302 | ) |  | $1,034,921 | 
|                                  |  |            |   |  |            |   |  |             |   |  |             |   |  |            | 
|Capital Assets                    |  | 9,228      |   |  | 9,822      |   |  | 10,988      |   |  | 15,592      |   |  | 21,483     | 
|                                  |  |            |   |  |            |   |  |             |   |  |             |   |  |            | 
|Total Assets                      |  | 710,737    |   |  | 916,643    |   |  | 736,043     |   |  | 3,667,866   |   |  | 5,636,605  | 
|                                  |  |            |   |  |            |   |  |             |   |  |             |   |  |            | 
|Capital Stock                     |  | 82,282,903 |   |  | 80,198,194 |   |  | 75,855,139  |   |  | 74,083,975  |   |  | 70,802,776 | 
|                                  |  |            |   |  |            |   |  |             |   |  |             |   |  |            | 
|Shareholders' equity (deficiency) |  | (3,423,170 | ) |  | (3,424,106 | ) |  | ( 3,902,142 | ) |  | 1,403,888   |   |  | 4,862,773  | 

Selected statement of operations and deficit
information

(all amounts in U.S. dollars)2018
    
    
    2017
    
    
    2016
    
    
    2015
    
    
    2014Interest and other income
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Research and
      development expenses (recovery)
    
    (130,069
    )
    
    147,008
    
    
    3,635,613
    
    
    2,649,019
    
    
    703,671General and administrative and
      other expenses
    
    1,742,463
    
    
    3,004,027
    
    
    2,950,978
    
    
    2,703,650
    
    
    3,081,947(Gain) on revaluation of (1)
      Derivative liabilities
    
    (1,094,718
    )
    
    (1,614,822
    )
    
    (295,616
    )
    
    -
    
    
    -Loss on conversion of debt (2)
    
    63,852
    
    
    1,009,680
    
    
    -
    
    
    -
    
    
    -(Gain) on extinguishment of debt (5)
    
    (399,191
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Accretion Expense (3)
    
    2,039,344
    
    
    1,358,101
    
    
    514,560
    
    
    -
    
    
    -Stock compensation expense (4)
    
    140,612
    
    
    442,206
    
    
    -
    
    
    1,163,941
    
    
    379,253Loss before income taxes
    
    (2,362,239
    )
    
    (4,346,200
    )
    
    (6,805,535
    ))
    
    (6,516,610
    )
    
    (4,164,871
    )Net Loss
    
    (2,362,239
    )
    
    (4,346,200
    )
    
    (6,805,535
    )
    
    (6,516,610
    )
    
    (4,164,871
    )


|1) | (Gain) on revaluation of derivative liabilities as
      reported for 2018, 2017 and 2016 above relates to the measurement of the
      derivative liabilities relating to the outstanding convertible bridge
      loans. The gain as reported is a non-cash charge which is calculated in
      accordance with IFRS.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                        
|2) | Loss on conversion of debt as reported relates to the
      inducement of additional common shares issued to the bridge loan lenders
      who converted their bridge loans to common shares.                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                        
|3) | Accretion expense is a non-cash expense calculated in
      accordance with IFRS and relates to increasing the face value of the debt
      to the contracted amount over the term of the loan.                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                        
|4) | Stock compensation expense is a non-cash expense
      calculated in accordance with the Black Scholes option pricing model or
      the binomial pricing model.                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                        
|5) | Gain on extinguishment of debt as reported relates to the
      replacement of an existing debt instrument at maturity date with a new
      debt instrument reflecting revised renewal terms at maturity
  date.                                                                                                      

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.

2018
    2017
    2016
    2015
    2014High for period
    0.7513
    0.8245
    0.7972
    0.8501
    0.9422Low for period
    0.8138
    0.7276
    0.6854
    0.7141
    0.8589End of period
    0.7609
    0.7971
    0.7461
    0.7233
    0.8620Average for period
    0.7767
    0.7708
    0.7538
    0.7793
    0.9054


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
    July2018
    2018
    2018
    2018
    2018
    2018High
    1.2809
    1.3088
    1.2908
    1.3020
    1.3310
    1.3255Low
    1.2288
    1.2830
    1.2552
    1.2775
    1.2913
    1.3017


August
    September
    October
    November
    December
    January2018
    2018
    2018
    2018
    2018
    2019High
    1.3152
    1.3188
    1.3142
    1.3302
    1.3642
    1.36Low
    1.2917
    1.2905
    1.2803
    1.3088
    1.3191
    1.3144


On February 27, 2019 the noon buying rate for one Canadian
dollar, as quoted by the Bank of Canada, was CDN $1.3155 = U.S. $1.00.

**B.**           
**Capitalization and Indebtedness**

Not applicable.

**C.**           
**Reasons for the Offer and Use of Proceeds**

Not applicable.

6

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**D.**           
**Risk Factors**

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

Risk Factors Related to Our Business

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

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

Our ability to continue as a going concern is dependent upon
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, 2018 we had $206,832 cash on hand. Our working
capital position is ($3,823,503) at October 31, 2018. Subsequent to October 31,
2018, through to the date of the filing of this Annual Report on Form 20-F, we
have raised an additional $383,600 through the issuance of convertible
debentures and $71,000 through two private placements.

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 sensor technology
in 2018 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; 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.

Steven Van Fleet resigned as President of our wholly-owned
subsidiary, Micromem Applied Sensor Technologies, Inc. (MAST) in August 2018.
Micromem has engaged other consultants since September 2018 to assist the
Company after Mr. Van Fleets departure. There can be no assurances that such
efforts will be successful.

We are currently engaged in a lawsuit with a former officer
and director of the Company.

On October 7, 2018, the former President of MAST, Mr. Steven
Van Fleet, filed a lawsuit against Micromem and MAST in New York State Supreme
Court, Dutchess County. In the action, Mr. Van Fleet is seeking payment of $214,574 plus interest relating to alleged remuneration and
expense reimbursements due to him prior to his resignation as an officer and
director of Micromem and MAST on August 17, 2018. The Company answered the
complaint December 7, 2018 by denying the material allegations in Mr. Van
Fleets claims. In addition, the Company interposed 7 counterclaims against Mr.
Van Fleet seeking, among other things: (i) damages of not less than $2.75
million, (ii) specific performance to compel Mr. Van Fleet to comply with his
contractual obligations which were required for the period of time that he
served as an officer and director through to his resignation date; (iii)
repayment of certain salary and expenses paid to Mr. Van Fleet; (iv) a direction
for Mr. Van Fleet to turn over all Company property in his possession or
control; and (v) an accounting to determine all money and property belonging to
the Company and/or MAST. On January 24, 2019, the Company amended its original
answer and counterclaims to include, among other things, a demand for additional
damages. On February 8, 2019 Mr. Van Fleet, through his counsel, replied to and
denied the material allegations in Micromems counterclaims. The Company reports
an accrual of $205,788 at October 31, 2018 with respect to alleged remuneration
and expense reimbursements claimed by Mr. Van Fleet but, nonetheless, has denied
the allegations in Mr. Van Fleets claims . This matter remains as a contingency
at February 28, 2019. See Note 19 to our Financial Statements in Item 18 of this
Annual Report.

9

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A depressed oil and gas sector could place our
development projects at risk.

Certain of our development partners are engaged primarily in
the oil and gas sector. If market conditions are depressed 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.

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.

10

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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.

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.

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

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

There is no limitation imposed by our Articles or other charter
documents on the right of a non-resident to hold or vote our common shares.
However, the Investment Canada Act , also referred to herein as the Investment
Act, as amended by the World Trade Organization Agreement Implementation Act,
also referred to herein as the WTOA Act, generally prohibits implementation of a
reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a Canadian, as
defined in the Investment Act, unless, after review, the minister responsible
for the Investment Act is satisfied that the investment is likely to be a net
benefit to Canada. An investment in our common shares by a non-Canadian would be
reviewable under the Investment Act if it were an investment to acquire direct
control of Micromem, and the value of our assets were CDN $5.0 million or more.
However, an investment in our shares by a national of a country (other than
Canada) that is a member of the World Trade Organization or has a right of
permanent residence in such a country (or by a corporation or other entity that
is a WTO Investor-controlled entity pursuant to detailed rules set out in the
Investment Act) would be reviewable at a higher threshold of CDN $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.

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

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

We do not anticipate paying dividends.

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

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

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

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

Our shareholders may be unable to sell a significant number of
our common shares on the OTCQB 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.

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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.

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 was to provide customers with sensor
based platform solutions that address their difficult business problems. Our
sensor platform solutions address three primary areas of creating value for our
clients:

14

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- 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. In 2016 and 2017, we attempted to advance our projects towards field
trials. The Flextronics and Eversource projects were ultimately discontinued. We
continued with the Chevron and Castrol development projects and began
discussions with Repsol SA.

**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, 2018

In August 2018, Mr. Steven Van Fleet resigned as President of
MAST. The technical engineering and design work that has been completed to date
has been undertaken by outside firms who continue to work with Micromem on its
development projects. The Company has also engaged additional technical,
marketing and financial assistance since the departure of Mr. Van Fleet. We have
been able, on this basis, to continue our work with our development partners
subsequent to Mr. Van Fleets departure.

The current status of our development projects is as reported
below:

Chevron:In 2018 we continued to engage with Chevron
personnel and with our engineering subcontractor, Entanglement Technologies
(Entanglement).

Chevron has provided $713,983 of funding towards our joint
product development agreement in 2018. The project which relates to the use of
alcohol based tracers to measure various characteristics and attributes of
operating oil wells, is now scheduled to proceed. The results of our
bench/laboratory testing of this technology previously completed have been
successful against predetermined performance standards required. We believe that
these results will be replicated in the pilot project. We anticipate that we
will then move forward with commercialization of the technology although there
can be no assurances that such efforts will be successful.

Since September 2018 we have completed the following project
related tasks and milestones:

- We met with our subcontractor, Entanglement, to review all development
  tasks and progress to date.
- We engaged a second independent engineering/manufacturing (Consultant)
  resource to validate our cumulative development efforts to date.
- In October 2018 we participated in a meeting with the Chevron personnel
  responsible for this project in their Houston headquarters along with
  Entanglement and our Consultant. Entanglement presented a summary report on
  all work completed to that date; the report was accepted by Chevron. At that
  point, the consensus was to set a date for the onsite
  pilot of the technology.

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- In November 2018 we again met with one of the Chevron team members in the
  Entanglement facilities in California for the purpose of completing the
  detailed plan for the onsite pilot. Thereafter, we met with the Chevron
  commercialization team in Houston.
- The onsite pilot was initially tentatively scheduled for mid-January.
  Given scheduling issues at the well site, the start date of the onsite testing
  has been moved to March 2019 and these tests are now proceeding on that basis.

In 2015, we initiated a development protocol with Chevron with
respect to a second development project  the proposed development, over a
period of 2 years, of a sensor platform to be used for testing of cement
integrity in offshore oil wells. That project did not move forward at that time.

In November 2018 we reengaged with the Chevron team who have
responsibilities for this development initiative within Chevron. There remains
significant joint interest in the project and we anticipate follow up on this
potential project opportunity in 2019.

Castrol:We have previously reported on our interactions
and our Joint Product Development Agreement with Castrol, which began in 2014.

Through Q1 2018 we were engaged in discussion with the Castrol
representatives, with whom we had been dealing to that point in time, with
respect to the ongoing funding requirements to complete the development project.
These discussions were not, ultimately, successful and the project was
suspended. We have had only limited interaction with Castrol since mid 2018.

The related work over the course of this project between
2014-2018 was completed in large part by our engineering subcontractor,
SBMicrosystems (SBM) located in Burnie Maryland. In total, approximately $3.5
million of funding was committed to this project up to the point that the
project was suspended; this included approximately $1 million of financing
provided by Castrol.

The Company retains a substantial file of proprietary technical
information, drawings and design work related to this development effort.

RT Lube Analyzer:In 2017-2018 the Company developed the
prototype unit of this technology based on the development work completed by
SBM. It began to assess potential market opportunities to commercialize this
technology in a number of market verticals, in particular  shipping, large
industrial applications and wind energy. We continue to pursue this opportunity
and we believe that there is significant market potential in this technology.

Repsol S.A.:We have previously reported on our initial
activity with this Spanish energy conglomerate.

During the 2017 fiscal year we executed a preliminary
development contract with Repsol for the utilization of the RT Lube technology
to be customized to their specific requirements. Repsol provided $75,000 of
initial funding on a purchase order of $150,000.

SBM was commissioned to complete this initial work and a
prototype unit was delivered to Repsol for initial testing.

The initial project with Repsol contemplated 2 phases of
activity:

| | a) | Initially, a larger unit that would be used for several
      potential market applications (Field Unit) which was intended for final
      delivery in calendar year 2018; and,                                                                                                                                      
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                         
| | b) | A miniaturized version of the technology to be used in
      automotive and transportation vehicles; this version to incorporate
      greater functionality and additional performance features (Final Unit).
      The original delivery date for the prototype of this Final Unit was
      anticipated in Q1 2019.

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After the departure of Mr. Van Fleet in August 2018 we, along
with SBM, engaged in direct dialogue with the Repsol team members involved in
this development project. Certain of the technical requirements to complete this
work remain to be resolved. The costs associated with the completion of this
project exceed the original amounts contemplated.

Since September 2018 we have worked directly with the Repsol
team. Our CEO, Joseph Fuda, met with the Repsol development and
commercialization teams in their Madrid offices in late September.

We have continued our discussions with Repsol since then and
have recast the development project and timetables for completion. We have also
added additional technical and manufacturing expertise through outside
consultants to help facilitate the go forward activity with the intention of
continuing the role of SBM.

At this point, we are attempting to finalize a new letter of
intent with Repsol to continue this project in 2019.

Dubai Conference:In March 2018 Steven Van Fleet
attended a conference in Dubai at the suggestion of Chevron; he was accompanied
by Entanglement personnel engaged in the Chevron development project.

The ATRA 171 technology that is under development at
Entanglement for Chevron was showcased at the conference and received
significant preliminary interest. After the conference through June 2018, Mr.
Van Fleet responded to these expressions of interest and produced a significant
number of proposals which he delivered to various companies in North America and
abroad.

Since the departure of Mr. Van Fleet in August 2018, we have
been pursing certain of these proposals that were submitted by Mr. Van Fleet. In
this process we have had mixed responses; nonetheless we believe that as this
technology is finalized through our ongoing work with Chevron, there will be
other commercial opportunities that we may realize.

Other Opportunities:Since September 2018 we have
engaged in dialogue with a private company that has been in operation for
several decades. This company has a team with engineering and manufacturing
capabilities and an established presence and revenue base in North America. One
of the business lines that this company has developed is a sensor based system
that detects gas leakage in industrial plants. We continue to negotiate a
potential business arrangement with this entity with the expectation of
developing a more formal working relationship during 2019.

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Deferred development costs/development expenses:

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

S.A.
    Chevron
    Castrol
    Northeast
    Flextronics
    Other
    TotalBalance at10/31/2012
    364,870
    -
    -
    -
    205,237
    148,057
    718,164Additions
    236,960
    89,986
    -
    10,000
    208,303
    132,195
    677,444Recoveries
    (100,000)
    (87,290)
    -
    -
    -
    (46,000)
    (233,290)Writedowns
    -
    -
    -
    -
    -
    (234,241)
    (234,241)Balance at10/31/2013
    501,830
    2,696
    -
    10,000
    413,540
    11
    928,077Additions
    262,328
    1,622,554
    387,519
    1,427,634
    116,000
    120,424
    3,936,459Recoveries
    (125,000)
    (87,290)
    (250,000)
    (200,000)
    -
    -
    (662,290)Writedowns
    (639,158)
    -
    -
    -
    -
    (37,632)
    (676,790)Balance at10/31/2014
    -
    1,537,960
    137,519
    1,237,634
    529,540
    82,803
    3,525,456Additions
    -
    1,321,015
    1,027,758
    1,032,695
    300,139
    42,293
    3,723,900Recoveries
    -
    (1,545,132)
    (238,500)
    -
    -
    -
    (1,783,632)Writedowns
    -
    -
    -
    (2,270,329)
    -
    (125,096)
    (2,395,425)Balance at10/31/2015
    -
    1,313,843
    926,777
    -
    829,679
    -
    3,070,299Additions
    -
    451,828
    460,403
    -
    299,489
    -
    1,211,720Recoveries
    -
    (393,901)
    (250,000)
    -
    -
    -
    (643,901)Writedowns
    -
    (1,171,700)
    (1,337,250)
    -
    (1,129,168)
    -
    (3,638,118)Balance at10/31/2016
    -
    -
    -
    -
    -
    -
    -


In our 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
write-down of our investment of $2.27 million against these projects in the
fiscal year ending October 31, 2015.

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.

In 2017 the Company incurred $519,008 of development costs on
its ongoing projects. It recovered $371,000 from its development partners. The
Company reported net development cost of $147,008 in 2017.

18

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In 2018 the Company incurred $604,918 of development costs on
its ongoing projects. It recovered $738,983 from its development partners;
recovery of $130,069 in the year ended October 31, 2018.

Intellectual Property

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.

We incurred $121,603 of patent related costs in 2018 (2017:
$161,647; 2016: $192,873). We have a portfolio of patents in the United States
and provisional patents filed in a number of international jurisdictions as
previously reported.

In 2018, a number of our provisional filings were abandoned as
a cost control measure and based on an assessment of the utility in maintaining
these applications in different countries.

We believe that our core technology applications as embodied in
our go forward suite of intellectual property represents a valuable asset to be
exploited in future.

In 2019 we anticipate working with our current patent attorneys
to further evaluate our patent portfolio and to determine our go forward
strategies relating to our existing portfolio and with respect to potential
additional filings.

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.

Share Capital

At October 31, 2018 the Company had 259,602,699 common shares
outstanding (2017: 228,562,711). Additionally, the Company has 6,250,000 stock
options outstanding with a weighted average exercise price of $0.29 per share
(2017: 6,595,000 options outstanding with a weighted average exercise price of
$0.37 per share).

Changes to Our Board of Directors and Management:

Our 2016 Annual Meeting of Shareholders was held on July 21,
2017. 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. Messrs Joseph Fuda, Dan Amadori and Steven Van Fleet continued to
serve as Officers of the Company.

Larry Blue resigned as a director on September 30, 2017 after
12 years of service to the Company. He resigned given other substantial business
commitments with which he is engaged.

David Sharpless resigned as a director on March 30, 2018 after
18 years of service to the Company. He resigned given other substantial business
commitments with which he is engaged. Mr. Sharpless served as Chair of the Audit
Committee for 12 years before his resignation. Alex Dey assumed the role of the
Chair of the Audi Committee upon the resignation of Mr. Sharpless.

Steven Van Fleet resigned as a director and officer on August
17, 2018. In October 2018 Mr. Van Fleet initiated a claim against the Company
for alleged fees owing to him for services rendered up to the date of his
resignation. The Company has responded to Mr. Van Fleets claim and has
counterclaimed for damages and specific performance. This matter is further
discussed in Item 5G  Contingencies - in this Form 20-F.

The Company is planning to schedule its Annual General Meeting
of shareholders shortly, at which it will present a current slate of directors
for shareholder approval. We are currently evaluating several potential new
board candidates and are working with our currently active board members on this
process.

19

---

Equity Financing Transactions:

In the fiscal year ended October 31, 2018 the Company completed
the following transactions:

|(a) | It completed thirty-three private placements for cash and
      received gross proceeds of $866,200 and issued 14,739,272 common
      shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(b) | It issued 79,765 common shares to settle $13,379 of trade
      accounts payable.                                                             
|(c) | It issued 16,220,951 common shares for the conversion of
      bridge loans totaling $1,205,130.                                              
|(d) | The Company continued its bridge loan financing activity,
      specifically:                                                                 

| | (i)   | It secured a total of seven additional $CDN denominated
      bridge loans in 2018 and realized gross proceeds of $651,000.                     
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | It secured a total of fourteen additional $USD bridge
      loans in 2018 and realized gross proceeds of $1,090,000.                            
| | (iii) | It repaid $784,138 CDN denominated bridge loans
      previously secured.                                                                       
| | (iv)  | It repaid $105,000 of USD denominated bridge loans
      previously secured.                                                                    
| | (v)   | Certain of the bridge loans that matured in 2018 were
      extended at maturity date, ultimately through October 31, 2018 and
      thereafter.

In the fiscal year ending October 31, 2017 the Company
completed the following transactions:

|(a) | It completed 20 private placements for cash and received
      gross proceeds of $719,403; and issued 3,873,223 common shares.                                           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                          
|(b) | It issued 547,643 common shares to settle $107,708 of
      trade accounts payable. It also issued 132,381 common shares to settle
      $21,909 of compensation payable.
|    |                                                                                                                                                                          
|(c) | It issued 20,370,895 common shares for the conversion of
      eight bridge loans totaling $2,536,963.                                                                   
|    |                                                                                                                                                                          
|(d) | The Company continued its bridge loan financing activity,
      specifically:                                                                                            

| | (i)   | Certain of the bridge loans secured in 2016 were extended
      in 2017, ultimately through October 31, 2017 and thereafter.                                                                      
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | The Company secured a total of 15 additional $CDN
      denominated bridge loans in 2017 and realized gross proceeds of
      $1,233,524. One of these bridge loans was repaid in October
2017.   
| | (iii) | The Company secured three additional $USD bridge loans in
      2017 and realized gross proceeds of $501,500. A partial repayment of
      $75,000 on one of these loans was made in October
2017.

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 then President and a director of Micromem. We have utilized the services of
other consultants to continue the work of MAST since the departure of Mr. Van
Fleet. MAST is pursuing a number of potential strategic joint development
agreements with industry partners.

20

---

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

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

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

**D.**            **Property,
Plant and Equipment**

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

In 2018, the Company incurred $3,548 of capital expenditures,
$3,809 in 2017 and $1,274 in 2016.

**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, 2018, October 31, 2017 and October 31, 2016. 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

|                                               |  | 2018       |   |  | 2017       |   |   | 2016      | 
|---------------------------------------------- |  | ---------- | - |  | ---------- | - | - | --------- | 
|                                               |  |            |   |  |            |   |   |           | 
|Administration                                 |  | 305,338    |   |  | 305,421    |   |   | 395,340   | 
|                                               |  |            |   |  |            |   |   |           | 
|Professional and other fees
      and salaries |  | 747,280    |   |  | 1,433,113  |   |   | 1,739,401 | 
|                                               |  |            |   |  |            |   |   |           | 
|Travel and entertainment                       |  | 101,496    |   |  | 118,261    |   |   | 180,767   | 
|                                               |  |            |   |  |            |   |   |           | 
|Development costs (recovery)                   |  | (130,069   | ) |  | 147,008    |   |   | 3,635,613 | 
|                                               |  |            |   |  |            |   |   |           | 
|Stock compensation expense                     |  | 140,612    |   |  | 442,206    |   |   | -         | 
|                                               |  |            |   |  |            |   |   |           | 
|Interest expense                               |  | 504,778    |   |  | 666,245    |   |   | 561,608   | 
|                                               |  |            |   |  |            |   |   |           | 
|Accretion expense                              |  | 2,039,344  |   |  | 1,358,101  |   |   | 514,560   | 
|                                               |  |            |   |  |            |   |   |           | 
|Loss on conversion of bridge
      loans       |  | 63,852     |   |  | 1,009,680  |   |   | -         | 
|                                               |  |            |   |  |            |   |   |           | 
|Gain on revaluation of
      derivatives       |  | (1,094,718 | ) |  | (1,614,822 | ) | - | 295,616   | 
|                                               |  |            |   |  |            |   |   |           | 
|Gain on extinguishment of
      debt           |  | (399,191   | ) |  | -          |   |   | -         | 
|                                               |  |            |   |  |            |   |   |           | 
|Financing costs                                |  | 40,414     |   |  | -          |   |   | -         | 
|                                               |  |            |   |  |            |   |   |           | 
|Other expenses                                 |  | 43,103     |   |  | 480,987    |   |   | 73,862    | 
|                                               |  |            |   |  |            |   |   |           | 
|Loss for the year                              |  | 2,362,239  |   |  | 4,346,200  |   |   | 6,805,535 | 
|                                               |  |            |   |  |            |   |   |           | 
|Loss per share - basic and diluted             |  | 0.01       |   |  | 0.02       |   |   | 0.03      | 

Selected balance sheet information

2018
    2017
    2016Working capital (deficiency)
    (3,828,503)
    (3,865,390)
    (4,316,730)Other
      Assets
    405,333
    441,284
    414,588Total
      Assets
    710,737
    916,643
    736,043Shareholders equity (deficiency)
    (3,423,170)
    (3,424,106)
    (3,902,142)


22

---

Fiscal 2018 Compared to Fiscal 2017

| | a. | Administration costs were $305,338 in 2018 versus
      $305,421 in 2017. These expenses principally relate to rent, insurance,
      communications, telephone, investor relations and filing fees. In total
      there were no significant changes in the year over year costs. Our
      insurance costs increased to $117,615 in 2018 versus $54,023 in 2017, the
      result of additional coverage secured in 2018. We reduced general
      administration costs to $63,936 in 2018 versus $98,187 in 2017, through
      cost reduction efforts and with the departure of Steven Van Fleet in
      August 2018. We reduced our investor relations and filing fees costs to
      $53,113 in 2018 from $80,486 in 2017 through cost reduction
  efforts.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | b. | Professional fees which include legal and audit related
      expenses were $165,685 in 2018 versus $224,139 in 2017; we utilized less
      professional services in 2018 and reduced the cost of our external audit
      by engaging additional consulting services to assist us in the year end
      audit process.                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Consulting fees were $316,815 in 2018 versus $813,735 in
      2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | In 2018 the CEO received no compensation versus $319,429
      in 2017; the CFO received $49,238 as compensation versus $114,601 in 2017;
      the fees reported in 2018 for Mr. Van Fleet total $186,059 (the Company is
      disputing these fees currently  see Item 5G  Contingencies) versus
      $231,694 in 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Salaries expense was $265,134 in 2018 versus $395,239 in
      2017, reflecting cost reduction implemented in 2018.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | c. | Travel and entertainment costs were $101,496 in 2018
      versus $118,261 in 2017. In 2018, we incurred travel expenses with respect
      to the Dubai trade show which we attended, costs associated with travel to
      the Repsol offices in Madrid in September and costs associated with the in
      person meetings with Chevron in Houston; otherwise travel related expenses
      were significantly curtailed in 2018.                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | d. | Stock compensation expense relates to the issuance of
      stock options. In 2018 we issued 2.2 million options; the related costs
      using the Black Scholes pricing model was $140,612. In 2017 we issued 2.89
      million options; the related costs using the Black Scholes pricing model
      was $442,206.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | e. | Interest expense in 2018 was $504,778 versus $666,245 in
      2017. This represents the actual interest expense obligations incurred by
      the Company based on the stated interest rates on the convertible
      debenture notes. We redeemed or converted a number of bridge loans in
      2018.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | f. | The other expenses reported with respect to the bridge
      loans, which are all non cash expenses compare as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

2018
    2017
    ChangeAccretion Expense
    2,036,344
    1,358,101
    678,243Loss on conversion of bridge loans
    63,852
    1,009,680
    (945,828)Gain on extinguishment of debt
    (399,191)
    -
    (399,191)Gain on revaluation of derivatives
    (1,094,718)
    (1,614,822)
    520,104606,287
    752,959
    (146,672)


The bridge loan transactions give rise
to accounting measurements under IFRS which track the loan components at the
inception of the loan, during the term to maturity date, remeasurements as
required for changes in terms upon renewal of maturity or upon
conversion/repayment at maturity. As these variables change by loan and on a
year by year basis, the expenses, gains and losses will change in accordance
with these prescribed IFRS requirements. The net result of these measurements
illustrates a comparable net non cash expense between 2018 and 2017.

23

---

Fiscal 2017 Compared to Fiscal 2016

| | (a) | Administration costs were $305,421 in 2017 versus
      $395,340 in 2016. These expenses principally include rent, insurance,
      communications, investor relations and filing fees. The decrease in
      administration costs reported in 2017 is primarily attributable to: (i) in
      2016 we incurred approximately $130,000 (2017: Nil) of costs associated
      with the DAL legal settlement referenced above in the Intellectual
      Property section; (ii) insurance expense increased by approximately
      $21,000 in 2017 versus 2016, and (iii) interest and penalties costs
      increased by approximately $12,000 in 2017 versus 2016.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (b) | Professional fees including audit and legal expenses were
      $224,139 in 2017 versus $328,851 in 2016. In 2016 we incurred the costs
      associated with the attestation report on our internal controls over
      financial reporting which was not required in 2017. Consulting fees were
      $813,735 in 2017 versus $1,028,600 in 2016 reflecting less use of outside
      consultants in 2017.                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (c) | Salaries and benefits were $395,239 in 2017 versus
      $381,950 in 2016. There were no significant changes in staff salaries and
      benefits on a year over year basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (d) | Travel and entertainment expenses were $118,261 in 2017
      versus $180,767 in 2016. The Company curtailed travel related costs in
      2017 given the Companys working capital constraints.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (e) | Interest expense was $666,245 in 2017 versus $561,608 in
      2016. The Company had more bridge loans outstanding in 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (f) | Accretion expense was $1,358,101 in 2017 versus $514,560
      in 2016. This is a non cash expense which relates to the amortization of
      the derivative liability amount which is determined at the inception of
      the loan and charged to the face value of the debt amount recorded at
      inception over the term of the loan. The amount increased significantly in
      2017 with the larger number of loans in place and the frequent changes in
      the terms of loan at renewal dates, causing the additional non cash
      expense.                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (g) | The gain on the revaluation of the derivative liabilities
      was $1,614,822 in 2017 versus $295,616 in 2016. The derivative liability
      is revalued at each quarter end and is reset if the terms of the loan are
      changed at renewal dates. This is a non cash item; the increase in 2017
      was the result of the larger number of loans in place in 2017 and the
      frequent changes in the terms of the loans at renewal dates.                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (h) | The loss on conversion of bridge loans to common shares
      was $1,009,680 in 2017 versus nil in 2016. A total of eight bridge loans
      were converted to common shares in 2017. In seven of these conversions the
      Company provided an inducement to the lender to convert by reducing the
      originally negotiated conversion price to the lower market price on the
      day of conversion.                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (i) | Other expenses were $480,987 in 2017 versus $73,892 in
      2016. In 2017 the Company reported a foreign exchange loss of
      approximately $343,000 (2016: gain of $1,000); arising principally from
      the translation of multiple Canadian denominated bridge loans. Patent
      amortization expense was $133,785 in 2017 versus $98,515 in
2016.                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (j) | Stock compensation expense was $442,206 in 2017 versus
      $Nil in 2016. The Company issued 2,890,000 stock options to officers,
      directors and employees in 2017 and the cost was calculated using the
      Black Scholes option pricing model.                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (k) | Net development costs in 2017 were $147,008 versus
      $3,635,613 in 2016. In 2016, the Company recorded an impairment reserve on
      deferred development costs of $3,638,118.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Balance Sheet Data:

| | (a) | At October 31, 2017, the Company had working capital of
      ($3,865,390) compared to ($4,316,730) at October 31,
  2016.
| | --- | --------------------------------------------------------------------------------------------------------------------------

24

---

| | (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 2018, 2017 and 2016 as summarized in ITEM 4.B.- Business Overview
      above.                   

Unaudited Quarterly Financial Information

Three months ended (unaudited)
    Revenues
    Expenses
    Income (Loss) in period
    Loss per share$
    $
    $
    $January 31, 2018
    -
    2,291,691
    (2,291,691)
    0.01April 30, 2018
    -
    (207,605)
    207,605
    -July 31, 2018
    -
    (22,711)
    22,711
    -October 31, 2018
    -
    331,264
    (331,264)
    -January 31, 2017
    -
    2,431,952
    (2,431,952)
    0.01April 30, 2017
    -
    (124,532)
    124,532
    -July 31, 2017
    -
    400,281
    (400,281)
    -October 31, 2017
    
    1,638,499
    (1,638,499)
    0.01


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

Liquidity

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

We currently have no lines of credit available. We have, to
date, relied on obtaining equity financing from investors through private
placements, through the exercise by shareholders of common share purchase
warrants, through the exercise of common stock options by officers and
directors, and through bridge loans that the Company has secured in order to
meet our cash flow needs until we can generate sustainable revenues. At October
31, 2018 we had a working capital deficiency of $3,828,503 (2017: $3,862,390)
including cash on hand of $206,832 (2017: $9,189). Since October 31, 2018 we
have raised an additional $383,600 of bridge loan financing and $71,000 of
financing from private placements. We have granted to our directors, officers
and other employees a number of options to purchase shares at prices that are at
or above market price on the date of grant. None of the optionees has any
obligation to exercise their options and there can be no guarantee that we will
realize any funds from these options.

Capital Resources

We incurred $3,548 capital expenditures in 2018, $3,809 of
expenditures in 2017 and, $1,274 of expenditures in 2016.

**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.

25

---

**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 milestones in the development contracts that we have
initiated to date 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, 2018
is as below:

Payments due by period ($CDN)**Total**
    Less than 1
    1-3 years
    3-5 years
    More than 5year
    
    
    yearsOperating lease obligations
    
    63,918
    87,958
    87,958
    -Payments due by period ($CDN)**Total**
    Less than 1
    1-3 years
    3-5 years
    More than 5year
    
    
    yearsOperating lease obligations
    
    48,060
    66,082
    66,083
    -Purchase obligations
    
    
    
    
    -Total:
    
    48,060
    66,082
    66,083
  -


In addition to these financial commitments, the Company
previously had management agreements with its senior executives on a month to
month basis. At October 31, 2018 these agreements are no longer in force.

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.

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. As at October 31, 2018 and the Company capitalized
nil of development costs and capitalized nil 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.

26

---

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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|C. | On October 7, 2018, the former President of MAST, Mr.
      Steven Van Fleet, filed a lawsuit against Micromem and MAST in New York
      State Supreme Court, Dutchess County. In the action, Mr. Van Fleet is
      seeking payment of $214,574 plus interest relating to alleged remuneration
      and expense reimbursements due to him prior to his resignation as an
      officer and director of Micromem and MAST on August 17, 2018. The Company
      answered the complaint December 7, 2018 by denying the material
      allegations in Mr. Van Fleets claims. In addition, the Company interposed
      7 counterclaims against Mr. Van Fleet seeking, among other things: (i)
      damages of not less than $2.75 million, (ii) specific performance to
      compel Mr. Van Fleet to comply with his contractual obligations which were
      required for the period of time that he served as an officer and director
      through to his resignation date; (iii) repayment of certain salary and
      expenses paid to Mr. Van Fleet; (iv) a direction for Mr. Van Fleet to turn
      over all Company property in his possession or control; and (v) an
      accounting to determine all money and property belonging to the Company
      and/or MAST. On January 24, 2019, the Company amended its original answer
      and counterclaims to include, among other things, a demand for additional
      damages. On February 8, 2019 Mr. Van Fleet, through his counsel, replied
      to and denied the material allegations in Micromems counterclaims. The
      Company reports an accrual of $205,788 at October 31, 2018 with respect to
      alleged remuneration and expense reimbursements claimed by Mr. Van Fleet
      but, nonetheless, has denied the allegations in Mr. Van Fleets claims.
      This matter remains as a contingency at February 28, 2019. See Note 19 to
      the Financial Statements in Item 18 of this Annual
  Report.

**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.

27

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ITEM
6.             **DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES**

A.             **Directors
and Executive Officers**

The Directors and Executive Officers of Micromem as at February
28, 2019 are set forth below:

|Name              | Age | Position                                             
|----------------- | --- | -----------------------------------------------------
|                  |     |                                                      
|Joseph Fuda       | 57  | President, Chief
      Executive Officer and Director
|Dan Amadori       | 67  | Chief Financial Officer                              
|Oliver Nepomuceno | 51  | Director                                             
|Alex Dey          | 75  | Director                                             
|Brian Von Herzen  | 59  | 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 also currently serves as a director of Invesque,
Inc.,. and Nerium Biotech Inc. 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.

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).

28

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

**B.**            **Compensation**

Annual Compensation
    Long-Term CompensationAwardsName and Principal Position
    Fiscal Year
    Salary (US$)
    Bonus (US$)
    Other Annual Compensation (US$)
    Securities Under Options Granted
      (#)Joseph Fuda Chief Executive Officer
    2016 2017
    353,787 319,429
    - -
    - 99,450
    - 650,000(4)2018
    -
    -
    15,979
    250,000Salvatore Fuda, Former Chairman of the Board of
      Directors (3)
    2016 2017
    119,707 -
    - -
    - -
    - -2018
    -
    -
    -
    -David Sharpless Former Director (2,3)
    2016 2017
    - -
    - -
    - 22,950
    - 150,000(4)2018
    -
    -
    -
    -Steven Van Fleet Former Director and
      President of MAST, Inc. (2,3)
    2016 2017
    231,309 233,694
    - -
    - 99,450
    - 650,000(4)2018
    186,059
    -
    -
    -Dan Amadori Chief Financial Officer
    2016 2017
    113,266 114,601
    - -
    - 99,450
    -650,000(4)2018
    49,238
    -
    15,979
    250,000(5)Larry Blue Former Director (2,3)
    2016 2017
    - -
    - -
    - 7,650
    - 50,000(4)2018
    -
    -
    -
    -Oliver Nepomuceno Director
    2016 2017
    - -
    - -
    - 22,950
    - 150,000(4)2018
    -
    -
    6,391
    100,000(5)Alex Dey Director
    2016 2017
    - -
    - -
    - 30,600
    - 200,000(4)2018
    -
    -
    6,391
    100,000(5)Brian Von Herzen Director (1)
    2016 2017
    - -
    - -
    - -
    - -2018
    -
    -
    -
    -


Notes:

| | 1. | Brian Von Herzen became a director in February 2014.
      Rapid Prototypes, Inc., a company whose major shareholder is Mr. Von
      Herzen, invoiced the Company for engineering, product development and
      design services in 2015. In 2018, 2017 and 2016 the total
      charges invoiced to the Company by Rapid Prototypes was nil.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

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| | 2. | Salvatore Fuda did not stand for reelection to the Board
      of Directors at the Annual General Meeting held at April 26, 2016. Steven
      Van Fleet resigned as a director on August 17, 2018; David Sharpless
      resigned on March 31, 2018 and Larry Blue resigned on September 28,
      2017.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                          
| | 3. | Options granted previously to Messrs Van Fleet, Sharpless
      and Blue expired unexercised, 45 days after their resignation as
      directors.                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                          
| | 4. | Each option entitles the holder to purchase one common
      share at a price of $0.25 per share prior to expiration in December
      2021.                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                          
| | 5. | Each option entitles the holder to purchase one common
      share at a price of $0.10 per share prior to expiration in June
    2023.                                                                                                                                                                   

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 2018 a total of 2,200,000 stock options were granted to
officers, directors and employees. The exercise price was $0.10 CDN per share.
In 2017 a total of 2,890,000 stock options were granted to officers, directors
and employees. The exercise price was $0.34 CDN per share. In 2016 no stock
options were issued.

**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 or until such time as the next Annual General
Meeting is held.

Our Board of Directors meets on an as required basis during the
fiscal year. Our Board of Directors did not meet in person in 2018. The Board
was convened informally as of each quarter end.

Our Audit Committee met regularly during fiscal 2018 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 as part of our audit committee
meetings in 2018; it receives regular reports from the audit committee and
management. Our Compensation Committee approves Management and Director
Compensation and all stock option grants for recommendation to the Board of
Directors.

Audit Committee

The Board of Directors has appointed an Audit Committee
consisting of two independent directors. The members of the Audit Committee are
Alex Dey (Chairman) and Oliver Nepomuceno, 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 2018 the Audit Committee met formally in January, February
March, June, September and October.

Compensation Committee

30

---

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 did not meet separately in 2018 as
both members also serve on the Audit Committee.

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 five employees, two 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 three
support staff, all of whom work from our executive offices in Toronto, Canada.
All research and development is outsourced to third parties. We consider our
relations with our employees to be satisfactory.

E.             Share
Ownership

NAME
    SHARES OWNED
    OPTIONS HELD
    OPTION EXERCISE
      PRICE
    EXPIRATIONDATE
    **% OF TOTAL**1Joseph Fuda Chief Executive Officer and Director
    1,624,335
    22,500 650,000 250,000
    $0.46 $0.34 $0.13
    08/20/2020 12/30/2021 06/29/2023
    0.98% (2,546,835)Dan Amadori Chief Financial Officer
    779,5172
    20,000 650,000 250,000
    $0.64 $0.34 $0.13
    04/25/2019 12/30/2021 06/29/2023
    0.66 % (1,699,517)Oliver Nepomuceno Director
    1,078,572
    25,000 150,000 100,000
    $0.64 $0.34 $0.13
    04/25/2019 12/30/2021 06/29/2023
    0.52% (1,353,572)Alex Dey Director
    899,8003
    30,000 200,000 100,000
    $0.64 $0.34 $0.13
    04/25/2019 12/30/2021 06/29/2023
    0.47% (1,229,800)Brian Von Herzen
    -
    300,000 25,000
    $0.85 $0.64
    02/10/2019 04/25/2019
    0.13% (325,000)


|1 | Calculated based on shares owned plus options held as a
      percentage total of shares outstanding as of October 31, 2018, 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.                                                                              

31

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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) | 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 follows:

|                                                             |   | 2018    |  |   | 2017      |  |   | 2016    |  
|------------------------------------------------------------ | - | ------- |  | - | --------- |  | - | ------- | -
|Cash
      Compensation                                      | $ | 225,297 |  | $ | 667,724   |  | $ | 845,510 |  
|Less portion
      capitalized to deferred development costs |   | -       |  |   | -         |  |   | (4,869  | )
|                                                             |   | 225,297 |  |   | 667,724   |  |   | 840,641 |  
|Share Compensation                                           |   | -       |  |   | -         |  |   | -       |  
|Stock based compensation                                     |   | 44,740  |  |   | 382,531   |  |   | -       |  
|                                                             | $ | 280,037 |  | $ | 1,050,255 |  | $ | 840,641 |  
|                                                             |   |         |  |   |           |  |   |         |  

In 2018 these parties were awarded a total of 500,000 stock
options at an exercise price of $0.10 CDN per share. In 2017 these parties were
awarded a total of nil stock options. (2016  nil).

In 2018, 2017 and 2016 the Company was invoiced nil (2015:
$1,049,524) 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. Included in accounts payable at October 31, 2018 is $167,000 due to RPI.

ITEM
8.             FINANCIAL
INFORMATION

**A.**            **Consolidated
Statements and Other Financial Information**

Our consolidated financial statements for the years ended
October 31, 2018, 2017 and 2016 have been prepared in accordance with IFRS as
issued by the IASB.

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

B.             Significant
Changes

Significant Changes since October 31, 2018 are as presented in
Note 23 to the Companys Consolidated Financial Statements. See ITEM 18 
Financial Statements.

32

---

**ITEM
9.**            
THE OFFER AND LISTING

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

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

Period
    High
    LowLast six months:February 2019
    0.04
    0.03January 2019
    0.13
    0.0251December 2018
    0.044
    0.024November 2018
    0.0392
    0.0246October 2018
    0.0551
    0.0254September 2018
    0.0509
    0.035Last eight
      quarters:Q4 2018
    0.1024
    0.0254Q3
      2018
    0.1571
    0.06Q2 2018
    0.2679
    0.10Q1
      2018
    0.2802
    0.0943Q4 2017
    0.17
    0.10Q3
      2017
    0.25
    0.10Q2 2017
    0.31
    0.18Q1 2017
    0.34
    0.18


Last five years:2018
    0.2802
    0.0242017
    0.31
    0.122016
    0.45
    0.162015
    0.80
    0.342014
    1.50
    0.40


On February 28, 2019, the last reported sale price for our
common shares on the OTCQB was $0.04 per share.

**ITEM
10.**         
**ADDITIONAL INFORMATION**

**A.**            **Share
Capital**

Our authorized capital consists of an unlimited number of
common shares, of which 259,602,699 shares were issued and outstanding as of
October 31, 2018, and 2,000,000 special, redeemable, voting preference shares,
referred to herein as special shares, none of which were outstanding, as of
October 31, 2018.

Additionally, the Company has 6,250,000 stock options
outstanding with a weighted average exercise price of $0.29 (2017: 6,595,000
options outstanding with a weighted average exercise price of $0.37).

33

---

**B.**            **Memorandum
and Articles of Incorporation**

Articles of IncorporationIncorporation Details
and Objects of Micromem Technologies Inc.

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

Summary of Directors Powers and Authorities

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

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

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

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

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

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

34

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Securities of Micromem

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

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

Rights and Privileges of Shareholders

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

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

**C.**            **Material
Contracts**

In 2010 the Company entered into a month to month contract with
Mr. Dan Amadori, its CFO, at the expiration of the employment agreement signed
in 2008. These month to month arrangements continue at October 31, 2017. Under
the terms of the contract, Mr. Amadori receives $12,500 CDN ($9,728 US at
current exchange rates) in monthly compensation and additional compensation at
the discretion of the Compensation Committee. This contract was not in force in
2018.

35

---

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 continued through July 31, 2017; no
compensation was paid in the three months ended October 31, 2017. Under the
terms of the contract, in 2016 and 2017 Mr. Fuda received $21,333 USD in monthly
compensation and additional compensation at the discretion of the Compensation
Committee. This contract was not in force in 2018.

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.

The total continuing monthly commitment under these month to
month arrangements is nil at October 31, 2018.

**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.

36

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

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

Dispositions of Common Shares

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

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

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

Certain United States Federal Income Tax Consequences

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

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

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.

37

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On December 22, 2017, President Trump signed into law the Tax
Cuts and Jobs Act, effective for 2018. The following summary does not discuss
the impact of the new law to U.S. investors with respect to their ownership of
our shares. Each U.S. Investor should consult its own tax advisor about the
consequences of this new legislation with respect to the purchase, ownership and
disposition of our shares.

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.

38

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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 20%. Deductions for capital
losses are subject to limitations.

US Anti-Deferral Regimes

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

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

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

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

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

Foreign Tax Credit

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

39

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

Currency Fluctuations

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

Withholding

A U.S. Holder may be subject to backup withholding (at a rate
of 28% for 2017, 24% for 2018) with respect to cash dividends and proceed from a
disposition of shares. In general, back-up withholding will apply only if a U.S.
Holder fails to comply with specified identification procedures. Backup
withholding will not apply with respect to payments made to designated exempt
recipients, such as corporations and tax-exempt organizations. Backup
withholding is not an additional tax and may be claimed as a credit against the
U.S. federal income tax liability of a U.S. Holder, provided that the required
information is timely furnished to the IRS.

F.             Dividends
and Paying Agents

Not applicable.

G.             Statement
by Experts

Not applicable.

H.             Documents
on Display

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

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

40

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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.

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 ProceduresOur 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,
2018. Based on management's evaluation in 2018, our Chief Executive Officer and
Chief Financial Officer concluded that, as of October 31, 2018, 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 ReportingMicromem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.

41

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

Our Chief Executive Officer and Chief Financial Officer
assessed the effectiveness of Micromems internal control over financial
reporting as of October 31, 2018. 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, 2018 our internal control over financial
reporting were effective.

There was no requirement for an Attestation Report on internal
controls over financial reporting for the fiscal years ending October 31, 2018
or 2017. Our certifying accountants identified one significant deficiency in our
internal controls for the fiscal year ending October 31, 2018. Our accountants
noted that the Company did not affect a timely and complete close of its
year-end financial statements prior to the commencement of the year end audit
conducted by our external auditors. The related risk was that there could be
reporting errors that could go undetected by management.

Managements response:

We acknowledge the matter raised by our external auditors. We
note the following in this context:

|a) | We have limited staff resources and the time and effort
      required to address the complex reporting issues in our financial
      statements  including the measurement of multiple bridge loans and
      related derivative liabilities share capital, consolidation and income
      taxes in accordance with IFRS reporting standards  was considerable
      during the year-end audit process.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                           
|b) | Our existing internal procedures and reporting practices
      result in the production of very detailed (in some cases, line by line)
      account analyses and reconciliations. Additionally, we engaged an
      independent consulting firm to assist us in the completion of our year end
      audit.                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                           
|c) | Ultimately, when we completed all of our analysis for
      submission to our external auditors, we noted that there were only
      immaterial differences identified by our external auditors. The procedures
      which we completed were satisfactory and there were no material reporting
      errors that were detected in the audit work completed by our external
      auditors.               

In 2019, the Company will continue with its existing procedures
and will look to augment its in-house resources to ensure timely and complete
close of its quarterly and annual reporting requirements.

**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, Alex Dey, is an audit committee financial expert and that he
is independent, as defined in the Marketplace Rules of the Nasdaq Stock
Market.

42

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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, 2018 and 2017, and fees billed for
other services rendered by our auditors including our offerings of securities
and tax services.

Fiscal 2018
    Fiscal 2017Audit Fees
    $ 75,000
    $200,000Audit Related Fees
    -
    -Tax Fees
    $
    $All Other Fees
    -
    -


Audit Fees

In 2018, we incurred a total of $75,000 to MNP LLP for audit
services; in 2017 we incurred a total of $200,000 to MNP LLP for audit services.

Audit Related Fees

None

Tax Fees

We paid $4,000 of tax-related fees for services in 2018 and
$4,000 of tax related fees in 2017 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.

43

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**ITEM
16F.**       **Change in
Registrants Certifying Accountant.**

Not Applicable.

**ITEM
16G.**       **Corporate
Governance**

Not applicable.

**ITEM
16H.**       **Mine Safety
Disclosure**

Not applicable.

PART III

**ITEM
17.**         
**Financial Statements**

Not applicable, see Item 18.

**ITEM
18.**         
**Financial Statements**





Micromem Technologies
Inc.Consolidated Financial
StatementsFor the years ended October 31, 2018,
2017 and 2016(Expressed in United States Dollars)



44

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Micromem Technologies
Inc.Consolidated Financial
StatementsFor the years ended October 31, 2018,
2017 and 2016(Expressed in United States Dollars)



Contents

|Independent
      Auditors' Report                                 | 1-2 
|------------------------------------------------------------------ | ----
|                                                                   |     
|Consolidated Financial Statements:                                 |     
|                                                                   |     
|Consolidated
      Statements of Financial Position                | 3   
|                                                                   |     
|Consolidated
      Statements of Operations and Comprehensive Loss | 4   
|                                                                   |     
|Consolidated
      Statements of Changes in Equity                 | 5   
|                                                                   |     
|Consolidated
      Statements of Cash Flows                        | 6   
|                                                                   |     
|Notes
      to Consolidated Financial Statements                   | 7-24

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Shareholders of Micromem Technologies Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated financial
statements of Micromem Technologies Inc., which comprise the consolidated
statement of financial position as at October 31, 2018 and 2017, and the
consolidated statements of loss and comprehensive loss, changes in shareholders'
equity (deficit) and cash flows for the two years then ended, including the
related notes, comprising a summary of significant accounting policies and other
explanatory information (collectively referred to as the consolidated financial
statements).

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Micromem
Technologies Inc. as at October 31, 2018 and 2017, and its financial performance
and its cash flows for the two years then ended in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.

Material Uncertainty Related to Going Concern

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the Company has
suffered recurring losses from operations and has a net capital deficiency that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Basis for Opinion

Managements Responsibility for the Consolidated Financial
StatementsManagement 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' ResponsibilityOur 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) (PCAOB). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement, whether due to error
or fraud. Those standards also require that we comply with ethical requirements,
including independence. We are required to be independent with respect to the
Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada, the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB. We are a public accounting firm registered
with the PCAOB.

An audit includes performing procedures to assess the risks of
material misstatements of the consolidated financial statements, whether due to
error or fraud, and performing procedures to respond to those risks. Such
procedures include obtaining and examining, on a test basis, audit evidence
regarding the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on our judgment, including the assessment of the
risks of material misstatement of the consolidated financial statements, whether
due to error or fraud. In making those risk assessments, we consider internal
control relevant to the entitys preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entitys internal control. The Company is
not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Accordingly, we express no such opinion.

An audit also includes evaluating the appropriateness of
accounting policies and principles 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 reasonable basis for our audit
opinion.



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Other MatterThe consolidated financial statements as
at October 31, 2016 and for the year then ended were audited by Collins Barrow
Toronto of Toronto, Canada. Collins Barrow Toronto expressed an unmodified
opinion on those consolidated financial statements on March 2, 2017.

Licensed Public AccountantsChartered Professional
Accountants

We have served as the Companys auditor since 2017.

Toronto, OntarioFebruary 28, 2019



---

| | 
| | 
| | 

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.

| | 
| | 
| | 
| | 

---

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



---

| | 
| | 
| | 
| | 

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

| | 
| | 
| | 
| | 

---

Micromem Technologies
Inc.Consolidated Statements of Financial PositionAs
at October 31, 2018 and 2017(Expressed in United States dollars)

|                                                     | Notes  |  |   | 2018         |   |   | 2017         |  
|---------------------------------------------------- | ------ |  | - | ------------ | - | - | ------------ | -
|                                                     |        |  |   |              |   |   |              |  
|Assets                                               |        |  |   |              |   |   |              |  
|Current                                              |        |  |   |              |   |   |              |  
|Cash                                                 |        |  | $ | 206,832      |   | $ | 9,189        |  
|Development costs receivable                         | 8      |  |   | 81,841       |   |   | 415,857      |  
|Prepaid expenses and other
      assets              |        |  |   | 16,731       |   |   | 50,313       |  
|Total current assets                                 |        |  |   | 305,404      |   |   | 475,359      |  
|Property and equipment                               | 7      |  |   | 9,228        |   |   | 9,822        |  
|Patents                                              | 9      |  |   | 396,105      |   |   | 431,462      |  
|                                                     |        |  |   |              |   |   |              |  
|Total assets                                         |        |  | $ | 710,737      |   | $ | 916,643      |  
|                                                     |        |  |   |              |   |   |              |  
|Liabilities                                          |        |  |   |              |   |   |              |  
|Current                                              |        |  |   |              |   |   |              |  
|Trade payables and other liabilities                 | 20 (c) |  | $ | 1,007,220    |   | $ | 1,361,998    |  
|Convertible debentures                               | 10     |  |   | 2,476,571    |   |   | 2,489,017    |  
|Derivative liabilities                               | 10     |  |   | 650,116      |   |   | 489,734      |  
|                                                     |        |  |   |              |   |   |              |  
|Total liabilities                                    |        |  |   | 4,133,907    |   |   | 4,340,749    |  
|                                                     |        |  |   |              |   |   |              |  
|Shareholders' Deficiency                             |        |  |   |              |   |   |              |  
|Share capital                                        | 11     |  |   | 82,282,903   |   |   | 80,198,194   |  
|Contributed surplus                                  |        |  |   | 27,630,909   |   |   | 27,360,676   |  
|Equity component of
      convertible debentures     | 10     |  |   | 70,283       |   |   | 62,050       |  
|Accumulated deficit                                  |        |  |   | (113,407,265 | ) |   | (111,045,026 | )
|                                                     |        |  |   |              |   |   |              |  
|Total shareholders'
      deficiency                 |        |  |   | (3,423,170   | ) |   | (3,424,106   | )
|                                                     |        |  |   |              |   |   |              |  
|Total liabilities and shareholders'
      deficiency |        |  | $ | 710,737      |   | $ | 916,643      |  
|                                                     |        |  |   |              |   |   |              |  
|Going concern                                        | 2      |  |   |              |   |   |              |  
|Commitments                                          | 18     |  |   |              |   |   |              |  
|Contingencies                                        | 19     |  |   |              |   |   |              |  
|Subsequent events                                    | 22     |  |   |              |   |   |              |  

The accompanying notes are an integral part of these
consolidated financial statements

|Approved on behalf of the Board of Directors: |  |           
|--------------------------------------------- |  | ----------
|                                              |  |           
|"Joseph Fuda"                                 |  | "Alex Dey"
|Director                                      |  | Director  

3

---

Micromem Technologies
Inc.Consolidated Statements of Operations and Comprehensive
LossFor the years ended October 31, 2018, 2017 and
2016(Expressed in United States dollars)

|                                                                      | Notes        |   | 2018        |   |   | 2017        |   |   | 2016        |  
|--------------------------------------------------------------------- | ------------ | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Operating expenses                                                    |              |   |             |   |   |             |   |   |             |  
|Administration                                                        | 15
      (a) | $ | 305,338     |   | $ | 305,421     |   | $ | 395,340     |  
|Professional, other fees and
      salaries                           | 15 (b)       |   | 747,280     |   |   | 1,433,113   |   |   | 1,739,401   |  
|Stock-based compensation                                              | 12           |   | 140,612     |   |   | 442,206     |   |   | -           |  
|Development costs (recovery)                                          | 8            |   | (130,069    | ) |   | 147,008     |   |   | 3,635,613   |  
|Travel and entertainment                                              |              |   | 101,496     |   |   | 118,261     |   |   | 180,767     |  
|Amortization of property and
      equipment                          | 7            |   | 3,922       |   |   | 3,992       |   |   | 5,270       |  
|Amortization of patents                                               | 9            |   | 156,960     |   |   | 133,785     |   |   | 26,527      |  
|Amortization and write-down of
      intangible assets                |              |   | -           |   |   | -           |   |   | 43,543      |  
|Foreign exchange loss (gain)                                          | 20
      (a) |   | (117,779    | ) |   | 343,210     |   |   | (1,478      | )
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Total operating
      expenses                                        |              |   | 1,207,760   |   |   | 2,926,996   |   |   | 6,024,983   |  
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Other expenses                                                        |              |   |             |   |   |             |   |   |             |  
|Interest expense                                                      | 10           |   | 504,778     |   |   | 666,245     |   |   | 561,608     |  
|Accretion expense                                                     | 10           |   | 2,039,344   |   |   | 1,358,101   |   |   | 514,560     |  
|Financing costs                                                       | 10           |   | 40,414      |   |   | -           |   |   | -           |  
|Loss on conversion of convertible debentures                          | 10           |   | 63,852      |   |   | 1,009,680   |   |   | -           |  
|Gain on revaluation of
      derivative liabilities                   | 10           |   | (1,094,718  | ) |   | (1,614,822  | ) |   | (295,616    | )
|Gain on extinguishment of convertible
      debentures                | 10           |   | (399,191    | ) |   | -           |   |   | -           |  
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Total other
      expenses                                            |              |   | 1,154,479   |   |   | 1,419,204   |   |   | 780,552     |  
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Loss before income tax provision                                      |              |   | (2,362,239  | ) |   | (4,346,200  | ) |   | (6,805,535  | )
|Income tax provision                                                  | 14           |   | -           |   |   | -           |   |   | -           |  
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Net loss and comprehensive loss                                       |              | $ | (2,362,239  | ) | $ | (4,346,200  | ) | $ | (6,805,535  | )
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Weighted average number of outstanding
      shares,basic and diluted | 13           |   | 237,242,674 |   |   | 207,131,781 |   |   | 199,572,966 |  
|                                                                      |              |   |             |   |   |             |   |   |             |  
|Basic and diluted loss per share                                      | 13           | $ | (0.01       | ) | $ | (0.02       | ) | $ | (0.03       | )

The accompanying notes are an integral part of these
consolidated financial statements

4

---

Micromem Technologies Inc.ConsolidatedStatementsofChangesin EquityFor the years endedOctober31, 2018, 2017 and 2016(Expressed in United States
dollars)

Equitycomponent**of**Number of
    
    
    **Share**
    
    
    Contributed
    
    
    convertible
    
    
    AccumulatedNotes
    
    
    shares
    
    
    capital
    
    
    surplus
    
    
    debentures
    
    
    deficit
    
    
    TotalBalance at November 1, 2015
    
    
    
    197,176,368
    
    $
    74,083,975
    
    $
    27,213,204
    
    $
    -
    
    $
    (99,893,291
    )
    $
    1,403,888Private placements of shares for cash
    11
    
    
    366,668
    
    
    110,000
    
    
    -
    
    
    -
    
    
    -
    
    
    110,000Options exercised
    12
    
    
    3,756,366
    
    
    751,273
    
    
    -
    
    
    -
    
    
    -
    
    
    751,273Fair value of options exercised
    12
    
    
    -
    
    
    443,252
    
    
    (443,252
    )
    
    -
    
    
    -
    
    
    -Shares issued on settlement of
      accounts payable
    11
    
    
    1,517,143
    
    
    295,312
    
    
    -
    
    
    -
    
    
    -
    
    
    295,312Shares issued on settlement of legal claim
    11
    
    
    312,500
    
    
    62,500
    
    
    -
    
    
    -
    
    
    -
    
    
    62,500Equity component of
      convertible debentures
    10
    
    
    -
    
    
    -
    
    
    -
    
    
    173,420
    
    
    -
    
    
    173,420Shares issued on conversion of convertible
      debenture
    10
    
    
    509,524
    
    
    108,827
    
    
    -
    
    
    (1,827
    )
    
    -
    
    
    107,000Expiry of convertible
      debenture conversion option
    10
    
    
    -
    
    
    -
    
    
    148,518
    
    
    (148,518
    )
    
    -
    
    
    -Treasury shares to be cancelled
    11
    
    
    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
    )Private placements of shares
      for cash
    11
    
    
    3,873,223
    
    
    719,403
    
    
    -
    
    
    -
    
    
    -
    
    
    719,403Shares issued on settlement of accounts
      payable
    11
    
    
    547,643
    
    
    107,708
    
    
    -
    
    
    -
    
    
    -
    
    
    107,708Stock-based compensation
    12
    
    
    -
    
    
    -
    
    
    442,206
    
    
    -
    
    
    -
    
    
    442,206Shares issued as settlement of wages
    11
    
    
    132,381
    
    
    21,909
    
    
    -
    
    
    -
    
    
    -
    
    
    21,909Convertible debentures
      converted into common shares
    10
    
    
    20,370,895
    
    
    2,536,963
    
    
    -
    
    
    -
    
    
    -
    
    
    2,536,963Reallocation from derivative liability for
      conversion
    10
    
    
    -
    
    
    20,970
    
    
    -
    
    
    -
    
    
    -
    
    
    20,970Treasury shares cancelled
    11
    
    
    (750,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Loss on conversion of convertible debentures
    10
    
    
    -
    
    
    936,102
    
    
    -
    
    
    38,975
    
    
    -
    
    
    975,077Net loss and comprehensive
      loss
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (4,346,200
    )
    
    (4,346,200
    )Balance at October 31, 2017
    
    
    
    228,562,711
    
    $
    80,198,194
    
    $
    27,360,676
    
    $
    62,050
    
    $
    (111,045,026
    )
    $
    (3,424,106
    )Private placements of shares
      for cash
    11
    
    
    14,739,272
    
    
    866,200
    
    
    -
    
    
    -
    
    
    -
    
    
    866,200Shares issued on settlement of accounts
      payable
    11
    
    
    79,765
    
    
    13,379
    
    
    -
    
    
    -
    
    
    -
    
    
    13,379Stock-based compensation
    12
    
    
    -
    
    
    -
    
    
    140,612
    
    
    -
    
    
    -
    
    
    140,612Convertible debentures converted into common
      shares
    10
    
    
    16,220,951
    
    
    1,205,130
    
    
    -
    
    
    -
    
    
    -
    
    
    1,205,130Expiry of convertible
      debenture conversion option
    10
    
    
    -
    
    
    -
    
    
    129,621
    
    
    (129,621
    )
    
    -
    
    
    -Convertible debenture renewal
    10
    
    
    -
    
    
    -
    
    
    -
    
    
    137,854
    
    
    -
    
    
    137,854Net loss and comprehensive
      loss
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,362,239
    )
    
    (2,362,239
    )Balance at October 31, 2018
    
    
    
    259,602,699
    
    $
    82,282,903
    
    $
    27,630,909
    
    $
    70,283
    
    $
    (113,407,265
    )
    $
    (3,423,170
    )


The accompanying notes are an integral part of these
consolidated financial statements

5

---

Micromem Technologies
Inc.Consolidated Statements of Cash FlowsFor the
years ended October 31, 2018, 2017 and 2016(Expressed in United States
dollars)

|                                                                  | Notes     |  |   | 2018       |   |   | 2017       |   |   | 2016       |  
|----------------------------------------------------------------- | --------- |  | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                  |           |  |   |            |   |   |            |   |   |            |  
|Operating activities                                              |           |  |   |            |   |   |            |   |   |            |  
|Net loss                                                          |           |  | $ | (2,362,239 | ) | $ | (4,346,200 | ) | $ | (6,805,535 | )
|Items not affecting cash:                                         |           |  |   |            |   |   |            |   |   |            |  
|Amortization of patents                                           | 9         |  |   | 156,960    |   |   | 133,785    |   |   | 26,527     |  
|Amortization of property and
      equipment                      | 7         |  |   | 3,922      |   |   | 3,992      |   |   | 5,270      |  
|Amortization and write-down of intangible assets                  |           |  |   | -          |   |   | -          |   |   | 43,543     |  
|Bad debt expense                                                  |           |  |   | 10,000     |   |   | -          |   |   | -          |  
|Write-down of capitalized development costs                       | 8         |  |   | -          |   |   | -          |   |   | 3,638,118  |  
|Accretion expense                                                 | 10        |  |   | 2,039,344  |   |   | 1,358,101  |   |   | 514,560    |  
|Convertible debenture interest converted                          |           |  |   | 47,435     |   |   | -          |   |   | -          |  
|Loss on conversion of convertible
      debentures                | 10        |  |   | 63,852     |   |   | 1,009,680  |   |   | -          |  
|Gain on revaluation of derivative liabilities                     | 10        |  |   | (1,094,718 | ) |   | (1,614,822 | ) |   | (295,616   | )
|Gain on extinguishment of convertible
      debentures            | 10        |  |   | (399,191   | ) |   | -          |   |   | -          |  
|Stock-based compensation                                          | 12        |  |   | 140,612    |   |   | 442,206    |   |   | -          |  
|Shares issued for legal settlement                                |           |  |   | -          |   |   | -          |   |   | 62,500     |  
|Gain on settlement of accounts payable                            |           |  |   | -          |   |   | -          |   |   | (60,623    | )
|Loss on disposal of property and
      equipment                  | 7         |  |   | 220        |   |   | 983        |   |   | 608        |  
|Foreign exchange gain                                             | 16,20 (a) |  |   | (87,033    | ) |   | -          |   |   | -          |  
|                                                                  |           |  |   | (1,480,836 | ) |   | (3,012,275 | ) |   | (2,870,648 | )
|Net changes in non-cash working capital:                          |           |  |   |            |   |   |            |   |   |            |  
|Decrease (increase) in development
      costs receivable         |           |  |   | 324,016    |   |   | (415,857   | ) |   | -          |  
|Decrease (increase) in prepaid expenses and other
      assets    |           |  |   | 33,582     |   |   | (16,986    | ) |   | 5,899      |  
|Increase (decrease) in trade payables
      and other liabilities |           |  |   | (341,399   | ) |   | 723,631    |   |   | (24,276    | )
|Cash flows used in operating activities                           |           |  |   | (1,464,637 | ) |   | (2,721,487 | ) |   | (2,889,025 | )
|                                                                  |           |  |   |            |   |   |            |   |   |            |  
|Investing activities                                              |           |  |   |            |   |   |            |   |   |            |  
|Purchase of property and
      equipment                          | 7         |  |   | (3,548     | ) |   | (3,809     | ) |   | (1,274     | )
|Patents                                                           | 9         |  |   | (121,603   | ) |   | (161,647   | ) |   | (192,873   | )
|Capitalized development costs                                     | 8         |  |   | -          |   |   | -          |   |   | (1,125,218 | )
|Recovery of capitalized development costs                         | 8         |  |   | -          |   |   | -          |   |   | 643,901    |  
|Cash flows used in investing activities                           |           |  |   | (125,151   | ) |   | (165,456   | ) |   | (675,464   | )
|                                                                  |           |  |   |            |   |   |            |   |   |            |  
|Financing activities                                              |           |  |   |            |   |   |            |   |   |            |  
|Private placements of shares for cash                             | 11        |  |   | 866,200    |   |   | 719,403    |   |   | 861,273    |  
|Convertible debentures
      advances                             | 16        |  |   | 1,457,983  |   |   | 1,788,974  |   |   | 2,490,333  |  
|Convertible debenture repayments                                  | 16        |  |   | (662,080   | ) |   | (581,618   | ) |   | (260,428   | )
|Short-term loan advances                                          |           |  |   | -          |   |   | -          |   |   | 180,000    |  
|Short-term loan repayment                                         |           |  |   | -          |   |   | -          |   |   | (180,000   | )
|Convertible debenture interest
      accrued                      | 16        |  |   | 125,328    |   |   | 666,245    |   |   | 585,989    |  
|Repayments from related parties                                   |           |  |   | -          |   |   | 15,000     |   |   | 16,882     |  
|Cash flows provided by financing activities                       |           |  |   | 1,787,431  |   |   | 2,608,004  |   |   | 3,694,049  |  
|Net change in cash                                                |           |  |   | 197,643    |   |   | (278,939   | ) |   | 129,560    |  
|Cash - beginning of year                                          |           |  |   | 9,189      |   |   | 288,128    |   |   | 158,568    |  
|Cash - end of year                                                |           |  | $ | 206,832    |   | $ | 9,189      |   | $ | 288,128    |  
|Supplemental cash flow information                                |           |  |   |            |   |   |            |   |   |            |  
|Interest paid (classified in operating
      activities)          |           |  | $ | 322,930    |   | $ | 321,700    |   | $ | 129,987    |  
|Income taxes paid                                                 |           |  |   | -          |   |   | -          |   |   | -          |  
|Shares issued on settlement of accounts
      payable             |           |  |   | 13,379     |   |   | 107,708    |   |   | 295,312    |  
|Shares issued on settlement of
      wages                        |           |  |   | -          |   |   | 21,909     |   |   | -          |  
|Shares issued on settlement of legal claim                        |           |  |   | -          |   |   | -          |   |   | 62,500     |  
|Convertible debentures
      converted into common shares         |           |  |   | 1,205,130  |   |   | 2,536,963  |   |   | 108,827    |  

The accompanying notes are an integral part of these
consolidated financial statements

6

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

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. Micromem is a
publicly traded company with its head office located at 121 Richmond Street
West, Suite 304, Toronto, Ontario, Canada. The Companys common shares are
currently listed on the Canadia Securities Exchange under the trading symbol
MRM and on the Over the Counter Venture Market under the trading symbol
MMTIF.

The Company develops, based upon proprietary technology,
customized 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, 2018 and is devoting
substantially all its efforts to securing commercial revenue opportunities.

2.        Going
concern

These consolidated financial statements have been prepared with
the assumption 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 and ultimately on the appropriateness of the use of the accounting
principles applicable to a going concern. During the year ended October 31,
2018, the Company reported a net loss and comprehensive loss of $2,362,239 (2017
- $4,346,200; 2016 -$6,805,535) and negative cash flow from operations of
$1,464,637(2017 -$2,721,487; 2016- $2,889,025). The Companys working capital
deficiency as at  October 31, 2018 is $3,828,503 (2017  $3,865,390).

The Companys success depends on the profitable
commercialization of its proprietary 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 2019; 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
statement of financial position classifications used; in such cases, these
adjustments would be material.

3.        Basis of
presentation

These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board ("IASB") and interpretations
issued by the IFRS Interpretations Committee ("IFRIC"). The Company has not
early adopted any other standard, interpretation or amendment that has been
issued but is not yet effective.

These consolidated financial statements were authorized for
issuance and release by the Companys Board of Directors on February 27,
2019.

|(a) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|    | These consolidated financial statements include the
      accounts of Micromem Technologies Inc. and its subsidiaries. All
      intercompany transactions and balances have been eliminated upon
      consolidation. The Company applies the acquisition method to account for
      business combinations. Acquisition-related costs are expensed as incurred.
      The wholly-owned subsidiaries include:
|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                          

7

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

3.        Basis of
presentation (continued)

|(a) | Basis of consolidation (continued)
|--- | ----------------------------------
|    |                                   
|    | (iii)                             

|(b) | Basis of measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | These 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 (USD), which is the functional currency of the
      Company and all of its subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(d) | Use of estimates and judgments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The preparation of these consolidated financial
      statements in conformity with IFRSs requires management to make estimates
      and assumptions that affect the reported amounts of assets and
      liabilities, the disclosure of contingent assets and liabilities at the
      date of the consolidated financial statements, and the reported amounts of
      revenues and expenses during the reporting period. These estimates are
      reviewed periodically and adjustments are made as appropriate in the year
      they become known. Items for which actual results may differ materially
      from these estimates are described in the following
  section.

| | (i)   | Fair value of conversion features                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       | The Company makes estimates and utilizes assumptions in
      determining the fair value for stock options and derivative liabilities
      based on the application of the Black-Scholes option pricing model or the
      binomial option pricing model, depending on the circumstances. These
      pricing models require management to make various assumptions and
      estimates that are susceptible to uncertainty, including the volatility of
      the share price, expected dividend yield, expected term, expected
      risk-free interest rate, and exercise price in the binomial option pricing
      model.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ii)  | Useful lives and recoverability of long-lived
    assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       | Long-lived assets consist of property and equipment and
      patents. Amortization is dependent upon estimates of useful lives and
      impairment is dependent upon estimates of recoverable amounts. These are
      determined through the exercise of judgment and are dependent upon
      estimates that take into account factors such as economic and market
      conditions, frequency of use, anticipated changes in laws, and
      technological improvements.                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (iii) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       | Income taxes and tax exposures recognized in the
      consolidated financial statements reflect management's best estimate of
      the outcome based on facts known at the reporting date. When the Company
      anticipates a future income tax payment based on its estimates, it
      recognizes a liability. The difference between the expected amount and the
      final tax outcome has an impact on current and deferred taxes when the
      Company becomes aware of this difference.                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       | In addition, when the Company incurs losses for income
      tax purposes, it assesses the probability of taxable income being
      available in the future based on its budgeted forecasts. These forecasts
      are adjusted to take into account certain non-taxable income and expenses
      and specific rules on the use of unused credits and tax losses. When the
      forecasts indicate that sufficient future taxable income will be available
      to deduct the temporary differences, a deferred tax asset is recognized
      for all deductible temporary differences.                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (iv)  | Going concern assumption                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                             

8

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

4.        Summary of
significant accounting policies

The principal accounting policies applied to the preparation of
these consolidated financial statements are set out below:

|(a) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | These consolidated financial statements are presented in
      United States dollars, which is the functional currency of the Company and
      all of its subsidiaries. At each reporting date, foreign currency
      denominated monetary assets and liabilities are translated at year-end
      exchange rates. Non-monetary assets and liabilities that are measured in
      terms of historical cost in a foreign currency are translated using the
      exchange rate at the date of the transaction. Income and expenses, and
      cash flows of foreign operations, are translated into United States
      dollars using annual average exchange rates. Exchange differences arising
      from operating transactions are recorded in operating profit or loss for
      the period; exchange differences related to financing transactions are
      recognized in finance income or directly in equity.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(b) | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company aggregates similar financial instruments into
      classes based on their nature and characteristics. All financial assets
      except those classified as fair value through profit or loss are reviewed
      at each reporting date to determine whether there is any indication of
      impairment. Financial assets are considered to be impaired when there is
      objective evidence that the estimated future cash flows of the investment
      have been affected as a result of one or more events that occurred after
      the initial recognition.                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company's accounting policy for each class of
      financial instruments is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

(i)     Fair value
through profit or loss

Financial instruments classified as
fair valuethrough profit or loss arereported at fair valueat
eachreportingdate,and anychangeinfair value is recognized in net income in the
period during which the change occurs. In these consolidated financial
statements, cash and derivative liabilities have been classified as fair value
through profit or loss.

(ii)    Loans and receivables
and other financial liabilities

Financial instruments classified as
loans and receivables and other financial liabilities are carried at amortized
cost using the effective interest method. Transaction costs are included in the
amount initially recognized .In these consolidated financial statements,
development costs receivable have been classified as loans and receivables.
Trade payables and other liabilities and convertible debentures have been
classified as other financial liabilities.

(iii)  Fair value hierarchy

Assets and liabilities recorded at fair
value on the consolidated statements of financial position are classified using
a fair value hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy has the following levels:

Level 1 - valuation based on quoted
prices (unadjusted) in active markets for identical assets and liabilities. In
these consolidated financial statements, cash is included in this category.

Level 2 - valuation techniques based
on inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly. In these consolidated
financial statements, derivative liabilities are included in this category.

Level 3 - valuation techniques using
the inputs for the asset or liability that are not based on observable market
data. There are no assets or liabilities in this category in these consolidated
financial statements.

|(c) | Convertible debentures and derivative
  liabilities                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                
|    | The Company issues convertible debentures used as bridge
      loans, which can be converted into common shares at the option of the
      holder, into a fixed number of shares for a fixed amount of consideration,
      or into a fixed number of shares for a variable amount of consideration,
      or into a variable number of shares.

9

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

4.        Summary of
significant accounting policies (continued)

|(c) | Convertible debentures and derivative liabilities
      (continued)
|--- | -------------------------------------------------------------------

(i)    Initial
recognition

Upon initial recognition, the Company
determines whether the convertible debenturec onsist of  liability and
equity components, or if both components represent  liabilities.

For convertible debentures which
provide conversion into a fixed number of shares, the liability component is
recognized initially at the fair value of a similar, non-convertible liability.
The equity component is recognized as the difference between the fair value of
the 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.

For convertible debentures which
provide conversion into a variable number of shares or into afixed number shares
for a variable amount of consideration, the conversion option is accounted for
as an embedded derivative, which is separated from the host contract. Upon
initial recognition, the derivative liabilityis valued at fair value using a
Black Scholes or a binomial pricing model. The carrying amount of the
convertible debenture is recognized as the difference between the fair value of
the instrument as a whole and the fair value of the derivative liability. Any
directly attributable transaction costs are allocated to the debenture and
derivative liability components in proportion to their initial carrying
amounts.

(ii)   Modifications and
extinguishments

To the extent there are changes to the
terms of outstanding convertible debentures, these changes may be recorded as
amodification or an extinguishment. A substantial change in 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.

|(d) | 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:

Method
    
    RateComputers
    Declining balance
    
    30%Furniture and equipment
    Declining balance
    
    30%


|(e) | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                              
|    | The carrying amounts of property and equipment and
      patents 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.
|    |                                                                                                                                                                                                                                                                                                                                              
|    | The recoverable amount of long-lived assets is the
      greater of fair value less costs to sell and value in use. Impairment
      losses are recognized in the consolidated statements of loss and
      comprehensive loss.                                                                                                              

10

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

4.        Summary of
significant accounting policies (continued)

|(f) | Development costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Research costs are expensed in the period incurred.
      Development costs are expensed as incurred unless they meet the criteria
      for capitalization. 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.
      Payments received from development partners on projects are recorded to
      deferred development costs as a recovery of costs incurred.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(g) | Patents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Patents are recorded at cost and are amortized on a
      straight line basis over their estimated useful lives of 5
years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(h) | Stock-based compensation and other stock-based
      payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Where equity instruments are granted to employees, they
      are recorded at the fair value of the equity instrument granted at the
      grant date. The grant date fair value is recognized in net income over the
      vesting period. Where equity instruments are granted to non-employees,
      they are recorded at the fair value of the goods or services received in
      the statement of operations. When the value of goods or services received
      in exchange for the stock-based payment cannot be reliably estimated, the
      fair value is measured by use of a valuation model. The cost recognized
      for all equity-settled stock-based payments are reflected in contributed
      surplus, until the instruments are exercised. Upon exercise, shares are
      issued from treasury and the amount previously reflected in contributed
      surplus along with any proceeds paid upon exercise, credited to share
      capital.                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(i) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company accounts for its income taxes using the
      deferred tax assets and liabilities method. Deferred income tax assets and
      liabilities are determined based on the difference between the carrying
      amount and the tax basis of the assets and liabilities. Any change in the
      net amount of deferred income tax assets and liabilities is included in
      profit or loss or equity. Deferred income tax assets and liabilities are
      determined based on enacted or substantively enacted tax rates and laws
      which are expected to apply to taxable profit for the years in which the
      assets and liabilities will be recovered or settled. Deferred income tax
      assets are recognized when it is probable they will be realized. Deferred
      tax assets and liabilities are not discounted.                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(j) | Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Provision for risks and expenses are recognized for
      probable outflows of resources that can be estimated and that result from
      present obligations resulting from past events. In the case where a
      potential obligation resulting from past events exists, but where
      occurrence of the outflow of resources is not probable or the estimate is
      not reliable, these contingencies are disclosed. Provisions, if any, are
      measured based on management's best estimates of outcomes on the basis of
      facts known at the reporting date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(k) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Share capital is presented at the fair value of the
      shares issued. Costs related to the issuance of shares are reported in
      equity, net of tax, as a deduction from the issuance proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(l) | Earnings or loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company presents basic and diluted earnings per share
      data for its common shares. Basic earnings per share is calculated by
      dividing the profit or loss attributable to common shareholders of the
      Company by the weighted average number of common shares outstanding during
      the period. Diluted earnings per share is determined by adjusting the
      profit or loss attributable to common shareholders and the weighted
      average number of common shares outstanding, for the effects of all
      potentially dilutive common shares, which comprise stock options and
      convertible debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                

11

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

5.        Adoption of new
accounting pronouncements

|(a) | Amendments to IAS 7 Statement of Cash Flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | International Accounting Standard ("IAS") 7 amendments
      include additional disclosures to enable users of the consolidated
      financial statements to evaluate changes in liabilities arising from
      financing activities, including changes arising from cash flows and
      non-cash changes. These amendments became effective for annual periods
      beginning on or after January 1, 2017. The Company has adopted these
      amendments as of the effective date and has included the required
      disclosures in note 16 for the year ended October 31, 2018.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(b) | Amendments to IAS 12 Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | IAS 12 amendments include: (a) unrealized losses on debt
      instruments measured at fair value and measured at cost for tax purposes
      give rise to a deductible temporary difference regardless of whether the
      debt instrument's holder expects to recover the carrying amount of the
      debt instrument by sale or by use; (b) the carrying amount of an asset
      does not limit the estimation of probable future taxable profits; (c)
      estimates for future taxable profits exclude tax deductions resulting from
      the reversal of deductible temporary differences; and (d) an entity
      assesses a deferred tax asset for recoverability in combination with other
      deferred tax assets. Where tax law restricts the utilization of tax
      losses, an entity would assess a deferred tax asset for recoverability in
      combination with other deferred tax assets of the same type. These
      amendments became effective for annual periods beginning on or after
      January 1, 2017. The Company has adopted these amendments as of the
      effective date and has assessed no significant changes as a result of the
      adoption of these amendments on the current
period.

6.        New and revised
standards and interpretations issued but not yet effective

|(a) | Amendments to IFRS 2 Share-Based Payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | IFRS 2 clarifies how to account for certain types of
      share-based payment transactions. The amendments provide requirements on
      the accounting for the effects of vesting and non-vesting conditions on
      the measurement of cash-settled share-based payments, share-based payment
      transactions with a net settlement feature for withholding tax
      obligations, and a modification to the terms and conditions of a
      share-based payment that changes the classification of the transaction
      from cash-settled to equity-settled. The effective date of these
      amendments is for annual periods beginning January 1, 2018. The Company
      will adopt the amendments as of its effective date. The Company has
      performed a preliminary assessment and does not expect there to be any
      significant impacts on the consolidated financial statements as a result
      of the adoption of these amendments.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(b) | IFRS 9 Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | IFRS 9 addresses classification and measurement of
      financial assets and replaces the multiple category and measurement models
      in IAS 39 for debt instruments with a new mixed measurement model having
      only two categories: amortized cost and fair value through profit or loss.
      IFRS 9 also replaces the models for measuring equity instruments and such
      instruments are either recognized at fair value through profit or loss or
      at fair value through other comprehensive income. The effective date of
      this standard is for annual periods beginning January 1, 2018. The Company
      will adopt this new standard as of its effective date. The Company has
      performed a preliminary assessment and does not expect there to be any
      significant impacts on the consolidated financial statements as a result
      of the adoption of this new standard.                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(c) | IFRS 16 Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | IFRS 16 was issued in January 2016 and replaces the
      previous guidance on leases. This standard provides a single recognition
      and measurement model to be applied by lessees to leases, with required
      recognition of assets and liabilities for most leases. This standard is
      effective for annual periods beginning on or after January 1, 2019, with
      early adoption permitted if the Company is also applying IFRS 15, Revenue
      from Contracts with Customers. The Company will adopt this new standard as
      of its effective date. The Company is currently evaluating the impact of
      the adoption of this new standard on its consolidated financial
      statements.                                                                                                                                                                                                                                           

12

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

7.        Property and
equipment

|Cost                           |   | 2018   |  |   | 2017   |  |   | 2016   | 
|------------------------------ | - | ------ |  | - | ------ |  | - | ------ | 
|Computers                      | $ | 55,723 |  | $ | 53,701 |  | $ | 53,263 | 
|Furniture and equipment        |   | 25,989 |  |   | 25,989 |  |   | 25,989 | 
|Total cost                     | $ | 81,712 |  | $ | 79,690 |  | $ | 79,252 | 
|                               |   |        |  |   |        |  |   |        | 
|Accumulated depreciation       |   | 2018   |  |   | 2017   |  |   | 2016   | 
|Computers                      | $ | 46,495 |  | $ | 43,879 |  | $ | 42,275 | 
|Furniture and equipment        |   | 25,989 |  |   | 25,989 |  |   | 25,989 | 
|Total accumulated amortization | $ | 72,484 |  | $ | 69,868 |  | $ | 68,264 | 
|Net book value                 | $ | 9,228  |  | $ | 9,822  |  | $ | 10,988 | 

8.        Development
costs (recovery)

The Company incurs development costs, and recovers from its
development partners, a portion of the costs it has incurred in accordance with
meeting milestones as stipulated in development contracts. The remaining
balances outstanding from its development partners is recorded as development
costs receivable on the statement of financial position.

|                                                          |   | 2018     |   |   | 2017     |   |   | 2016       |  
|--------------------------------------------------------- | - | -------- | - | - | -------- | - | - | ---------- | -
|Statements of financial position                          |   |          |   |   |          |   |   |            |  
|Opening balance of capitalized
      development costs    | $ | -        |   | $ | -        |   | $ | 3,070,299  |  
|Development costs incurred and capitalized                |   | -        |   |   | -        |   |   | 1,211,720  |  
|Development costs recovered
      and capitalized         |   | -        |   |   | -        |   |   | (643,901   | )
|Write-down of capitalized development costs               |   | -        |   |   | -        |   |   | (3,638,118 | )
|Closing
      balance of capitalized development costs    | $ | -        |   | $ | -        |   | $ | -          |  
|                                                          |   |          |   |   |          |   |   |            |  
|Statements of operations and
      comprehensive loss     |   |          |   |   |          |   |   |            |  
|Development costs incurred and expensed                   | $ | 608,914  |   | $ | 518,008  |   | $ | -          |  
|Development costs recovered
      and netted from expense |   | (738,983 | ) |   | (371,000 | ) |   | (2,505     | )
|Write-down of capitalized development costs               |   | -        |   |   | -        |   |   | 3,638,118  |  
|Development costs (recovery)                              | $ | (130,069 | ) | $ | 147,008  |   | $ | 3,635,613  |  

The Company wrote-off the capitalized cost of $3,638,118 in the
third quarter of the year ended October 31, 2016. 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.

9.        Patents

November 1,2016
    
    
    Additions
    
    
    October 31, 2017
    
    
    Additions
    
    
    October 31, 2018Cost
    $
    621,181
    
    $
    161,647
    
    $
    782,828
    
    $
    121,603
    
    $
    904,431Accumulated amortization
    
    217,581
    
    
    133,785
    
    
    351,366
    
    
    156,960
    
    
    508,326Net book value
    $
    403,600
    
    
    
    
    $
    431,462
    
    
    
    
    $
    396,105


Of the total amortization expense, $nil was capitalized to
development costs in the year ended October 31, 2018 (2017 - $nil); (2016 -
$71,988).

10.      Convertible
debentures

The Company issues three types of convertible debentures: USD
denominated convertible debentures with an equity component, Canadian dollar
("CDN") denominated convertible debentures with an embedded derivative due to
variable consideration receivable upon conversion caused by foreign exchange,
and USD denominated convertible debentures with an embedded derivative caused by
variable conversion prices.

13

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

10.      Convertible debentures
(continued)

Equity component of convertibleConvertible debentures
    
    
    Derivative liabilities
    
    
    debentures2018
    
    
    2017
    
    
    2018
    
    
    2017
    
    
    2018
    
    
    2017(a)
    $
    2,419,877
    
    $
    2,353,088
    
    $
    151,918
    
    $
    281,879
    
    $
    70,283
    
    $
    62,050(b)
    
    56,694
    
    
    135,929
    
    
    498,198
    
    
    207,855
    
    
    -
    
    
    -$
    2,476,571
    
    $
    2,489,017
    
    $
    650,116
    
    $
    489,734
    
    $
    70,283
    
    $
    62,050


(a)        USD denominated
debentures with equity components and CDN denominated debentures with embedded
derivatives

All loan principal amounts are expressed in original currency
and all remaining dollar amounts expressed in USD. Convertible debentures
outstanding as at October 31, 2018 and 2017:

|                                                                   |   | USD (equity component) |   |   | CDN (embedded derivative) |  
|------------------------------------------------------------------ | - | ---------------------- | - | - | ------------------------- | -
|                                                                   |   | 2018                   |   |   | 2017                      |  
|Loan Principal                                                     |   |                        |   |   |                           |  
|Opening balance                                                    | $ | 730,000                |   | $ | 836,000                   |  
|Issuance during the year                                           |   | 231,000                |   |   | 2,398,395                 |  
|Repayment or conversion                                            |   | (30,000                | ) |   | (2,504,395                | )
|Outstanding at year-end                                            | $ | 931,000                |   | $ | 730,000                   |  
|                                                                   |   |                        |   |   |                           |  
|Terms of Loan                                                      |   |                        |   |   |                           |  
|Annual interest rate                                               |   | 12% - 24%              |   |   | 12% - 24%                 |  
|Effective annual interest rate                                     |   | 36% - 37%              |   |   | 36%                       |  
|Conversion price to common shares                                  | $ | 0.04 - $0.21           |   | $ | 0.09 - $0.15              |  
|Remaining life (in months)                                         |   | 0 - 7                  |   |   | 1 - 3                     |  
|                                                                   |   |                        |   |   |                           |  
|Consolidated Statements of Financial
      Position                |   |                        |   |   |                           |  
|Carrying value of loan principal                                   | $ | 894,838                |   | $ | 719,368                   |  
|Interest payable                                                   |   | 15,100                 |   |   | -                         |  
|Convertible debentures                                             | $ | 909,938                |   | $ | 719,368                   |  
|                                                                   |   |                        |   |   |                           |  
|Derivative liability                                               | $ | -                      |   | $ | -                         |  
|Equity component                                                   | $ | 70,283                 |   | $ | 62,050                    |  
|                                                                   |   |                        |   |   |                           |  
|Consolidated Statements of Operations
      and Comprehensive Loss |   |                        |   |   |                           |  
|Accretion expense                                                  | $ | 110,469                |   | $ | 85,531                    |  
|Interest expense                                                   | $ | 168,052                |   | $ | 159,307                   |  
|Gain on revaluation of derivative liability                        | $ | -                      |   | $ | -                         |  
|Loss on conversion                                                 | $ | -                      |   | $ | 47,630                    |  
|Loss (gain) on extinguishment                                      | $ | 2,792                  |   | $ | -                         |  
|                                                                   |   |                        |   |   |                           |  
|Consolidated Statements of Changes in Equity                       |   |                        |   |   |                           |  
|Amount of principal converted to common
      shares               | $ | -                      |   | $ | 106,000                   |  
|Amount of interest converted to common shares                      | $ | -                      |   | $ | 12,025                    |  
|                                                                   |   |                        |   |   |                           |  
|Number of common shares issued on conversion of                    |   |                        |   |   |                           |  
|convertible debentures                                             |   | -                      |   |   | 813,057                   |  
|                                                                   |   |                        |   |   |                           |  
|Consolidated Statements of Cash
      Flows                        |   |                        |   |   |                           |  
|Amount of principal repaid in cash                                 | $ | 30,000                 |   | $ | -                         |  
|Amount of interest repaid in cash                                  | $ | 161,424                |   | $ | 159,307                   |  

14

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

10.      Convertible debentures
(continued)

(b)      USD denominated debentures
with embedded derivatives

During the year ended October 31, 2018, the Company has
incurred $40,414 (2017 - $nil) financing costs which primarily consist of early
payment penalties and admin fees relating to the convertible debentures.

Convertible debentures outstanding as at October 31, 2018:

|                                                                             |   | 2018          |  
|---------------------------------------------------------------------------- | - | ------------- | -
|                                                                             |   | (i)           |  
|Loan Principal                                                               |   |               |  
|Opening balance                                                              | $ | -             |  
|Issuance during the year                                                     |   | 278,600       |  
|Conversion                                                                   |   | (65,000       | )
|Outstanding at year-end                                                      | $ | 213,600       |  
|                                                                             |   |               |  
|Terms of Loan                                                                |   |               |  
|Annual interest rate                                                         |   | 12%           |  
|Effective annual interest rate                                               |   | 4380% - 4932% |  
|Conversion price to common shares                                            |   | (i)           |  
|Remaining life (in months)                                                   |   | 4 - 12        |  
|                                                                             |   |               |  
|Consolidated Statements of Financial Position                                |   |               |  
|Carrying value of loan principal                                             | $ | 772           |  
|Interest payable                                                             |   | 12,973        |  
|Convertible debentures                                                       | $ | 13,745        |  
|                                                                             |   |               |  
|Derivative liability                                                         | $ | 190,274       |  
|                                                                             |   |               |  
|Consolidated Statements of Operations
      and Comprehensive Loss           |   |               |  
|Accretion expense                                                            | $ | 2,496         |  
|Interest expense                                                             | $ | 11,769        |  
|Loss on revaluation of derivative liability                                  | $ | 8,690         |  
|Loss on conversion                                                           | $ | 3,652         |  
|                                                                             |   |               |  
|Consolidated Statements of Changes in
      Equity                           |   |               |  
|Amount of principal converted to common shares                               | $ | 65,000        |  
|Amount of interest converted to common
      shares                          | $ | -             |  
|                                                                             |   |               |  
|Number of common shares issued on
      conversion of convertible debentures |   | 2,456,707     |  

|(i)  | Conversion price defined as 75% multiplied by average of
      lowest 3 closing stock prices for the 10 trading days prior to conversion
      date.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                     
|(ii) | Conversion price defined as 75% multiplied by lowest
      stock price for the 20 trading days prior to conversion
  date.                          

15

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

10. Convertible debentures (continued)

(b)    USD denominated debentures with embedded
derivatives (continued) Convertible debentures outstanding as at October 31,
2018 and 2017:

|                                                                             |   | (iii)        |   |   | (iv)    |  
|---------------------------------------------------------------------------- | - | ------------ | - | - | ------- | -
|                                                                             |   | 2018         |   |   | 2017    |  
|Loan Principal                                                               |   |              |   |   |         |  
|Opening balance                                                              | $ | 100,200      |   | $ | 100,200 |  
|Issuance during the year                                                     |   | 175,800      |   |   | -       |  
|Conversion                                                                   |   | (276,000     | ) |   | -       |  
|Outstanding at year-end                                                      | $ | -            |   | $ | 100,200 |  
|                                                                             |   |              |   |   |         |  
|Terms of Loan                                                                |   |              |   |   |         |  
|Annual interest rate                                                         |   | 12%          |   |   | 12%     |  
|Effective annual interest rate                                               |   | 264% - 6002% |   |   | 118%    |  
|Conversion price to common shares                                            |   | (iii)        |   |   | (iii)   |  
|Remaining life (in months)                                                   |   | N/A          |   |   | 5       |  
|                                                                             |   |              |   |   |         |  
|Consolidated Statements of Financial
      Position                          |   |              |   |   |         |  
|Carrying value of loan principal                                             | $ | -            |   | $ | 39,630  |  
|Interest payable                                                             |   | -            |   |   | 3,377   |  
|Convertible debentures                                                       | $ | -            |   | $ | 43,007  |  
|                                                                             |   |              |   |   |         |  
|Derivative liability                                                         | $ | -            |   | $ | 10,871  |  
|                                                                             |   |              |   |   |         |  
|Consolidated Statements of Operations
      and Comprehensive Loss           |   |              |   |   |         |  
|Accretion expense                                                            | $ | 61,453       |   | $ | 11,095  |  
|Interest expense                                                             | $ | 14,816       |   | $ | 3,377   |  
|Loss (gain) on revaluation of derivative
      liability                     | $ | 19,375       |   | $ | (38,396 | )
|Loss on conversion                                                           | $ | 43,426       |   | $ | -       |  
|                                                                             |   |              |   |   |         |  
|Consolidated Statements of Changes in
      Equity                           |   |              |   |   |         |  
|Amount of principal converted to common
      shares                         | $ | 276,000      |   | $ | -       |  
|Amount of interest converted to common
      shares                          | $ | 10,145       |   | $ | -       |  
|                                                                             |   |              |   |   |         |  
|Number of common shares issued on
      conversion of convertible debentures |   | 6,076,094    |   |   | -       |  
|                                                                             |   |              |   |   |         |  
|Consolidated Statements of Cash
      Flows                                  |   |              |   |   |         |  
|Amount of principal repaid in cash                                           | $ | -            |   | $ | -       |  
|Amount of interest repaid in cash                                            | $ | -            |   | $ | -       |  

|(iii) | Conversion price defined as 80% multiplied by lowest 3
      closing stock prices for the 10 trading days prior to conversion
    date.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                        
|(iv)  | Conversion price defined as 75% multiplied by lowest
      stock price for the 15 trading days prior to conversion
  date.             

16

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

10.      Convertible debentures
(continued)

|(c) | Fair value of derivative liabilities
outstanding                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                             
|    | The fair value of the derivative liabilities is
      determined in accordance with the Black Scholes and binomial
      option-pricing models. The underlying assumptions are as
  follows:

2018
    
    2017Share price
    $0.03
    
    $0.12Exercise price
    $0.02 - $0.11
    
    $0.09 - $0.23Volatility factor (based on
      historical volatility)
    168% - 297%
    
    51% - 348%Risk free interest rate
    1.74% - 2.22%
    
    0.89% - 1.31%Expected life of options (in
      months)
    0 - 12
    
    0 - 12Expected dividend yield
    0%
    
    0%Foreign exchange rate (as
      applicable)
    1.3142
    
    1.2893Call value
    $0.00 - $0.02
    
    $0.00 - $0.13


Volatility was estimated using the historical volatility of the
Company's stock prices for common shares.

11. Share capital

|(a) | Authorized and outstanding
|--- | --------------------------

The Company has two classes of shares as follows:

| | (i)  | Special redeemable voting preference shares - 2,000,000
      authorized, nil issued and outstanding.                                                                                                                                                                                                                                                                     
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                           
| | (ii) | Common shares without par value  an unlimited number
      authorized. The holders of the common shares are entitled to receive
      dividends which may be declared from time to time, and are entitled to one
      vote per share at shareholder meetings of the Company. All common shares
      are ranked equally with regards to the Company's residual
  assets.

|(b) | Issuances of share capital
|--- | --------------------------
|    |                           
|    | (i)                       
|    |                           
|    | (ii)                      
|    |                           
|    | (iii)                     

|(c) | Private placements
|--- | ------------------
|    |                   
|    | (i)               

17

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

11.      Share capital
(continued)

|(c) | Private placements (continued)
|--- | ------------------------------
|    |                               
|    | (ii)                          
|    |                               
|    | (iii)                         

12.      Stock options

(a)        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.

(b)        Summary of
changes

Number of
    
    
    Weighted averageoptions
    
    
    exercise priceOutstanding at November 1,
      2016
    
    4,395,000
    
    $
    0.45Granted
    
    2,890,000
    
    
    0.25Expired
    
    (690,000
    )
    
    (0.35
    )Outstanding at October 31, 2017
    
    6,595,000
    
    $
    0.37Granted
    
    2,200,000
    
    
    0.10Expired
    
    (2,545,000
    )
    
    0.34Outstanding at October 31,
      2018
    
    6,250,000
    
    $
    0.29


The weighted average exercise price on the dates of issuance
was $0.29 (2017 - $0.37) .

All options vest immediately upon issuance. Of the options
issued during the year ended October 31, 2018, 700,000 stock options were issued
to directors and officers (2017 - 2,500,000) (2016 - nil) and 1,500,000 stock
options were issued to employees (2017 - 390,000); (2016 - nil).

(c)        Stock options
outstanding at October 31, 2018

|                                                      |  |                          |  |           |      |   | Weighted average |    
|----------------------------------------------------- |  | ------------------------ |  | --------- | ---- | - | ---------------- | ---
|                                                      |  |                          |  |           |      |   |                  |    
|                                                      |  |                          |  | Number of |      |   |                  |    
|Date of
      issue                                   |  | Expiry Date              |  | options   |      |   | Exercise price   |    
|February 10, 2014                                     |  | February 10, 2019        |  | 350,000   |      | $ | 0.85             |    
|April 25, 2014                                        |  | April 25, 2019           |  | 170,000   |      |   | 0.64             |    
|June 4, 2015                                          |  | June 4, 2020             |  | 300,000   |      |   | 0.49             |    
|August 20, 2015                                       |  | August 20, 2020          |  | 940,000   |      |   | 0.46             |    
|September 30, 2015                                    |  | September 30,
      2020 |  | 250,000   |      |   | 0.40             |    
|December 30, 2016                                     |  | December 30, 2021        |  | 2,040,000 |      |   | 0.25             |    
|June 29, 2018                                         |  | June 29, 2023            |  | 2,200,000 |      |   | 0.10             |    
|Outstanding and exercisable at October 31,
      2018 |  | 6,250,000                |  | $         | 0.29 |   |                  | 3.1

18

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

12.      Stock options
(continued)

(d)        Fair value
of options issued during the year

The fair value of the stock options is determined in accordance
with the Black Scholes option-pricing model. The underlying assumptions are as
follows:

2018
    
    
    2017Share price at grant date (per share)
    $
    0.09
    
    $
    0.21Exercise price
    $
    0.10
    
    $
    0.25Volatility factor (based on historical
      volatility)
    
    95%
    
    
    100%Risk free interest rate
    
    2.07%
    
    
    0.72%Expected life of options (in years)
    
    5
    
    
    5Expected dividend yield
    
    0%
    
    
    0%Forfeiture rate
    
    0%
    
    
    0%Weighted average Black Scholes value at grant date
    $
    0.06
    
    $
    0.15


Volatility was estimated using the historical volatility of the
Company's stock prices for common shares.

13.      Loss per share

Basic and diluted loss per share are calculated using the
following numerators and denominators:

|Numerator                                                                                          |   | 2018        |   |   | 2017        |   |   | 2016        |  
|-------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|Loss attributable to common shareholders                                                           | $ | (2,362,239  | ) | $ | (4,346,200  | ) | $ | (6,805,535  | )
|Loss used in computation of basic and diluted loss per                                             | $ | (2,362,239  | ) | $ | (4,346,200  | ) | $ | (6,805,535  | )
|                                                                                                   |   |             |   |   |             |   |   |             |  
|Denominator                                                                                        |   | 2018        |   |   | 2017        |   |   | 2016        |  
|Weighted average number of common shares
      for computation of basic and diluted loss per share |   | 237,242,674 |   |   | 207,131,781 |   |   | 199,572,966 |  

As at October 31, 2018 and 2017, all stock options and
conversion options were anti-dilutive and, therefore, are excluded from the
calculation of diluted loss per share.

14.      Income taxes

|(a) | The Company has non-capital losses of approximately $29
      million available to reduce future taxable income, the benefit of which
      has not been recognized in these consolidated financial statements. At
      October 31, 2018, the tax losses expire as
follows:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Canada
    
    
    Other foreign
    
    
    Total2026
    $
    1,826,168
    
    $
    -
    
    $
    1,826,1682027
    
    1,535,663
    
    
    -
    
    
    1,535,6632028
    
    -
    
    
    -
    
    
    -2029
    
    1,573,852
    
    
    452,762
    
    
    2,026,6142030
    
    2,123,536
    
    
    1,880,897
    
    
    4,004,4332031
    
    1,279,365
    
    
    18,526
    
    
    1,297,8912032
    
    1,417,868
    
    
    325,793
    
    
    1,743,6612033
    
    1,718,596
    
    
    157,463
    
    
    1,876,0592034
    
    2,486,226
    
    
    679,089
    
    
    3,165,3152035
    
    2,809,651
    
    
    570,901
    
    
    3,380,5522036
    
    3,297,284
    
    
    441,019
    
    
    3,738,3032037
    
    2,639,572
    
    
    232,719
    
    
    2,872,2912038
    
    1,625,600
    
    
    -
    
    
    1,625,600$
    24,333,381
    
    $
    4,759,169
    
    $
    29,092,550


19

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

14.      Income taxes
(continued)

|(b) | In addition, the Company has available capital loss carry
      forwards of approximately $1.3 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.                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                    
|(c) | Deferred income taxes reflect the net tax effect of
      temporary differences between the carrying amounts 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:

| |                                                       |   | 2018       |   |   | 2017       |   |   | 2016       |  
| | ----------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| | Non-capital losses and other                          | $ | 7,698,859  |   | $ | 7,277,434  |   | $ | 7,139,329  |  
| | Capital losses                                        |   | 175,090    |   |   | 350,180    |   |   | 165,164    |  
| | Property, equipment, patents and deferred
      costs |   | 1,567,228  |   |   | 1,598,394  |   |   | 1,769,064  |  
| | Share issuance costs                                  |   | -          |   |   | -          |   |   | 1,881      |  
| |                                                       | $ | 9,441,177  |   | $ | 9,226,008  |   | $ | 9,075,438  |  
| | Deferred tax asset not recognized                     |   | (9,441,177 | ) |   | (9,226,008 | ) |   | (9,075,438 | )
| |                                                       | $ | -          |   | $ | -          |   | $ | -          |  

At October 31, 2018, the Company has assessed that it is not
probable that sufficient taxable profit will be availableto 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.

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

| |                                                                      |   | 2018       |   |   | 2017       |   |   | 2016       |  
| | -------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| | Loss before income taxes                                             | $ | (2,362,239 | ) | $ | (4,346,200 | ) | $ | (6,805,535 | )
| | Statutory tax rate                                                   |   | 26.50%     |   |   | 26.50%     |   |   | 26.50%     |  
| | Expected income tax recovery                                         | $ | (625,993   | ) | $ | (1,151,743 | ) | $ | (1,803,467 | )
| | Non-deductible expenses and other items                              |   | 182,056    |   |   | 413,499    |   |   | 130,211    |  
| | Effect of exchange rate on deferred tax
      assets carried forward |   | 225,846    |   |   | 424,023    |   |   | 142,518    |  
| | Effect of higher tax rates in foreign jurisdiction                   |   | -          |   |   | 163,651    |   |   | (446,821   | )
| | Change in deferred income tax rates and
      other                  |   | -          |   |   | -          |   |   | 1,641,838  |  
| | Change in deferred tax assets not recognized                         |   | 218,091    |   |   | 150,570    |   |   | 335,721    |  
| |                                                                      | $ | -          |   | $ | -          |   | $ | -          |  

15.      Operating expenses

|(a) | Administration                                                             
|--- | ---------------------------------------------------------------------------
|    |                                                                            
|    | The components of general and administration expenses are
      as follows:

| |                                             |   | 2018    |  |   | 2017    |  |   | 2016    | 
| | ------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- | 
| | General and administrative                  | $ | 63,936  |  | $ | 98,187  |  | $ | 189,912 | 
| | Rent and occupancy                          |   | 70,674  |  |   | 72,725  |  |   | 72,317  | 
| | Office insurance                            |   | 117,615 |  |   | 54,023  |  |   | 60,195  | 
| | Investor relations, listing and filing fees |   | 53,113  |  |   | 80,486  |  |   | 72,916  | 
| |                                             | $ | 305,338 |  | $ | 305,421 |  | $ | 395,340 | 

20

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

15.      Operating expenses
(continued)

|(b) | Professional, other fees and salaries                                                 
|--- | --------------------------------------------------------------------------------------
|    |                                                                                       
|    | The components of professional, other fees and salaries
      expenses are as follows:

| |                       |   | 2018    |  |  | 2017              |  |  | 2016              | 
| | --------------------- | - | ------- |  |  | ----------------- |  |  | ----------------- | 
| | Professional fees     | $ | 165,685 |  |  | $ 224,139         |  |  | $ 328,851         | 
| | Consulting fees       |   | 316,815 |  |  | 813,735           |  |  | 1,028,600         | 
| | Salaries and benefits |   | 264,780 |  |  | 395,239           |  |  | 381,950           | 
| |                       | $ | 747,280 |  |  | $
      1,433,113 |  |  | $
      1,739,401 | 

16.      Supplemental cash flow
information

The following provides a reconciliation of the cash flows from
convertible debentures and derivative liabilities :

Balance at November 1, 2017
    $
    2,978,751Cash flows from financing activities:Convertible debenture advances
    
    1,457,983Convertible debenture repayments
    
    (662,080
    )Non-cash changes:Convertible debenture interest accrued
    
    125,328Convertible debentures
      converted into common shares
    
    (1,093,842
    )Accretion expense
    
    2,039,344Gain on extinguishment of debt
    
    (399,191
    )Gain on revaluation of derivative liabilities
    
    (1,094,718
    )Convertible debenture renewal
    
    (137,854
    )Foreign exchange gain
    
    (87,034
    )Balance at October 31, 2018
    $
    3,126,687


17.      Key management
compensation and related party transactions

The Company reports the following related party
transactions:

(a)        Former
Chairman (until April 26, 2016)

The former 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), which was fullypaid in 2016. Additionally, the
Chairman exercised 700,000 stock options and the Company realized proceeds of
$140,000 in 2016.

(b)        Key
management compensation

Key management personnel are persons responsible for planning,
directing and controlling activities of the Company, including officers and
directors. Compensation paid or payable to these individuals (or companies
controlled by such individuals) are summarized as:

|                                       |   | 2018    |  |   | 2017      |  |   | 2016    | 
|-------------------------------------- | - | ------- |  | - | --------- |  | - | ------- | 
|Professional, other fees, and salaries | $ | 235,297 |  | $ | 667,724   |  | $ | 840,641 | 
|Stock-based compensation               |   | 44,740  |  |   | 382,531   |  |   | -       | 
|                                       | $ | 280,037 |  | $ | 1,050,255 |  | $ | 840,641 | 

In 2018, these parties were awarded a total of 700,000 options
at an exercise price of $0.10 (2017 - 1,950,000 options at an exercise price of
$0.25; 2016 nil options).

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

21

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

17.      Key management
compensation and related party transactions (continued)

(c)        Advances

In 2016, an officer was provided a short termnon-interest
bearingadvances totaling$42,144 between November 2015 andJanuary2016.These
advances were settled in January 2016 through the allocation of compensation due
to the officer.

(d)        Trade
payables and other liabilities

At October 31, 2018 theCompanyreports in tradepayables andother
liabilities,a balanceowingtotheformerPresident ofMAST of$193,174 which amount
represents alleged outstanding wages payable, see Note 19(b).

As at October 31, 2018 and 2017 the Company includes $167,000
in trade payables and other liabilities owing to a company whose major
shareholder is a director of the Companyand who has also served as its Chief
TechnologyOfficer. This individual was elected as a director on February 19,
2014. The balance reported relates to services provided in 2015; there have been
no invoices submitted by this related party after October 31, 2015.

(e)        Convertible
debentures

An officer of the Company provided a convertible debenture of
$100,000 CDN ($76,092 USD) in September 2016, which was converted to common
shares in July2017. In January 2018, the officer provided an additional
convertible debenture of $150,000 CDN ($114,138 USD). At October 31, 2018,
$100,862 CDN ($76,748 USD) in loan principal remains outstanding at October 31,
2018.

18.      Commitments

TheCompanyhasextendeditsleaseforpremisesthroughJuly2022.
Theleasetermisfor5yearsandstipulatesbasemonthlyrentalexpensesof $4,005 CDN.
Lease commitments are as follows:

CDNLess than one year
    $
    48,060Two to five years
    
    132,165$
    180,225


19.      Contingencies

|(a) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(b) | On October 7, 2018, the former President of MAST, Inc.
      (the Companys wholly-owned subsidiary), Mr. Steven Van Fleet, filed a
      lawsuit against Micromem and MAST in New York State Supreme Court,
      Dutchess County. In the action, Mr. Van Fleet is seeking payment of
      $214,574 plus interest relating to alleged remuneration and expense
      reimbursements due to him prior to his resignation as an officer and
      director of Micromem and MAST on August 17, 2018. The Company answered the
      complaint December 7, 2018 by denying the material allegations in Mr. Van
      Fleets claims. In addition, the Company interposed 7 counterclaims
      against Mr. Van Fleet seeking, among other things: (i) damages of not less
      than $2.75 million, (ii) specific performance to compel Mr. Van Fleet to
      comply with his contractual obligations which were required for the period
      of time that he served as an officer and director through to his
      resignation date; (iii) repayment of certain salary and expenses paid to
      Mr. Van Fleet; (iv) a direction for Mr. Van Fleet to turn over all Company
      property in his possession or control; (v) an accounting to determine all
      money and property belonging to the Company and/or MAST. On January 24,
      2019, the Company amended its original answer and counterclaims to
      include, among other things, a demand for additional damages based on new
      information that has come to light. On February 8, 2019 Mr. Van Fleet,
      through his counsel, replied to and denied the material allegations in
      Micromems counterclaims. The Company reports an accrual of $205,788 at
      October 31, 2018 with respect to alleged remuneration and expense
      reimbursements claimed by Mr. Van Fleet but, nonetheless, has denied the
      allegations in Mr. Van Fleets claims . This matter remains as a
      contingency at February 28, 2019.

22

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

20.       Financial risk
management

|(a) | Currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Currency risk is the risk that the fair value of, or
      future cash flows from, the Company's financial instruments will
      significantly fluctuate due to changes in foreign exchange rates. The
      Company is exposed to currency risk to the extent that it incurs expenses
      and issues convertible debentures denominated in Canadian dollars. The
      Company manages currency risk by monitoring the Canadian position of these
      monetary financial instruments on a periodic basis throughout the course
      of the year.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The consolidated financial statements include balances
      that are denominated in Canadian dollars as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                      

AmountCash
    $
    99,139Convertible debentures
    $
    1,877,487Trade payables and other liabilities
    $
    318,172Derivative liabilities
    $
    199,650


|    | A 10% strengthening of the US dollar against the Canadian
      dollar would serve to decrease the loss by $158,836 at October 31, 2018
      (2017  decrease loss by $421,748; 2016  decrease the loss by $327,170).
      A 10% weakening of the US dollar against the Canadian dollar would have
      had the opposite effect of the same magnitude.                                                                                                                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(b) | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Interest rate risk is the risk that the fair value of, or
      future cash flows from, the Company's financial instruments will
      significantly fluctuate due to changes in market interest rates. The
      Company is exposed to interest rate risk on its interest-bearing
      convertible debentures. This exposure is limited due to the short-term
      nature of the convertible debentures.                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(c) | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Liquidity risk is the risk that the Company will not be
      able to meet its financial obligations as they become due. The Company's
      policy is to review liquidity resources and ensure that sufficient funds
      are available to meet financial obligations as they become due. Further,
      the Company's management is responsible for ensuring funds exist and are
      readily accessible to support business opportunities as they arise. The
      Company's funding is provided in the form of capital raised through the
      issuance of shares on conversion of convertible debentures.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | All financial liabilities are due within 1 year as at
      October 31, 2018.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | (i) | Trade payables                                                                   
| | --- | ---------------------------------------------------------------------------------
| |     |                                                                                  
| |     | The following represents an analysis of the maturity of
      the trade payables:

2018
    
    
    2017Less than 30 days past billing date
    $
    87,356
    
    $
    191,93731 to 90 days past billing date
    
    12,837
    
    
    367,988Over 90 days past billing date
    
    740,131
    
    
    656,753$
    840,324
    
    $
    1,216,678


| | (ii) | Convertible debentures and derivative
  liabilities                                                                 
| | ---- | --------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                     
| |      | The following represents an analysis of the maturity of
      the convertible debentures and derivative
liabilities:

| |                        |   | 2018        |  |   | 2017       | 
| | ---------------------- | - | ----------- |  | - | ---------- | 
| |                        |   | Convertible |  |   | Derivative | 
| |                        |   | debentures  |  |   | liability  | 
| | Less than three months | $ | 862,686     |  | $ | 90,142     | 
| | Three to six months    |   | 1,346,315   |  |   | 382,309    | 
| | Six to twelve months   |   | 267,570     |  |   | 177,665    | 
| |                        | $ | 2,476,571   |  | $ | 650,116    | 

23

---

|Micromem Technologies Inc.                         
|---------------------------------------------------
|Notes to Consolidated Financial Statements         
|For the years ended October 31, 2018, 2017 and 2016
|(Expressed in United States dollars)               
|                                                   

20.      Financial risk management
(continued)

|(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
      development costs receivable. The maximum exposure to credit risk is the
      carrying value of these financial assets. The Company reduces its credit
      risk by assessing the credit quality of counterparties, taking into
      account their financial position, past experience and other
  factors.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The following represents an analysis of the maturity of
      the age of the development costs receivable:                                                                                                                                                                                                                                                                                                                                                                                                                            

2018
    
    
    2017Less than 30 days past
      billing date
    $
    81,841
    
    $
    340,85731 to 90 days past billing date
    
    -
    
    
    75,000$
    81,841
    
    $
    415,857


21.      Capital risk
management

The Companys objectives when managing capital are to (i)
maintain its ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders, (ii) ensure it has
sufficient cash resources to further develop and market its technologies and
(iii) maintain its ongoing operations. The Company defines its capital as its
net assets, total assets less total liabilities. In order to secure the
additional capital necessary to pursue these objectives, the Company may attempt
to raise additional funds through the issuance of equity and
warrantsorbysecuringstrategicpartners. TheCompanyisnotsubjecttoexternallyimposed
capitalrequirements andtherehasbeen nochange with respect to the overall capital
risk management strategy during the year ended October 31, 2018.

22.      Subsequent events

Subsequent to October 31, 2018:

|(a) | The Company secured, in aggregate, $383,600 in
      convertible debentures with one year terms. These loans have conversion
      features which become effective six months after initiation
date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                     
|(b) | The Company repaid $106,500 CDN and $75,600 USD in
      convertible debentures and $219,747 in convertible debentures were
      converted into 12,382,097 common shares.                          
|    |                                                                                                                                                                                                     
|(c) | The Company extended convertible debentures that were
      within 3 months of maturity from October 31, 2018. Extensions terms ranged
      from 2 to 6 months.                                    
|    |                                                                                                                                                                                                     
|(d) | The Company completed two private placements with arms
      length investors realizing total proceeds of $71,000 and issued a total of
      1,665,789 shares.                                    
|    |                                                                                                                                                                                                     
|(e) | 350,000 stock options which were issued on February 10,
      2014 expired.                                                                                                                         

24

---

**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).                                                                                                                                                                         

45

---

|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 RSM Canada LLP (formerly Collins Barrow LLP)
      (filed herewith)                                                                                                                                            
|                 |                                                                                                                                                                                                                           
|Exhibit No. 15.2 | Consent of MNP LLP (filed herewith)                                                                                                                                                                                       

SIGNATURES

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

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

Dated: March 7, 2019

46

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