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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________

FORM 20-F

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

or

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended October 31, 2012

Or

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

or

[_] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell report

Commission File No. 0-26005
___________

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

Ontario, Canada
(Jurisdiction of incorporation or organization)

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

Joseph Fuda; 416-364-6513, JFuda@micromeminc.com, 121 Richmond Street West, Suite 304 Toronto, On M5H 2K1
(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

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

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

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

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 136,430,555 Common Shares

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act:

Yes [_]     No [X]

If this report is an annual or transition report, indicate by check mark if the registration is not required to file a report pursuant to section 13 or 15 of the Securities Exchange Act of 1934:

Yes [_]     No [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes [X]     No [_]

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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [_]     No [_]

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

Large Accelerated Filer [_]

Accelerated Filer [_]

Non-Accelerated Filer [X]

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

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

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:

Item 17 [_]       Item 18 [_]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes [_]       No [X]

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TABLE OF CONTENTS

Part I
		Page
Item 1.	Identity of Directors, Senior Management and Advisors	4
Item 2.	Offer Statistics and Expected Timetable	4
Item 3.	Key Information	4
Item 4.	Information on the Company	13
Item 4A.	Unresolved Staff Comments	18
Item 5.	Operating and Financial Review and Prospects	19
Item 6.	Directors, Senior Management and Employees	24
Item 7.	Major Shareholders and Related Party Transactions	28
Item 8.	Financial Information	30
Item 9.	The Offer and Listing	30
Item 10.	Additional Information	31
Item 11.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 12.	Description of Securities Other Than Equity Securities	38
Part II
Item 13.	Defaults, Dividend Arrearages and Delinquencies	38
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	38
Item 15.	Controls and Procedures	39
Item 16.	Not Applicable	39
Item 16A	Audit Committee Financial Expert	39
Item 16B	Code of Ethics	39
Item 16C	Principal Accountant Fees and Services	39
Item 16D	Exemptions from the Listing Standards for Audit Committees	40
Item 16E	Purchases of Equity by the Issuer and Affiliated Purchasers	40
Item 16F	Changes in Registrant’s Certifying Accountant	40
Item 16G	Corporate Governance	40
Item 16H	Mine Safety Disclosure	40
Part III
Item 17.	Financial Statements	40
Item 18	Financial Statements	40
Item 19.	Exhibits	40
Signatures		42

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PART I

INTRODUCTION

Abbreviations

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

Forward Looking and Cautionary Statements

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

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not Applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

Fiscal Years 2012 and 2011

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

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

International Financial Reporting Standards

Selected balance sheet information
(all amounts in U.S. dollars)
		2012			2011
Working capital (deficiency)	$	(731,673	)	$	(1,060,487	)
Capital Assets		5,787			10,201
Total Assets		1,180,278			906,346
Capital Stock		54,728,239			51,774,555
Shareholders' equity (deficiency)		(904,030	)		(1,409,228	)

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

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

Fiscal Years 2010, 2009 and 2008

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

Canadian GAAP

Selected balance sheet information
(all amounts in U.S. dollars)
		2010			2009			2008
Working capital (deficiency)	$	(1,459,460	)	$	($650,044	)	$	(338,079	)
Capital Assets		16,686			24,442			26,321
Total Assets		568,336			2,562,479			630,467
Capital Stock		50,102,699			48,494,180			44,380,134
Shareholders' equity (deficiency)		(1,019,226	)		1,522,839			(311,758	)

Selected statement of operations and deficit information
(all amounts in U.S. dollars)
		2010			2009			2008
Interest and other income	$	22,886		$	88,047		$	11,762
Research and development expenses		(106,007	)		13,880			1,063,508
General and administrative and other expenses		4,699,208			2,433,537			3,323,565
Stock compensation expense		95,038			1,951,569			1,041,414
Loss before income taxes		(4,665,353	)		(4,310,939	)		(5,416,725	)
Provision for income taxes (recovery)		9,508			-			-
Net loss		(4,674,861	)		(4,310,939	)		(5,416,725	)
Loss per share-basic and diluted		0.05			0.05			0.07
Weighted average number of basic and diluted shares		92,225,645			86,400,439			78,012,115
Dividends		-			-			-

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Reconciliation between Canadian GAAP and U.S. GAAP:

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

Currency and Exchange Rates

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

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

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

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.

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

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

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D. Risk Factors

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

Risk Factors Related to Our Business

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

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

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

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

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

We currently have no operating revenue.

At October 31, 2012 we have no revenues and there is no certainty that we will generate revenues in the near future. If we fail to enter into license agreements or if we do not obtain purchase orders from potential customers, we will have no revenues. If we enter into such agreements the amount of the revenues we receive will depend on the terms we are able to get from each licensee and the ability of each licensee to compete in their particular market.

Our magnetic sensor technology is under development.

We continued to develop prototypes of our magnetic sensor technology in 2012 working with our technical advisors, and our strategic development partners. We are pursuing joint development agreements with potential strategic partners with the expectation that we will jointly develop sensor applications for use by these potential strategic partners.

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

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

Our success will be determined by the following factors which have not yet been fully and completely tested nor measured:

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

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

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

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

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

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

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

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

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

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

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

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

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

Our future success and competitive position depend in part on our ability to retain exclusive rights to our technology, including any improvements that may be made on that technology from time to time by us or on our behalf. While our technology is patented or is subject to pending patent applications in the United States and we know of no challenge that has been made either against our technology or our rights to it, and we have no reason to believe that any such challenge might be made or that the grounds for any such challenge exist, if any intellectual property litigation were to be commenced against us, no matter how groundless, the result could be a significant expense to us, adversely affecting further development, licensing and sales, diverting the efforts of our technical and management personnel and, in the event of an adverse outcome, damages and possible restrictions on the further development, licensing and use of our technology.

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

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

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

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

The likelihood of the success of our business plan must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early stage businesses and the competitive environment in which we operate.

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

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

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

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

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

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

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

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

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

We depend on key personnel.

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

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

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

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

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

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

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

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

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

We cannot provide any assurance that we will be able to continue to develop new intellectual property or that we will continue to have it developed for us. We rely on a combination of U.S. patent, copyright, trademark, and trade secret laws to protect our intellectual property rights. We have decided to file patent and trademark registration applications with certain foreign governments but we may not have appropriate coverage in all jurisdictions where we may sell or license our product in future.

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

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

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

There are foreign exchange risks associated with our Company.

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

Risk Factors Related to Our Common Shares

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

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

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

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

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

With regard to certain matters, we must obtain approval of our shareholders by way of at least 662/3% of the votes cast at a meeting of shareholders duly called for such purpose being cast in favor of the proposed matter. Such matters include without limitation:

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(a) the sale, lease or exchange of all or substantially all of our assets out of the ordinary course of our business; and (b) any amendments to our Articles including, but not limited to, amendments affecting our capital structure such as the creation of new classes of shares, changing any rights, privileges, restrictions or conditions in respect of our shares, or changing the number of issued or authorized shares, as well as amendments changing the minimum or maximum number of directors set forth in the Articles. Under U.S. state law, the sale, lease, exchange or other disposition of all or substantially all of the assets of a corporation generally requires approval by a majority of the outstanding shares, although in some cases approval by a higher percentage of the outstanding shares may be required. In addition, under U.S. state law the vote of a majority of the shares is generally sufficient to amend a company's certificate of incorporation, including amendments affecting capital structure or the number of directors. Under certain circumstances the board of directors may also have the ability to change the number of directors under U.S. state law.

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

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

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

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

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

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

We do not anticipate paying dividends.

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

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

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

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

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

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

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of Our Company

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

The Evolution of Micromem from Memory to Sensor Based Client Solutions

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

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

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

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

A potential revenue-generating opportunity emerged in August 2010 when Lux Research contacted us on behalf of their client, a world leader in oil production. They were looking for companies that could create extremely small foot print magnetic sensor solutions for down hole use in production oil fields. MAST was subsequently engaged by this client to develop and deliver a sensor platform for detecting 4 nanometer magnetic particles in a flowing oil stream at a concentration less than 1 ppb. Another revenue generating opportunity came in 2011 from GSI Westwind, a supplier for high speed air bearing motors. MAST replaced the incumbent Hall sensor supplier and delivered a unique circuit board form factor that incorporated the smallest Hall sensor in the world.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Intellectual Property

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

Changes to Our Board of Directors and Management

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

B. Business Overview

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

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

Industry Background

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

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

Our Company's Technology

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

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

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

Equity Financing Transactions

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

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

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

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In 2012 the Company completed a series of private placement financings with investors pursuant to prospectus and registration exemptions set forth in applicable securities laws. The Company received gross proceeds of $1,040,899 and issued a total of 6,344,899 common shares. Additionally, 6,344,899 common share purchase warrants with an average price of $0.17 were attached to the private placements completed during 2012. All warrants issued in 2012 have a 12 month term from issue date.

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

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

Intangible Assets and Patents

Intangible assets comprise the costs which the Company has capitalized relating to the technical expertise and know-how that the Company has developed with respect to the commercialization efforts relating to its sensor technology. In 2011, the Company determined that it had sufficiently advanced its expertise and product knowledge relating to the general commercialization efforts for its sensor technology in multiple industry vertical applications. We anticipates that we will realize commercial economic benefits from the exploitation of these intangible assets in future. Accordingly, we reported $135,465 of intangible assets at October 31, 2011, representing direct costs incurred with respect to such assets.

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

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

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

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

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

In 2012, we continued our activity with respect to advancing certain provisional patents relating to projects that are underway with current assignments and projects with our development partners as described above. We capitalized $26,650 of legal fees associated with this work.

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

Environmental Matters

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

C. Organizational Structure

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

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

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

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

D. Property, Plant and Equipment

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

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This section of the Form 20-F has been prepared to provide a more substantive discussion of our business and to assist the reader in analyzing the audited consolidated financial statements for the years ended October 31, 2012 and October 21, 2011. This discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes in this Annual Report, which are prepared in accordance with IFRS and are stated in United States dollars.

I. OVERVIEW

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

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A. Operating Results

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

Selected statement of operations and deficit information
		2012			2011
Interest and other income		-		$	963
Loss for the year		1,775,065			3,182,387
Loss per share-basic and diluted		0.01			0.03

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

Fiscal 2012 Compared to Fiscal 2011

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B. Liquidity and Capital Resources

Liquidity

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

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

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

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

Capital Resources

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

C. Research and Development

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

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

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

D. Trend Information

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

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

E. Off-Balance Sheet Arrangements

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

F. Tabular Disclosure of Contractual Obligations

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

¹ Monthly obligations, no contractual term.

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Critical Accounting Policies

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

Our consolidated financial statements for the period have been prepared in accordance with IFRS which, in our case conforms in all material respects with U.S. GAAP except for the accounting for development expenditures reported in the fiscal years ended October 31, 2011 and 2012, and for intangible assets, warrant modification and modification of the conversion feature of bridge loans reported in the fiscal year ended October 31, 2011.

We are a pre-revenue stage company. Under IFRS, research costs are expensed in the period incurred. Development expenses are expensed as incurred unless they meet the criteria for deferral and amortization under IFRS which is the translation of research findings or other knowledge into a plan for the technology prior to commercial production or use. Under U.S. GAAP all development expenditures are expensed as incurred. In 2012, the Company has capitalized $718,163 (2011: $646,606) of development costs and capitalized $116,113 (2011: $135,465) as intangible assets under IFRS.

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

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

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

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

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

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Commitments

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

A. Research Collaboration Agreements:

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

We have agreed to royalties and payments as follows:

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

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

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

B. Operating leases:

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

C. Consulting and employment contracts:

1.

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

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

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

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

D. Other commitments:

None.

Contingencies:

A.	We have agreed to indemnify our directors and officers and certain of our employees in accordance with our By-laws. We maintain insurance policies that may provide coverage against certain claims.
B.	Certain interests under the Asset Purchase Agreement with Estancia Limited reverted to Estancia Limited on March 9, 2004. On this basis, to the extent that revenues are generated by us relating directly and specifically to the VEMRAM patents, we are obligated to pay Estancia Limited 32% of the gross profit realized less expenses agreed to by the parties and 32% of any unit royalties realized less direct expenses. We are no longer pursuing this technology and do not anticipate future revenue streams nor any payment obligations under this agreement.

Translation of Foreign Currencies

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Executive Officers

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

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

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

Joseph Fuda has been President, Chief Executive Officer and Director since February 13, 2002. Previously he served as Manager of Strategic Alliances for Micromem since February 2001. Prior thereto, he served as a consultant to Micromem since November 2000. Prior thereto he served as a Vice-President and a Director of IPO Capital Corp since April 1999. He was a director of Leader Capital Corp. until June 2007 and currently also serves as a director of Echo Energy Canada Inc. until June 2009 and of Echo Power Generational Inc.

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

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

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

David Sharpless is the Chairman and CEO of Maverick Inc., a private consulting and investment firm and the Chairman and CEO of New Carbon Economy Venture Management Inc., a private company which manages a number of investments in “green” technology companies. He was the Chairman and CEO of TrustMark Auto Group Inc. a CNSX listed company and the Chairman of Hunter Keilty Muntz and Beatty Limited, a firm of international insurance brokers based in Toronto and the Vice Chairman of its successor, HKMB Hub International Ltd. Prior to joining Hunter Keilty Muntz and Beatty Limited in 2000, his career spanned more than 25 years as a business lawyer with Blake, Cassels & Graydon and as a senior leader in international finance. He has served as a director of Micromem since 2001.

Larry Blue is currently the President of New Vision Display, Inc., responsible for Global Sales and Marketing. NVD was recently spun out of Multek Technologies Inc, a subsidiary of Flextronics, where he was a Vice President and General Manager of their Printed Electronics business. Previously he was President of Hi-G-Tek Inc. a privately-held technology company based in Maryland. Previously he was the Vice President and General Manager of Symbol Technologies Inc. and was appointed to the Micromem Board of Directors in 2005. Previously Mr. Blue had senior management roles with Hughes Network Systems and with IBM in Research Triangle Park.

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

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

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

Business Corporations Act (Ontario).

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

B. Compensation

Notes:

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

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

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

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

C. Board Practices

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

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

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

Our Compensation Committee met as required in 2012. Our Compensation Committee approves management and Director Compensation and all stock option grants for recommendation to the Board of Directors.

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

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

Audit Committee

The Board of Directors has appointed an Audit Committee consisting of three independent directors. The members of the Audit Committee are Andrew Brandt, Oliver Nepomuceno and David Sharpless (Chairman), each of whom serves in such capacity until the Board of Directors’ next annual meeting. The Audit Committee is responsible for the integrity of our internal accounting and control systems. The committee receives and reviews our financial statements and makes recommendations thereon to the Board of Directors prior to its approval by the full Board of Directors. The Audit Committee communicates directly with our external auditors in order to discuss audit and related matters whenever appropriate. In 2012 the Audit Committee met on January 23, 2012, February 24, 2012 and October 1, 2012.

Compensation Committee

The Board of Directors has appointed a Compensation Committee which meets on executive compensation matters as and when required. Our Compensation Committee includes Andrew Brandt, an outside director as Chairman, Oliver Nepomuceno and Alex Dey, as outside directors.

Disclosure Committee

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

D. Employees

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

E. Share Ownership

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

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

No shareholder holds greater than 5% of the common shares outstanding. As of the date of this Annual Report approximately 66% (76,660,647) of the issued and outstanding common shares are held by Canadian investors; approximately 25.5% (29,651,423) of the issued and outstanding shares are held by U.S. investors; and approximately 8.5% (9,837,648) are held by investors outside of Canada and the U.S.

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B. Other Related Party Transactions

The Company reports the following related party transactions:

(a) Chairman:

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

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

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

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

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

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

(b) Management and consulting fees:

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

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

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

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

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ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

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

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

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

B. Significant Changes

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

ITEM 9. THE OFFER AND LISTING

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

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

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

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

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

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

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

B. Memorandum and Articles of Incorporation

Articles of Incorporation

Incorporation Details and Objects of Micromem Technologies Inc.

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

Summary of Directors Powers and Authorities

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

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

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

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

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

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

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

Securities of Micromem

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

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

Rights and Privileges of Shareholders

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

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

C. Material Contracts

1.

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

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

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

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

D. Exchange Controls

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

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

E. Taxation

Certain Canadian Income Tax Consequences

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

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

Dividends on common shares and Other Income

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

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

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

Dispositions of Common Shares

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

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

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

Certain United States Federal Income Tax Consequences

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

34

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

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

CIRCULAR 230 DISCLOSURE

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

US Holders

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

Distributions to US Holders Who Own Common Shares

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

Dividends received by non-corporate US Holders may be subject to United States federal income tax at lower rates (generally 15%) than other types of ordinary income in taxable years beginning on or before December 31, 2012, if certain conditions are met. These conditions include neither the Company nor a Related Entity being classified as a PFIC (discussed below), the Company being a “qualified foreign corporation”, the US Holder's satisfaction of a holding period requirement, and the US Holder not treating the distribution as “investment income” for purposes of the investment interest deduction rules.

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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 15% in taxable years beginning on or before December 31, 2012. Deductions for capital losses are subject to limitations.

US Anti-Deferral Regimes

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

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

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

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

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

Foreign Tax Credit

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

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

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Currency Fluctuations

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

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not Applicable.

H. Documents on Display

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

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

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

I. Subsidiary Information

Not Applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable.

PART II

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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable.

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

None.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, referred to herein as the “Exchange Act”) as of October 31, 2011. Based on management's evaluation in 2012, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2012, our disclosure controls and procedures were effective in that they were designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in our reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Exchange Act Rule 13a-15(e) also states that disclosure controls and procedures are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

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

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

Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of Micromem’s internal control over financial reporting as of October 31, 2012. In making this assessment, they used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment the Chief Executive Officer and Chief Financial Officer have concluded that, as of October 31, 2012, our internal control over financial reporting were effective.

Changes in Internal Control Over Financial Reporting

No changes in our internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, occurred during the fiscal year ended October 31, 2012 that has materially affected or is reasonable likely to materially affect, our internal controls over financial reporting.

ITEM 15T. Controls and Procedures

Not applicable

ITEM 16. (Reserved)

Not Applicable.

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ITEM 16A. Audit Committee Financial Expert

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

ITEM 16B. Code of Ethics

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

ITEM 16C. Principal Accountant Fees and Services

The following table presents fees for professional audit services rendered by our auditors for the audit of our consolidated financial statements for the years ended October 31, 2012 and 2011, and fees billed for other services rendered by our auditors including our offerings of securities and tax services.

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

Audit Fees

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

Audit Related Fees

None

Tax Fees

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

All other fees

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

Pre-approval policies

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

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

Not applicable.

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

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Not applicable.

ITEM 16F. Change in Registrants Certifying Accountant.

Not applicable.

ITEM 16G. Corporate Governance

Not applicable

ITEM 16H. Mine Safety Disclosure

Not applicable

ITEM 17. Financial Statements

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

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ITEM 18. Financial Statements

Consolidated Financial Statements of

MICROMEM TECHNOLOGIES INC.

For the years ended October 31, 2012 and 2011

(Expressed in United States Dollars)

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	Collins Barrow Toronto LLP
	11 King Street West
	Suite 700
	Toronto, Ontario
	M5H 4C7 Canada
	T. 416.480.0160
INDEPENDENT AUDITORS’ REPORT	F. 416.480.2646
To the Shareholders of Micromem Technologies Inc.:	www.collinsbarrow.com

We have audited the accompanying consolidated financial statements of Micromem Technologies Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at October 31, 2012, October 31, 2011 and November 1, 2010 and the consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the years ended October 31, 2012 and October 31, 2011 and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

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

Auditor’s Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Micromem Technologies Inc. and its subsidiaries as at October 31, 2012, October 31, 2011 and November 1, 2010, and its financial performance and its cash flows for the years ended October 31, 2012 and October 31, 2011 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

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

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

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

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MICROMEM TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in United States dollars)

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

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

"Joseph Fuda" (Signed)                
Joseph Fuda, Director

"David Sharpless" (Signed)          
David Sharpless, Director

See accompanying notes.

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MICROMEM TECHNOLOGIES INC.

STATEMENTS OF CONSOLIDATED LOSS AND COMPREHENSIVE LOSS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

See accompanying notes.

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MICROMEM TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

See accompanying notes.

5

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MICROMEM TECHNOLOGIES INC.

Consolidated Statements of Changes in Shareholders' Equity

(Expressed in United States dollars)

6

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

1.	REPORTING ENTITY AND NATURE OF BUSINESS
	Micromem Technologies Inc. (“Micromem” or the “Company”) is a corporation incorporated under the laws of the Province of Ontario, Canada. The principal business address of the Company is 121 Richmond Street West, Suite 304, Toronto, Ontario, Canada.
	The Company currently operates as a developer of magnetic sensor technology and applications of this technology. The Company has not generated revenue through October 31, 2012 and is devoting substantially all of its efforts to the development of its technologies.
	These consolidated financial statements include the accounts of the Company and its wholly- owned subsidiaries:

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

These consolidated financial statements were authorized for issuance and release by the Company’s Board of Directors on February 21, 2013.

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

2.	GOING CONCERN
	These consolidated financial statements have been prepared on the “going concern” basis in accordance with International Financial Reporting Standards (“IFRS”), which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
	There are material uncertainties related to adverse conditions and events that cast significant doubt about the Company’s ability to continue as a going concern for a reasonable period of time in future. During the year ended October 31, 2012, the Company reported a net loss and comprehensive loss of $1,775,065 (2011: $3,182,387) a working capital deficiency (current assets less current liabilities excluding derivative warrant liability) (Note 15) of $731,673 (2011: $1,060,487) (2010: $1,459,460) and negative cash flow from operations of $2,573,982 (2011: $1,453,508).
	The Company continues to focus its development efforts on existing projects in order to develop commercial applications for these projects. It will be necessary for the Company to raise additional funds for the continued development, testing and commercial exploitation of its technologies. To date, the Company has raised financing through successive unit private placements, through the exercise of common share stock options and through the exercise of common share purchase warrants. It has also secured periodic bridge loans.
	The consolidated financial statements do not include any adjustments to the amounts and classifications of the assets and liabilities that might be necessary should the Company be unable to continue in business. If the “going concern” assumption were not appropriate for these consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments may be material.

8

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

3.	BASIS OF PRESENTATION

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

3.	BASIS OF PRESENTATION (Cont’d)

	c)	Functional and presentation currency:
		These consolidated financial statements are presented in United States dollars (“U.S. dollars”), which is also the Company’s functional currency.
	d)	Use of estimates and judgments:
		The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
		Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
		Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment are as follows:

	i)	The Company makes estimates and utilizes assumptions in determining the fair value for stock based compensation expense, warrants, the (gain) loss on the revaluation of the derivative warrant liability, the (gain) loss on the revaluation of the embedded derivatives relating to bridge loans and the bifurcation of convertible debt.
	ii)	The Company makes estimates related to the recovery of deferred development costs based on the expectation and assumption of realizing revenues from future commercial agreements that it anticipates will develop with the companies for whom these projects have been undertaken. Changes in these expectations and assumptions could result in a change in the recoverable amount calculated.
	iii)	The Company makes estimates related to the useful lives of property and equipment, patents and intangible assets and the related amortization. The Company also periodically assesses the recoverability of long-lived assets. The recoverability analysis requires the Company to make assumptions about future operations. Changes to one or more assumptions would result in a change in the recoverable amount calculated and/or amortization expensed.

10

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

3.	BASIS OF PRESENTATION (Cont’d)

d)

Use of estimates and judgments: (Cont’d)

	iv)	The Company maintains an allowance for doubtful accounts for estimated losses that may occur if parties are unable to pay balances owing to the Company. This allowance is determined based on a review of specific parties’ historical experience and economic circumstances.
	v)	Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax assets and unused tax losses can be utilized. At October 31, 2012, the Company has assessed that it is not probable that sufficient taxable profit will be available to use deferred income tax assets based on operating losses in prior years, therefore, there are no balances carried in the consolidated statements of financial position for such assets. In addition, the valuation of investment tax credits receivable requires management to make judgments on the amount and timing of recovery.
	vi)	The Company applies judgment in assessing whether material uncertainties exist that would cause significant doubt as to the whether the Company could continue as a going concern.
	vii)	The Company applies judgment in assessing the functional currency of each entity consolidated in these financial statements.

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

11

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

	a)	Basis of consolidation: (Cont’d)
		These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated. The accounting policies have been consistently applied by the Company’s subsidiaries.
	b)	Foreign currency translation:
		IFRS requires that the functional currency of each entity in the consolidated entity be determined separately in accordance with specific indicators and should be measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). As a result of an assessment of the primary indicators, management assessed the functional currency of the Company and its subsidiaries to be U.S. dollar (“USD”). The consolidated financial statements of the Company are prepared and presented using the USD.
		Foreign currency transactions denominated in other than U.S. dollars are translated into the functional currency on the following basis:

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

	c)	Financial Instruments: Recognition, Measurement, Disclosure and Presentation:
		The Company initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets including assets designated at fair value through profit or loss (FVTPL) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
		The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire.
		Financial assets and liabilities are offset and the net amount presented in the statement of financial position only when the Company has the legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
		The Company has the following financial assets: cash, deposits and other receivables and promissory note receivable.
		All financial assets and financial liabilities, including derivatives, are initially measured in the statement of financial position at fair value, except for loans and receivables, investments held-to maturity and other financial liabilities, which are measured at amortized cost. Measurement in subsequent periods depends on whether the financial instrument had been classified as FVTPL, available-for-sale, held-to-maturity, loans and receivables, or other liabilities.
		FVTPL financial assets are measured at fair value and all gains and losses are included in the statement of loss and comprehensive loss in the period in which they arise. Available- for-sale financial assets are measured at fair value with revaluation gains and losses included in other comprehensive income until the assets are removed from the statement of financial position.

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

	c)	Financial Instruments: Recognition, Measurement, Disclosure and Presentation: (Cont’d)
		The Company classifies cash as FVTPL. Deposits and other receivables and promissory note receivable are classified as loans and receivables, and are initially measured at fair value and subsequently at amortized cost using the effective interest rate method. Accounts payable and accrued liabilities and bridge loans are classified as other liabilities, and initially measured at fair value and subsequently at amortized cost using the effective interest rate method. The derivative warrant liability and embedded derivatives in bridge loans are classified at FVTPL and are measured at fair value with unrealized gains or losses reported in the consolidated statement of loss and comprehensive loss.
	d)	Compound Financial Instruments
		Compound financial instruments issued by the Company comprise convertible notes that can be converted to share capital at the option of the holder and the number of shares to be issued does not vary with changes in their fair value.
		The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option.
		The equity component, if the conversion feature of the convertible note is in US dollars, is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
		Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest rate method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition.
		Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss except for borrowing costs on qualifying assets which are added to asset cost. Distributions to the equity holders are recognized in equity, net of any tax effect.

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

	e)	Hybrid Financial Instruments:
		Financial instruments with embedded derivative liabilities are accounted for as hybrid financial instruments. The Company has hybrid financial instruments when the embedded derivative conversion option right of the convertible notes gives the right to the holder to convert into a common share in Canadian dollars (“CDN”).
		An embedded derivative is a feature within a contract, such that the cash flows associated with that feature behave in a similar fashion to a stand-alone derivative. An embedded derivative is separated from its host contract and accounted for as a derivative only when three criteria are satisfied:

• When the economic risks and characteristics of the embedded derivatives are not closely related to those of the host contract;

• A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

• The entire instrument is not measured at fair value with changes in fair value recognized in the income statement.

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

f)

Derivative Liability (Cont’d)

	i)	Derivative Warrant Liability:
		The Company issues share purchase warrants in conjunction with private placements for the purchase of common shares of the Company. A number of these share purchase warrants were issued with an exercise price in CDN, rather than USD (the reporting and functional currency of the Company). Such share purchase warrants are considered to be derivative instruments and the Company is required to re-measure the fair value of these at each reporting date. The fair value of these CDN share purchase warrants are re-measured at each financial position date using the Black Scholes option-pricing model using the exchange rates at the financial position date and measured over their remaining life. Adjustments to the fair value of the derivative warrant liability as at the financial position date are recorded in the statement of loss and comprehensive loss as (gain) loss on revaluation of derivative warrant liability. Share purchase warrants that have expired or have been forfeited are adjusted to the statement of loss and comprehensive loss as (gain) loss on revaluation of derivative warrant liability.
		Consideration received upon the exercise of warrants is credited to share capital and the related amount is transferred from contributed surplus (USD warrants) or derivative warrant liability to share capital (CDN warrants).
	ii)	Conversion Feature of Bridge Loans
		The conversion feature on the bridge loans allows the holder of the option to convert the outstanding principal and interest from time to time to common equity. The Company, using the Black Scholes option-pricing model, accounts for bridge loans as follows:

	(i)	At date of origination the bifurcation of the total balance of the loan as debt and equity is calculated. If the conversion feature of the bridge loan is in CDN there is no equity component, resulting in an embedded derivative. Accretion expense is recorded over the term of the loan.
	(ii)	The total loan proceeds are allocated between the bridge loans and the related embedded derivative based on their relative fair value. The embedded derivative conversion feature is included under the bridge loans in the statement of financial position.

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

f)

Derivative Liability (Cont’d)

(iii)

The conversion feature is revalued at the end of the reporting period and any adjustment is reflected in the statement of loss and comprehensive loss if the conversion feature is in CDN.

	g)	Loan Impairment:
		Impaired loans are accounted for at their face amount net of the allowance for loan impairment. When a loan is deemed to be impaired, its carrying amount is reduced to its estimated realizable amount which is measured by discounting the expected future cash flows at the effective interest rate inherent in the loan. The amount initially recognized as an impairment loan, together with any subsequent change, is charged to the allowance as an adjustment. A write-off of the loan will occur when the loan is believed to have no reasonable expectation of collectability.
	h)	Intangible Assets
		Costs for the general development of the Company’s sensor technology are expensed unless they meet the criteria for deferral. Expenditures are capitalized if the Company can demonstrate each of the following criteria: (i) the technical feasibility of completing the intangible asset so that it will be available for use or sale, (ii) its intention to complete the intangible asset and use or sell it, (iii) its ability to use or sell the intangible asset, (iv) how the intangible asset will generate probable future economic benefits, (v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and (vi) its ability to measure reliably the expenditure attributable to the intangible asset during its development; otherwise, they are expensed as incurred. Commencing in 2011, the Company determined that these costs met the criteria and, accordingly, these costs have been capitalized and are tested in each reporting period for impairment. Amortization is provided on a 7 year straight-line basis.
	i)	Property and Equipment:
		Property and equipment are recorded at cost and are amortized over their estimated useful lives at the following annual rates and methods:

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

	k)	Research and Development Costs:
		Research costs are expensed in the period incurred. Development costs are expensed as incurred unless they meet the criteria for deferral. Expenditures during the development phase are capitalized if the Company can demonstrate each of the following criteria: (i) the technical feasibility of completing the asset so that it will be available for use or sale, (ii) its intention to complete the asset and use or sell it, (iii) its ability to use or sell the asset, (iv) how the asset will generate probable future economic benefits, (v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the asset, and (vi) its ability to measure reliably the expenditure attributable to the asset during its development; otherwise, these costs are expensed as incurred. Commencing in 2009, the Company determined that its continuing activities related to the application of its sensor technology met the deferral criteria and, accordingly, these costs have been capitalized and are tested in each reporting period for recoverability. Development costs will be amortized on an appropriate basis at the time the Company enters commercial production.
		Investment tax credits (ITCs) arising from research and development are recognized when their realization is reasonably assured. The ITCs are applied against the related deferred costs and expenditures in the year that they are incurred.
	l)	Patents:
		Patents are recorded at cost and are amortized on a straight line basis over their estimated useful lives of 5 years. Patents are recorded net of accumulated amortization with amortization expense capitalized as deferred development costs since the patents are directly related to development.
	m)	Unit Private Placements:
		The Company uses the relative fair value approach in accounting for the value assigned to the common shares and the common share purchase warrants which it had made available in the unit private placement financings that it secured, calculated in accordance with the Black Scholes option-pricing model.

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

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

21

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

5.	NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET ADOPTED
	Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee (“IFRIC”) that are mandatory for future accounting periods. The standards impacted that are applicable to the Company are as follows:

a)

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

• Amortized cost and

• Fair value through profit and loss

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

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

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

22

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

5.	NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET ADOPTED (Cont’d)

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

23

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

5.	NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET ADOPTED (Cont’d)

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

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

24

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

25

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

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

26

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

			October 31, 2011									November 1, 2010
			Canadian									Canadian
			GAAP			Adj			IFRS			GAAP			Adj			IFRS
	Assets
	Current assets:
	Cash	$	44,062		$	-		$	44,062		$	26,039		$	-		$	26,039
	Deposits and other receivables		32,334			-			32,334			97,063			-			97,063
	Promissory note receivable		-			-			-			5,000			-			5,000
			76,396			-			76,396			128,102			-			128,102
	Property and equipment, net		10,201			-			10,201			16,686			-			16,686
	Deferred development costs		646,606			-			646,606			221,521			-			221,521
	Intangible assets, net		135,465			-			135,465			-			-			-
	Patents, net		37,678			-			37,678			202,027			-			202,027
		$	906,346		$	-		$	906,346		$	568,336		$	-		$	568,336
	Liabilities and Shareholders' Equity (Deficiency)
	Current liabilities:
	Bridge loans	$	106,783			13,259		$	120,042		$	512,548			-		$	512,548
	Accounts payable and accrued liabilities		1,016,841			-			1,016,841			1,075,014			-			1,075,014
	Derivative warrant liability		-			1,178,691			1,178,691			-			68,207			68,207
			1,123,624			1,191,950			2,315,574			1,587,562			68,207			1,655,769
	Shareholders' Equity (Deficiency)
	Share capital		51,774,555			-			51,774,555			50,102,699			-			50,102,699
	Equity component of bridge loans		558			(558	)		-			5,784			-			5,784
	Contributed surplus		26,851,850			(865,574	)		25,986,276			24,664,404			(165,668	)		24,498,736
	Deficit		(78,844,241	)		(325,818	)		(79,170,059	)		(75,792,113	)		97,461			(75,694,652	)
			(217,278	)		(1,191,950	)		(1,409,228	)		(1,019,226	)		(68,207	)		(1,087,433	)
		$	906,346		$	-		$	906,346		$	568,336		$	-		$	568,336

Summary of IFRS transition adjustments:

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

27

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

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

Reconciliation of equity component of bridge loans:

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

28

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

Reconciliation of deficit:

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

Reconciliation of Loss and Comprehensive Loss:

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

29

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

7.	RESTATEMENT OF FINANCIAL STATEMENTS TO IFRS (Cont’d)
	Reconciliation of Loss and Comprehensive Loss: (Cont’d)
	The Company reclassified stock based compensation from professional, other fees and salaries to a separate line item to classify this line item by function as required under IFRS.
	The adjustment for the modification of conversion feature of bridge loans was recorded to deficit under Canadian GAAP guidance. Under IFRS guidance, this amount is recorded to loss and comprehensive loss.
8.	FAIR VALUE DISCLOSURES
	The following summarizes the methods and assumptions used in estimating the fair value of the Company's financial instruments where measurement is required. The fair value of financial instruments consisting of cash, deposits and other receivables, promissory note receivable, accounts payable and accrued liabilities and bridge loans approximate their carrying amounts due to the relatively short period to maturity. Fair value amounts represent point-in-time estimates and may not reflect fair value in the future. The measurements are subjective in nature, involve uncertainties and are a matter of significant judgment. The methods and assumptions used to develop fair value measurements, for those financial instruments where fair value is recognized in the statement of financial position, have been prioritized into three levels of the fair value hierarchy as follows:
	Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
	Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
	Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
	The Company's financial instruments measured at fair value on the statement of financial position date consist of cash, derivative warrant liability and the conversion feature on bridge loans. Cash is measured at Level 1 of the fair value hierarchy. Derivative warrant liability and the conversion feature on bridge loans are measured at Level 2 of the fair value hierarchy.

30

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

9.	CAPITAL RISK MANAGEMENT
	The Company’s objective when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Company includes equity, comprised of issued share capital, equity component of bridge loans, contributed surplus and deficit, in the definition of capital. The Company’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to further develop and market its technologies and to maintain its ongoing operations. To secure the additional capital necessary to pursue these plans, the Company may attempt to raise additional funds through the issuance of equity and warrants or by securing strategic partners. The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the year ended October 31, 2012.
10.	PROMISSORY NOTE RECEIVABLE
	In April 2009, the Company advanced $200,000 to a private company incorporated in New Jersey and a strategic development partner of the Company. The Company and the private Company executed a promissory note with respect to the $200,000 advance stipulating the following terms and conditions:

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

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

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

31

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

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

32

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

11.	PROPERTY AND EQUIPMENT

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

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

33

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

	Netted in additions are $Nil (2011 - $129,600) of amounts received from strategic development partners.
	Included in additions is patent amortization of $15,204 (2011 - $Nil).
13.	INTANGIBLE ASSETS AND PATENTS
	Intangible assets comprise the costs which the Company has capitalized relating to the technical expertise and know-how that the Company has developed with respect to the commercialization efforts relating to its sensor technology. In 2011, the Company determined that it had sufficiently advanced its expertise and product knowledge relating to the general commercialization efforts for its sensor technology in multiple industry vertical applications. It anticipates that it will realize commercial economic benefits from the exploitation of these intangible assets in future.
	Intangible Assets
	Cost

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

34

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

13.	INTANGIBLE ASSETS AND PATENTS (cont’d) Intangible Assets Accumulated amortization

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

Patents

Cost

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

35

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

13.	INTANGIBLE ASSETS AND PATENTS (Cont’d) Accumulated Amortization

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

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

	a)	Share Capital
		Authorized and outstanding:
		The Company has two classes of shares as follows:

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

36

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

14.	SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE (Cont’d)

a)

Share Capital (Cont’d)

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

	b)	Stock Options
		Stock option plan:
		The Company has a fixed stock option plan. Under the Company’s stock option plan (the “Plan”), the Company may grant options for up to 15,600,000 shares of common stock to directors, officers, employees or consultants of the Company and its subsidiaries. The exercise price of each option is equal to or greater than the market price of the Company’s shares on the date of grant unless otherwise permitted by applicable securities regulations. An option’s maximum term under the Plan is 10 years. Stock options are fully vested upon issuance by the Company unless the Board of Directors stipulates otherwise by Directors’ resolution.

37

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

14.	SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE (Cont’d)

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

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

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

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

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

38

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

14.	SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE (Cont’d)

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

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

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

39

---

MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

14.	SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE (Cont’d)

	c)	Loss Per Share
		The calculation of basic and diluted loss per share for the year ended October 31, 2012 was based on the loss attributable to common shareholders of $1,775,065 (2011 - $3,182,387) divided by the weighted average number of common shares outstanding of 123,375,510 (2011 – 102,301,168).
		Diluted loss per share did not include the effect of 9,915,000 stock options and 19,692,968 warrants outstanding and the potential conversion of bridge loans as they are anti-dilutive.

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

a)

Private Placements

	i)	In 2012 the Company completed a series of private placement financings with investors pursuant to prospectus and registration exemptions set forth in applicable securities law. The Company received gross proceeds $1,040,899 and issued a total of 6,344,899 common shares.
		6,344,899 common share purchase warrants with an average price of $0.17 were attached to the private placement completed during 2012. All warrants issued in 2012 have a 12 month term from issue date.
	ii)	In 2011 the Company completed a series of private placement financings with investors pursuant to prospectus and registration exemptions set forth in applicable securities law. The Company received gross proceeds $2,478,681 and issued a total of 20,825,207 common shares.
		20,825,207 common share purchase warrants with an average price of $0.14 were attached to the private placement completed during 2011. All warrants issued in 2011 had a 12 month term from issue date.

40

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

a)

Private Placements

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

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

41

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

a)

Private Placements

The Company calculated the charge associated with the extension of warrants in accordance with the Black Scholes option-pricing model. The Company reported a total charge to deficit of $1,322,879 (2011 - $293,020) and an offsetting charge to contributed surplus of $358,983 (2011 - $113,384) for US dollar warrants extended and $963,896 (2011 - $179,636) to derivative warrant liability for Canadian warrants extended.

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

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

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

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

42

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

	b)	Derivative Warrant Liability (Cont’d)
		The derivative warrant liability was revalued at year end using the Black Scholes option- pricing model with the following assumptions:

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

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

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

43

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

c)

Share Purchase Warrants (Cont’d)

44

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

16.	BRIDGE LOANS

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

45

---

MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

16.	BRIDGE LOANS (Cont’d)

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

46

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

16.	BRIDGE LOANS (Cont’d)

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

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

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

47

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

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

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

48

---

MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

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

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

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

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

49

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

17.	CONTRIBUTED SURPLUS

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

50

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

18.	INCOME TAXES

(a)

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

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

In addition the Company has available capital loss carry forwards of approximately $1.7 million to reduce future taxable capital gains, the benefit of which has not been recognized in these consolidated financial statements. These losses carry forward indefinitely.

51

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

18.	INCOME TAXES (Cont’d)

(b)

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

			October 31,			October 31,			November 1,
			2012			2011			2010
						(Note 6)			(Note 6)
	Non-capital losses and other	$	5,877,761		$	4,959,149		$	4,104,904
	Capital losses		221,578			210,319			204,815
	Property, equipment, intangibles, patents and deferred development costs		1,988,956			1,898,201			1,911,952
	Share issue costs		21,497			28,788			32,525
			8,109,792			7,096,457			6,254,196
	Deferred tax assets not recognized		(8,109,792	)		(7,096,457	)		(6,254,196	)
		$	-		$	-		$	-

(c)

The reconciliation of income tax attribute to continuing operation computed at the statutory tax rates to income tax expense is as follows:

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

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

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

Professional, other fees and salaries

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

20.	MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS

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

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

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

20.	MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS (Cont’d)

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

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

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

21.	COMMITMENTS

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

• OCE released the Company and the UofT from the commercialization obligations set forth in all prior research collaboration agreements.

• The Company acquired exclusive worldwide rights to the technology and patent rights related to the technology developed at the UofT.

• The Company has agreed to royalties and payments under the terms of the License Agreement as follows:

• In consideration for the rights and licenses granted, the Company has agreed to pay to the UofT:

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

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

21.	COMMITMENTS (Cont’d)

(a)

License Agreement:

iii.

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

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

• As a condition to entering the License Agreement the Company agreed to a research agreement with a funding commitment of $500,000 CDN, to continue the further research and development of the inventions and the Company’s intellectual property. In August 2005, the Company made an initial payment of $250,000 CDN and, in November 2005, the Company made the second payment of $250,000 CDN under the terms of this research agreement.
  

		To date the Company reports nil revenues relating to this technology.
	(b)	Operating Leases:
		The Company secured new leased premises in June 2012. The lease term is for 5 years and stipulates base monthly rental expenses of $3,800 CDN. Lease commitments for this premise are as follows:

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

22.	CONTINGENCIES
	The Company has agreed to indemnify its directors and officers and certain of its employees in accordance with the Company’s by-laws. The Company maintains insurance policies that may provide coverage against certain claims.
23.	FINANCIAL RISK MANAGEMENT

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

	i.	Foreign Exchange Risk:
		The Company currently incurs expenses in Canadian dollars. The total monetary financial instruments are in a net liabilities position. Management monitors the Canadian net liability position on a periodic basis throughout the course of the year and adjusts the total net monetary liability balance accordingly.
		The consolidated financial statements include balances that are denominated in Canadian dollars as follows:

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

23.	FINANCIAL RISK MANAGEMENT (Cont’d)

(b)

Market Risk: (Cont’d)

	ii.	Foreign Exchange Risk:
		A 10% strengthening of the US dollar against the Canadian dollar would have increased the net equity by $10,695 (2011 – $55,862) due to a reduction in the value of net liability balance. A 10% weakening of the US dollar against the Canadian dollar at October 31, 2012 would have had the equal but opposite effect.
	iii.	Interest Rate Risk:
		Cash flow interest rate risk is the risk that the future cash flow of a financial instrument will fluctuate because of changes in market interest rates.
		Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s cash and promissory note receivable earn interest at market rates. The Company manages its interest rate risk by maximizing the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. Fluctuations in market rates of interest may have an impact on the Company’s results of operations.
		The Company is exposed to interest price risk on its interest bearing bridge loans as the interest rate is fixed.

	(c)	Liquidity Risk:
		Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due.
		The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. Senior management is actively involved in the review and approval of planned expenditures.
		All financial liabilities are due within 1 year from the balance sheet at October 31, 2012.

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

23.	FINANCIAL RISK MANAGEMENT (Cont’d)

	(d)	Credit Risk:
		Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s cash and cash equivalents, deposit and other receivables. The carrying amount of financial assets represents maximum credit exposure.
		As at October 31, 2012, the Company reports a working capital deficiency of $731,673 (measured as current assets less current liabilities excluding the derivative warrant liability) and has certain financial commitments (Notes 20 and 21), the majority of which are due within one year. It must continue to raise financing in order to meet its current obligations.

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

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

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MICROMEM TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

For the years ended October 31, 2012 and 2011

25.	SUBSEQUENT EVENTS (Cont’d)

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

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

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ITEM 19. Exhibits

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

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

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Exhibit No. 4.3	Employment Agreement by and between Micromem Technologies and Dan Amadori dated May 28, 2008 (Incorporated by reference to the Company’s Form 20-F filed with the Commission on February 24, 2009).
Exhibit No. 4.4	Employment Agreement by and between Micromem Technologies and Steven Van Fleet dated May 28, 2008 (Incorporated by reference to the Company’s Form 20-F filed with the Commission on February 24, 2009).
Exhibit No. 4.5	Agreement with Investor Relations Group dated September 1, 2008 (Incorporated by reference to the Company’s Form 20-F filed with the Commission on February 24, 2009).
Exhibit No. 4.6	Agreement with Dreifus Associates Limited (DAL) dated June 1, 2008 (Incorporated by reference   to the Company’s Form 20-F filed with the Commission on February 24, 2009).
Exhibit No. 4.7	Unotron Promissory Note dated August 1, 2009 (Incorporated by reference to the Company’s Annual Report on Form 20-F filed with the Commission on March 1, 2010).
Exhibit No. 4.8	Agreement with Life Med Technologies Inc. (Incorporated by reference to the Company’s Annual Report on Form 20-F filed with the Commission on March 1, 2010)
Exhibit No. 4.9	Manufacturing Supply Agreement with Unotron. (Incorporated by reference to the Company’s Annual Report on Form 20-F/A filed with the Commission on February 25, 2011)
Exhibit No. 8.1	List of Subsidiaries (Incorporated by reference to the Company’s Annual Report on Form 20-F filed with the Commission on March 1, 2010)
Exhibit No. 12.1	Officer's Certification pursuant to Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).
Exhibit No. 12.2	Officer's Certification pursuant to Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).
Exhibit No. 13.1	Officer's Certification pursuant to Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).
Exhibit No. 13.2	Officer's Certification pursuant to Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).

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SIGNATURES

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

MICROMEM TECHNOLOGIES INC.

By:       /s/ Joseph Fuda                  
Name:  Joseph Fuda
Title:    Chief Executive Officer

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

Dated: February 22, 2013

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