Condensed Consolidated Financial Statements of

MICROMEM TECHNOLOGIES INC.

For the three and six months ended April 30, 2017 and 2016

(Expressed in United States Dollars)

1

MICROMEM TECHNOLOGIES INC.

Condensed Consolidated Interim Financial Statements

For the six months ended April 30, 2017

(Expressed in United States Dollars)

Notice of No Auditors Review of Interim Financial Statements

In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors have not reviewed the unaudited financial statements for the six months ended April 30, 2017 which have been prepared by and are the responsibility of the Company’s management.

2

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

		April 30,			October 31,
		2017			2016
Assets
Current assets:
Cash	$	33,583		$	288,128
Deposits and other receivables (Note 5)		45,039			33,327
		78,622			321,455
Property and equipment, net		12,672			10,988
Patents, net (Note 7)		410,178			403,600
	$	501,472		$	736,043
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	933,104		$	917,179
Bridge loans (Note 9)		4,501,088			3,637,008
Derivative liability (note 9)		524,558			83,998
	$	5,958,750		$	4,638,185
Shareholders' Equity
Share capital: (Note 8)
Authorized:                          2,000,000 special preference shares, redeemable, voting                          Unlimited common shares without par value                   Issued and outstanding:                          204,877,878 common shares (2016: 204,388,569) (Note 8)	$	76,102,945		$	75,855,139
Subscription received		62,271			-
Equity component of bridge loans (note 9)		23,075			23,075
Contributed surplus		27,360,676			26,918,470
Deficit		(109,006,246	)		(106,698,826	)
		(5,457,278	)		(3,902,142	)
	$	501,472		$	736,043

"Joseph Fuda" (Signed)

Joseph Fuda, Director

"David Sharpless" (Signed)

David Sharpless, Director

See accompanying notes.

3

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

For the three and months ended April 30, 2017 and 2016 (Unaudited).

		Three months Ended April 30						Six months Ended April 30
		2017			2016			2017			2016
Costs and expenses :
Administration (Note 11)	$	72,132		$	84,640		$	146,570		$	163,231
Professional, other fees and salaries (Note 11)		491,967			485,547			903,175			941,209
Stock based compensation (Note 8)		-			-			442,206			(85,500	)
Development costs, net (Note 6)		129,399			2,421			220,857			3,418
Travel and entertainment		35,018			35,036			64,116			80,075
Amortization of property and equipment		1,060			1,456			2,124			2,625
Amortization of patents		31,660			-			61,065			-
Foreign exchange (gain) loss		91,455			(5,381	)		97,009			(11,582	)
Loss from operations		852,691			603,719			1,937,122			1,093,476
Other income and expense
Interest expense		155,473			92,795			315,114			210,483
Accretion expense (Note 9)		156,847			54,424			297,759			58,666
(Gain) loss on revaluation of derivative liability (Note 9)		(1,289,544	)		-			(242,576	)		-
Net income (loss) before income taxes		124,532			(750,938	)		(2,307,420	)		(1,362,625	)
Income taxes (Note 10)		-			-			-			-
Net income (loss) and comprehensive (loss)	$	124,532		$	(750,938	)	$	(2,307,420	)	$	(1,362,625	)
Income (loss) per share - basic and diluted (Note 8)	$	-		$	-		$	(0.01	)	$	(0.01	)
Weighted average number of shares (Note 8)		204,726,575			197,972,158			204,636,870			197,298,255

See accompanying notes.

4

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

For the three and six months ended April 30, 2017 and 2016 (Unaudited).

		Three Months Ended April 30						Six Months Ended April 30
		2017			2016			2017			2016
Cash flows from operating activities:
Net income (loss)	$	124,532		$	(750,938	)	$	(2,307,420	)	$	(1,362,625	)
Adjustments to reconcile loss for the period to net    cash used in operating activities:
Amortization of patents intangible assets		31,660			-			61,065			-
Amortization of property and equipment		1,060			1,456			2,124			2,625
Accretion expense		156,847			54,424			297,759			58,666
Stock based compensation		-			-			442,206			(85,500	)
(Gain) loss on revaluation of derivatives		(1,289,544	)		-			(242,576	)		-
Increase (decrease) in deposits and other receivables		(2,988	)		87,164			(11,712	)		(58,252	)
(Decrease) increase in accounts payable and accrued liabilities		356,516			162,941			141,448			292,720
Net cash used in operating activities		(621,917	)		(444,953	)		(1,617,106	)		(1,152,366	)
Cash flows from investing activities:
Purchase of property and equipment		-			-			(3,807	)		-
Patents		(52,426	)		(59,758	)		(67,642	)		(141,452	)
Deferred development costs		-			(195,038	)		-			(904,057	)
Recovery of deferred development costs		-			-			-			443,901
Net cash used in investing activities		(52,426	)		(254,796	)		(71,449	)		(601,608	)
Cash flows from financing activities:
Issue of common shares		162,709			55,000			219,222			110,000
Bridge loans advances		325,905			451,402			992,982			1,359,432
Bridge loan repayments		(78,175	)		(41,100	)		(155,580	)		(63,100	)
Bridge loans Interest accrued		155,473			91,670			315,114			209,359
Subscription received		62,271			-			62,271			-
Net cash provided by financing activities		628,184			556,972			1,434,010			1,615,691
Increase (decrease) in cash		(46,159	)		(142,777	)		(254,545	)		(138,283	)
Cash, beginning of period		79,742			163,062			288,128			158,568
Cash, end of period	$	33,583		$	20,285		$	33,583		$	20,285
Supplemental cash flow information:
Interest paid (classified in operating activities)		78,175			41,100			155,579			63,100
Shares issued on settlement of accounts payable		-
Shares issued on settlement of legal claim		-			-			-			-
Shares issued on converstion of bridge loan

See accompanying notes.

5

											Equity
											component
	Number of			Share		Subscription		Contributed			of Bridge			Deficit			Total
	Shares			capital		received		Surplus			loan
Balance as at November 1, 2015	197,176,368		$	74,083,975	$	-	$	27,213,204		$	-		$	(99,893,291	)	$	1,403,888
Private placement of units for cash	366,668			110,000		-		-			-			-			110,000
Options exercised	3,756,366			751,273		-		-			-			-			751,273
Fair value of options exercised	-			443,252		-		(443,252	)		-			-			-
Common shares issued against payable	1,517,143			295,312		-		-			-			-			295,312
Common shares issued against settlement of debt	312,500			62,500		-		-			-			-			62,500
Common shares issued for conversion of bridge loan	509,524			108,827		-		-			(1,827	)		-			107,000
Equity component of bridge loans	-			-		-		-			173,420			-			173,420
Expiration of bridge loan equity conversion option	-			-		-		148,518			(148,518	)		-			-
Treasury shares to be cancelled	750,000			-		-		-			-			-			-
Net loss and comprehensive loss	-			-		-		-			-			(6,805,535	)		(6,805,535	)
Balance at October 31, 2016	204,388,569			75,855,139		-		26,918,470			23,075			(106,698,826	)		(3,902,142	)
Private placement of units for cash	1,091,666			219,222		-		-			-			-			219,222
Common shares issued against payable	147,643			28,584		-		-			-			-			28,584
Stock based compensation	-			-		-		442,206			-			-			442,206
Subscription received	-			-		62,271		-			-			-			62,271
Treasury shares cancelled	(750,000	)				-		-			-			-			-
Net loss and comprehensive loss	-			-		-		-			-			(2,307,420	)		(2,307,420	)
Balance at April 30, 2017	204,877,878			76,102,945		62,271		27,360,676			23,075			(109,006,246	)		(5,457,279	)

6

MICROMEM TECHNOLOGIES INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

TABLE OF CONTENTS

7

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

1.	REPORTING ENTITY AND NATURE OF BUSINESS
	Micromem Technologies Inc. (“Micromem” or the “Company”) is incorporated under the laws of the Province of Ontario, Canada. The principal business address of the Company is 121 Richmond Street West, Suite 304, Toronto, Ontario, Canada.
	The Company develops, based upon proprietary technology, customized magnetic sensor applications for companies (referred to as “development partners”) operating internationally in various industry segments.
	These consolidated financial statements include the accounts of the Company and its wholly- owned subsidiaries:
	(i)	Micromem Applied Sensors Technology, Inc. (“MAST”) incorporated in November 2007 and domiciled in Delaware, United States. MAST has the primary responsibility for the exploitation of the Company’s technologies in conjunction with various strategic partners and customers.
	(ii)	7070179 Canada Inc., incorporated in October 2008 under the Canada Business Corporations Act in Ontario, Canada. The Company has assigned to this entity its rights, title and interests in certain patents which it previously held, directly in exchange for common shares of this entity.
	(iii)	Memtech International Inc., Bahamas; Memtech International (USA) Inc., Delaware, United States; Pageant Technologies (USA) Inc., United States; Pageant Technologies Inc., Barbados; and Micromem Holdings (Barbados) Inc., Barbados. All of these entities are inactive.

	These consolidated financial statements were authorized for issuance and release by the Company’s Board of Directors on June 28, 2017.
2.	GOING CONCERN
	These consolidated financial statements have been prepared on the “going concern” basis in accordance with International Financial Reporting Standards (“IFRS”), which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
	There are material uncertainties related to conditions and events that cast significant doubt about the Company’s ability to continue as a going concern for a reasonable period of time in future. During the six months ended April 30, 2017, the Company reported a net loss and comprehensive loss of $2,307,420 (2016 - $1,362,625) and negative cash flow from operations of $1,617,107 (2016 - $1,152,366) measured as net loss reported with non cash expenses added back. The Company’s working capital deficiency as at April 30, 2017 is $5,355,570 excluding consideration of the non-cash derivative liability as reported (as at October 31, 2016: $4,232,732).

8

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

	The Company’s success depends on the profitable commercialization of its proprietary magnetic sensor technology. There is no assurance that the Company will be successful in the profitable commercialization of its technology. Based upon its current operating and financial plans, management of the Company believes that it will have sufficient access to financial resources to fund the Company’s planned operations through fiscal 2017; however, the ability of the Company to continue as a going concern is dependent upon its ability to secure additional financing and/or profitably commercialize its technology. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
	If the “going concern” assumption were not appropriate for these consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used; in such cases, these adjustments would be material.
3.	BASIS OF PRESENTATION

a)	Statement of Compliance with International Financial Reporting Standards:
	These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). Accordingly, they do not include all of the information required for annual financial statements and should be read in conjunction with the audited annual financial statement for the year ended October 31, 2016. The accounting policies adopted are consistent with those of the previous financial year and the corresponding interim reporting period.
b)	Basis of measurement:
	The Company’s condensed consolidated interim financial statements have been prepared on the historical cost basis except for certain non-current assets and financial statements, which are measured at fair value, as explained in Note 4, Continuity of Significant Accounting Policies.

9

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

c)	Functional and presentation currency:
	These consolidated financial statements are presented in United States dollars (“U.S. dollars”), which is also the Company’s and wholly-owned subsidiaries functional currency.
d)	Critical accounting Judgements, Estimates and Assumptions:
	The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
	Information about judgments, assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment are as reported in the audited consolidated financial statements for the year ended October 31, 2016 and continue at April 30, 2017. These include estimates and assumptions utilized in determining fair values as required under IFRS, estimates related to the recovery of deferred development costs, capitalization criteria for patents, impairment of long-lived assets, deferred income taxes, functional currency and the assessment of material uncertainties.

4. CONTINUITY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PROCEDURES

a)	Accounting Policies:
	These unaudited interim condensed consolidated financial statements follow the same accounting policies and methods of application as set in the audited consolidated financial statements for the year ended October 31, 2016 and should be read in conjunction with the audited consolidated financial statements. There have been no changes in accounting policies or methods of application of accounting policies in the six month period ending April 30, 2017.
b)	Fair Values:
	There were no changes in the methods and assumptions used in estimating the fair value of the Company’s financial instruments and no changes to the classification of financial instruments in terms of the levels of financial hierarchy during the six month period ending April 30, 2017 from those disclosed at October 31, 2016.

10

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

c)	Capital Management:
	There have been no changes to the objectives, policies and procedures that the Company has adopted and implemented with respect to capital management during the six month period ending April 30, 2017 from those disclosed at October 31, 2016.
d)	Financial Risks:
	The Company is exposed to and evaluates a variety of financial risks relative to its activities: market risk (including foreign exchange risk and interest rate risk), liquidity risk and credit risk. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects 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. The Company continues to closely monitor its working capital position.

e) New standards and interpretations issued but not yet adopted: The disclosures reported at October 31, 2016 relating to IFRS 15, IFRS 9, IAS7 and IFRS 16 remain valid at April 30, 2017. The Company is currently assessing the impact of these standards which are effective for future reporting periods.

5.	DEPOSITS AND OTHER RECEIVABLES
	The balance reported as Deposits and other receivables consists of:

		April 30,		October 31,
		2017		2016
Advances to employee		5,655		7,586
Prepaid insurance and other		39,384		25,741
	$	45,039	$	33,327

As at April 30, 2017, advances to employee consisted of an advance of $5,655 (October 31, 2016: $7,586). This advance is non-interest-bearing, unsecured and due on demand.

11

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

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

		April 30,		October 31,
		2017		2016
Opening balance	$	-	$	3,070,299
Additional project costs incurred		-		1,186,720
Recovery of development costs		-		(643,901	)
Writedown of project costs		-		(3,613,118	)
Closing balance	$	-	$	-

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

The Company wrote-off the capitalized cost of $3,613,118 in the third quarter of the year ended October 31, 2016 to reduce the carrying value of those projects to a value of nil given the uncertainty of realization of these costs. The Company anticipates that it may realize commercial economic benefits from the exploitation of these development projects in the future. Development costs incurred since August 1, 2016 are charged to expense in the period incurred. In the six months ended April 30, 2017 the Company incurred $516,857 of development costs and recovered $296,000 from its development partners, to report net development expenses of $220,857 in the statement of consolidated loss.

12

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

7.	PATENTS
	Cost

At November 1, 2015	$	428,308
Additions		192,873
Year ended October 31, 2016	$	621,181
At November 1, 2016	$	621,181
Additions		67,642
Six months ended April 30, 2017	$	688,823
Amortization
At November 1, 2015	$	119,066
Amortization for the year		98,515
Year ended October 31, 2016	$	217,581
At November 1, 2015	$	217,581
Amortization for the period		61,065
Six months ended April 30, 2017	$	278,645
Net book value at October 31, 2016	$	403,600
Net book value at April 30,2017	$	410,178

13

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

8.	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.

	Number of			Amount
	Shares			$
Balance at November 1, 2015	197,176,368		$	74,083,975
Private placement of shares for cash	366,668			110,000
Options exercised	3,756,366			751,273
Fair value of options exercised	-			443,252
Shares issued on settlement of accounts payable	1,517,143			295,312
Shares issued on settlement of legal claim	312,500			62,500
Shares issued on settlement of bridge loan	509,524			107,000
Equity component of bridge loan				1,827
Treasury shares to be cancelled	750,000			-
Balance at October 31, 2016	204,388,569		$	75,855,139
Treasury shares cancelled	(750,000	)
Private placement of common shares for cash	1,091,666			219,222
Shares issued on settlement of accounts payable	147,643			28,584
Subscription received to close in Q3				62,271
Balance at April 30, 2017	204,877,878		$	76,102,945

In July 2016, the Company negotiated the settlement of a trade payable with an arm’s length service provider as settlement of trade account payable in the amount of $170,300 through the issuance of 1,000,000 common shares. The Company also issued an additional 1,000,000 common shares to settle up an additional $200,000 of services to be rendered by the arm’s length service provider between July and December, 2016. These 1,000,000 shares were held in trust by the Company to be released in tranches of 250,000 commons shares as services were rendered.

Between July and September 2016, services were provided under this arrangement and the Company released 250,000 common shares as settlement of the services rendered.

In October 2016, this settlement arrangement was cancelled by mutual consent. Accordingly, the Company proceeded to return the remaining 750,000 common shares to treasury for cancellation. The 750,000 common shares remained outstanding as issued but not released as at October 31, 2016 and were cancelled in the quarter ending April 30, 2017.

14

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

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

b)	Stock Options
	Stock option plan:
	The Company has a fixed stock option plan. Under the Company’s stock option plan (the “Plan”), the Company may grant options for up to 18,840,000 shares of common stock to directors, officers, employees or consultants of the Company and its subsidiaries. The exercise price of each option is equal to or greater than the market price of the Company’s shares on the date of grant unless otherwise permitted by applicable securities regulations. An option’s maximum term under the Plan is 10 years. Stock options are fully vested upon issuance by the Company unless the Board of Directors stipulates otherwise by Directors’ resolution.
	A summary of the status of the Company’s fixed stock option plan through April 30, 2017 and changes during the periods is as follows:

			Weighted
			average
	Options		exercise price		Proceeds
	(000	)	$		realized
Outstanding, November 1, 2015	9,817		0.31
Granted	-		-
Exercised	(3,756	)	(0.20	)	751,273
Expired	(1,666	)	(0.21	)
Outstanding, October 31, 2016	4,395		0.45
Granted	2,890		0.22
Expired	(690	)	(0.35	)
Outstanding, April 30, 2017	6,595		0.36

The weighted average share price on the dates of exercise was $0.36 (2015 - $0.48) .

During the year ended October 31, 2016 the Company issued a total of nil stock options. During the six months ended April 30, 2017 the Company issued a total of 2,890,000 stock options. All options vest immediately upon issuance.

15

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

8.	SHARE CAPITAL, STOCK OPTIONS AND LOSS PER SHARE (Cont’d)
	The Company has the following stock options outstanding at April 30, 2017:

			Weighted
			average
			remaining
			life (in
Date of Issue	#Issued	Strike Price $	years)	Expiry Date
January 22, 2013	440,000	0.30 CDN	0.80	January 22, 2018
September 16, 2013	520,000	0.27 CDN	1.30	September 16, 2018
February 10, 2014	350,000	0.85	1.70	February 10, 2019
April 25, 2014	230,000	0.64	1.90	April 25, 2019
June 4, 2015	975,000	0.49	3.00	June 4, 2020
August 20, 2015	940,000	0.46	3.30	August 20, 2020
September 30, 2015	250,000	0.40	3.40	September 30, 2020
November 7, 2016	2,890,000	0.22	4.60	November 7, 2021
	6,595,000

All outstanding options at April 30, 2017 are exercisable. In period ended January 31, 2017, the Company recorded a total expense of $442,206 (2016 - $nil) with respect to the issuance of options issued during the three months then ended, calculated in accordance with the Black Scholes option-pricing model.

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

		2017
Share price	$	0.22
Volatility factor (based on historical value)		102%
Risk free interest rate		0.72%
Expected life		5 years
Dividend yield		0%
Forfeiture rate		0%

16

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

b)	Loss Per Share
	The calculation of basic and diluted loss per share for the period ended April 30, 2017 was based on the loss attributable to common shareholders of $2,307,420 (2016 - $1,362,625) divided by the weighted average number of common shares outstanding of 204,726,575 (2016 – 197,298,255).
	Diluted loss per share does not include the effect of 6,595,000 stock options outstanding as they are anti-dilutive.

9.	BRIDGE LOANS
	2016 Bridge Loans:

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

	October 31,2016
	$USD	$CDN	Total
	denominated loans	denominated loans
	($US)	($US)
Debt obligations	853,496	2,783,512	3,637,008
Equity portion of bridge loans	23,075	-	23,075
Derivative Liability	-	83,998	83,998

	Year ended October 31, 2016
	$USD	$CDN	Total
	denominated loans	denominated loans
	($US)	($US)
Accretion expense	87,184	427,377	514,561
Interest expense	193,254	368,354	561,608
(Gain)/loss on extinguishment of debt	-	8,223	8,223
Gain/(loss) on revaluation of derivatives	-	(295,616)	(295,616)

17

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

(2)	The Company completed the following bridge loan transactions in the 2016 fiscal year:
	(a)	It secured an additional 7 bridge loans denominated in $USD. These loans were of a short term nature and were extended on several occasions during 2016; these loans have now been extended to June-November 2017.
	(b)	It secured an additional 6 bridge loans denominated in $CDN. These loans were of a short term nature and were extended on several occasions during 2016; these loans have now been extended to June-November 2017.

2017 Bridge Loans:

(1) The bridge loans outstanding at April 30, 2017 and for the 6 months then ended are summarized as below:

	Six months ended April 30, 2017
	$USD	$CDN	Total
	denominated loans	denominated loans
	($US)	($US)
Debt obligations plus accrued interest	862,129	3,638,959	4,501,088
Equity portion of bridge loans	23,075	-	23,075
Derivative Liability	-	524,558	524,558

	Six months ended April 30, 2017
	$USD	$CDN	Total
	denominated loans	denominated loans
	($US)	($US)
Accretion expense	11,355	286,404	297,759
Interest expense	75,701	239,413	315,114
Gain (loss) on revaluation of derivatives	-	242,576	242,576

In the quarter ending January 31, 2017, the Company secured an additional 10 bridge loans denominated in $CDN totaling $868,000 CDN ($651,685 USD). The interest rate on 9 of these loans is 1% per month in each case and the conversion price to common shares is stipulated as $0.30 CDN. The 10^th bridge loan bears interest at 2% per month and is not convertible.

In the quarter ended April 30, 2017, the Company secured an additional 4 bridge loans denominated in $CDN totaling $444,000 CDN ($325,905 USD). The interest rate on these loans is 1% per month in each case and the conversion price is stipulated as $0.23 CDN.

18

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

10.	INCOME TAXES
	(a)	The Company has non-capital losses of approximately $23.9 million available to reduce future taxable income, the benefit of which has not been recognized in these consolidated financial statements. As of April 30, 2017 the tax losses expire as follows:

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

(b) In addition the Company has available capital loss carry forwards of approximately $1.2 million to reduce future taxable capital gains, the benefit of which has not been recognized in these consolidated financial statements. These losses carry forward indefinitely.

19

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

11.	EXPENSES Administration
	The components of general and administration expenses are as follows (6 months):

		2017		2016
General and administrative	$	31,107	$	46,757
Rent and occupancy cost		35,362		36,409
Office insurance		28,335		34,565
Telephone		6,698		6,050
Investor relations, listing and filling fees		45,068		39,450
	$	146,570	$	163,231

Professional, Other Fees and Salaries

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

		2017		2016
Professional fees	$	172,322	$	186,770
Consulting fees		472,683		568,906
Salaries and benefits		258,169		185,533
	$	903,175	$	941,209

12.	MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
	The Company reports the following related party transactions:

(a)	Chairman:
	The previous Chairman’s term expired on April 26, 2016; his compensation for services rendered was extended until October 31, 2016 and was then terminated. He received cash compensation on a month to month basis totaling $113,266 ($CDN 150,000) in 2016 (2017: nil).

20

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

(b)	Management and consulting fees:
	Included in professional fees, other fees and salaries as reported are management fees and consulting fees paid or payable to individuals (or companies controlled by such individuals) who serve as officers, directors and employees of the Company. The total compensation paid to such parties is summarized as (6 months):

		2017		2016
Cash compensation	$	387,945	$	345,072
Less portion capitalized
to deferred development costs		-		(4,869	)
		387,945		340,203
Stock based compensation		315,968		-
	$	703,913	$	340,203

(c)	Bridge Loan:
	The CEO provided a bridge loan of $100,000 CDN on September 2, 2016, which balance is reported in Note 9(1) - 2016 Bridge Loans.

13.	COMMITMENTS
	The Company has extended its lease for premises through July 2022. The lease term is for 5 years and stipulates base monthly rental expenses of $4,005 CDN. Lease commitments are as follows – commitments less than one year of $34,202 CDN, years 2-5: $206,136 CDN, thereafter $36,051.
	The Company has certain outstanding commitments to 3rd party subcontractors with respect to its ongoing product development initiatives. These commitments are as follows – commitments less than one year of $2,899,593; commitments between years 2-5 of $1,124,183. These commitments will become obligations of the Company as and when this work is commissioned to start by the Company which will be initiated once the Company secures the requisite financing.

21

MICROMEM TECHNOLOGIES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(Expressed in United States dollars)

For the three and six months ended April 30, 2017 and 2016

14. CONTINGENCIES

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

15. SUBSEQUENT EVENTS

The Company secured $368,750 CDN ($269,160 USD) and $100,000 (USD) of financing through private placements in the period from May 1 – June 28, 2017.

The convertible bridge loans that had a maturity date of June 2017 have been extended through October 1, 2017.

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