UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 20-F/A

(Amendment No. 2)



|£ | REGISTRATION STATEMENT PURSUANT TO SECTION 12( b ) OR 12( g ) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------------

OR



|S | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------
|  | For the fiscal year ended June 30, 2011                                               

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 company report ___________________                        

Commission file number: 001-35022



Mission NewEnergy Limited

(Exact name of Registrant as specified in
its charter)



N/A(Translation of Registrant’s name into English)



Western Australia, Australia(Jurisdiction of incorporation or organization)



Unit B2, 431 Roberts Rd

Subiaco, Western Australia 6008(Address of principal executive offices)



Guy Burnett

Chief Financial Officer and Company Secretary

+61 8 6313 3975; guy@missionnewenergy.com

Unit B2, 431 Roberts Rd

Subiaco, Western Australia 6008, Australia(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:



|Title of each class           |  | Name of each exchange on which registered
|----------------------------- |  | -----------------------------------------
|Ordinary Shares, no par value |  | The NASDAQ Global Market                 



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



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 June 30, 2011: 8,512,259 Ordinary Shares



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



 ̈YesxNo



If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.



 ̈YesxNo



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.



xYes ̈No



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) 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 accelerated filer”
in Rule 12b-2 of the Exchange Act. (Check one):



| ̈Large accelerated filer |  |  ̈Accelerated filer |  | xNon-accelerated filer
|------------------------ |  | ------------------ |  | ----------------------



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



US
GAAP ̈

International
Financial Reporting Standards as issued by the International Accounting Standards Boardx

Other ̈



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).



 ̈YesxNo











EXPLANATORY NOTE



We filed our Annual Report on Form 20-F
for the fiscal year ended June 30, 2011 with the Securities and Exchange Commission (the “SEC”) on December 28, 2011
(the “Original Report”). On May 10, 2012, we filed an Amendment No. 1 on Form 20-F/A (“Amendment No. 1”)
to the Original Report for the sole purpose of correcting the numbering in the exhibit index to the Original Report to properly
renumber Exhibit 4.16. We are filing this Amendment No. 2 on Form 20-F/A (“Amendment No. 2”) for the sole purpose to
include a revised audit report from our independent registered accountant which contains an opinion that our financial statements
are fairly stated in all material respects in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board. We have made no further changes to the Original Report, as amended by Amendment No. 1. Our ordinary
shares were delisted from trading on The NASDAQ Global Market effective July 9, 2012 and currently trade on the OTC Bulletin Board
under the symbol “MNELF” and on the Australian Stock Exchange under the symbol “MBT.” This Amendment No.
2 does not reflect events occurring after the filing of Amendment No. 1, nor does it modify or update the disclosures and information
contained in Amendment No. 1 in any way other than described in this paragraph. Accordingly, this Amendment No. 2 should be read
in conjunction with the Original Report, as amended by Amendment No. 1, and our other filings with the SEC subsequent to the filing
of the Original Report.











TABLE OF CONTENTS



|                                                  | Page                                                                                 
|------------------------------------------------- | -------------------------------------------------------------------------------------
|                                                  |                                                                                      
|CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT      | 1                                                                                    
|                                                  |                                                                                      
|SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1                                                                                    
|                                                  |                                                                                      
|INDUSTRY AND MARKET DATA                          | 2                                                                                    
|                                                  |                                                                                      
|PART I                                            |                                                                                      
|                                                  |                                                                                      
|                                                  | Item 1. Identity of Directors, Senior Management and Advisers                        
|                                                  | Item 2. Offer Statistics and Expected Timetable                                      
|                                                  | Item 3. Key Information                                                              
|                                                  | Item 4. Information on the Company                                                   
|                                                  | Item 4A.Unresolved Staff Comments                                                    
|                                                  | Item 5. Operating and Financial Review and Prospects                                 
|                                                  | Item 6. Directors, Senior Management and Employees                                   
|                                                  | Item 7. Major Shareholders and Related Party Transactions                            
|                                                  | Item 8. Financial Information                                                        
|                                                  | Item 9. The Offer and Listing                                                        
|                                                  | Item 10. Additional Information                                                      
|                                                  | Item 11. Quantitative and Qualitative Disclosures About Market Risk                  
|                                                  | Item 12. Description of Securities Other than Equity Securities                      
|                                                  |                                                                                      
|PART II                                           |                                                                                      
|                                                  |                                                                                      
|                                                  | Item 13. Defaults, Dividend Arrearages and Delinquencies                             
|                                                  | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|                                                  | Item 15. Controls and Procedures                                                     
|                                                  | Item 16. [Reserved]                                                                  
|                                                  | Item 16A. Audit Committee Financial Expert                                           
|                                                  | Item 16B. Code of Ethics                                                             
|                                                  | Item 16C. Principal Accountant Fees and Services                                     
|                                                  | Item 16D. Exemptions from the Listing Standards for Audit Committees                 
|                                                  | Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers     
|                                                  | Item 16F. Change in Registrant’s Certifying Accountant                               
|                                                  | Item 16G. Corporate Governance                                                       
|                                                  |                                                                                      
|PART III                                          |                                                                                      
|                                                  |                                                                                      
|                                                  | Item 17. Financial Statements                                                        
|                                                  | Item 18. Financial Statements                                                        
|                                                  | Item 19. Exhibits                                                                    











CONVENTIONS THAT APPLY TO THIS ANNUAL
REPORT



Unless otherwise indicated or the context
clearly implies otherwise, references to “we,” “us,” “our,”, “Mission NewEnergy”,
“Mission”, "the Group"  and “the Company” are to Mission NewEnergy Limited, an Australian
corporation, and its subsidiaries. In this annual report “shares” or “ordinary shares” refers to our ordinary
shares.



In this annual report, references to “$,”
“US$” or “U.S. dollars” are to the lawful currency of the United States and references to “Australian
dollars” or “A$” are to the lawful currency of Australia.



Solely for the convenience of the reader,
this annual report contains translations of certain Australian dollar amounts into U.S. dollars at specified rates. Except as otherwise
stated in this annual report, all translations from Australian dollars to U.S. dollars are based on the noon buying rate of the
City of New York for cable transfers of Australian dollars, as certified for customs purposes by the Federal Reserve Bank of New
York on the date or year indicated. No representation is made that the Australian dollar amounts referred to in this annual report
could have been or could be converted into U.S. dollars at such rates or any other rates. Any discrepancies in any table between
totals and sums of the amounts listed are due to rounding.



The following table sets out relevant conversion
measures for Mission NewEnergy’s business:



|1 Tonne   | = | 2,204.6226 Pounds biodiesel  
|--------- | - | -----------------------------
|          |   |                              
|1 Tonne   | = | 1.1023 Tons (short) biodiesel
|          |   |                              
|1 Tonne   | = | 298 Gallons biodiesel        
|          |   |                              
|1 Tonne   | = | 7.4 Barrels biodiesel        
|          |   |                              
|1 Barrel  | = | 42 Gallons biodiesel         
|          |   |                              
|1 Hectare | = | 2.4 Acres                    



Unless otherwise indicated, the consolidated
financial statements and related notes as of and for the fiscal years ended June 30, 2009, 2010 and 2011 included elsewhere in
this annual report have been prepared in accordance with Australian Accounting Standards and also comply with International Financial
Reporting Standards (“IFRS”) and interpretations issued by the International Accounting Standards Board.



References to a particular “fiscal
year” are to our fiscal year ended June 30 of that year. References to a year other than a “fiscal” year are
to the calendar year ended December 31.



We completed our initial U.S. public offering
of 2,785,000 ordinary shares on April 26, 2011, which are listed on the NASDAQ Global Market (“NASDAQ”) under the symbol
“MNEL.”



SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS



This annual report contains forward-looking
statements that relate to our current expectations and views of future events. All statements, other than historical fact or present
financial information, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to events that involve
known and unknown risks, uncertainties and other factors, including those listed under “Item 3.D — Key Information
— Risk Factors,” “Item 4 — Information on the Company” and “Item 5 — Operating and Financial
Review and Prospects,” all of which are difficult to predict and many of which are beyond our control, which may cause our
actual results, performance or achievements to be materially different from any future results, performances or achievements expressed
or implied by the forward-looking statements.



In some cases, these forward-looking statements
can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,”
“aim,” “estimate,” “intend,” “plan,” “believe,” “potential,”
“continue,” “predict,” “forecast,” “budget,” “project,” “target,”
“likely to” or other similar expressions. These forward-looking statements are subject to risks, uncertainties and
assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with
respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information
contained in the forward-looking statements.



1







We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other
things, statements relating to:



| | · | our expectations regarding the market for Jatropha;
| | - | ---------------------------------------------------



| | · | our expectations regarding the amount of Jatropha seeds that will be produced from our Jatropha acreage;
| | - | --------------------------------------------------------------------------------------------------------



| | · | our belief regarding the amount of Jatropha oil that our Jatropha seeds will yield;
| | - | -----------------------------------------------------------------------------------



| | · | our beliefs regarding the design, technology, operation and maintenance of our refineries;
| | - | ------------------------------------------------------------------------------------------



| | · | our ability to procure a sufficient supply of raw materials, in particular, suitable and cost competitive feedstocks;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | our beliefs regarding the competitiveness of our products;
| | - | ----------------------------------------------------------



| | · | our beliefs regarding the advantages of our business model;
| | - | -----------------------------------------------------------



| | · | our expectations regarding the scaling and expansion of our production capacity;
| | - | --------------------------------------------------------------------------------



| | · | our expectations regarding our ability to maintain and expand our existing customer base;
| | - | -----------------------------------------------------------------------------------------



| | · | our expectations regarding entering into or maintaining joint venture enterprises and other strategic investments;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | our expectations regarding increased revenue growth and our ability to achieve profitability resulting from increases in our production volumes;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our beliefs regarding our ability to successfully implement our strategies;
| | - | ---------------------------------------------------------------------------



| | · | our beliefs regarding our abilities to secure sufficient funds to meet our cash needs for our operations and capacity expansion;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | our future business development, results of operations and financial condition;
| | - | -------------------------------------------------------------------------------



| | · | the effects of weather;
| | - | -----------------------



| | · | government regulatory and industry certification, approval and acceptance of our product and its derivatives; and
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | government policymaking and incentives relating to renewable fuels.
| | - | -------------------------------------------------------------------



The forward-looking statements made in this
annual report relate only to events or information as of the date on which the statements are made in this annual report. Except
as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result
of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of
unanticipated events.



INDUSTRY AND MARKET DATA



This annual report includes information
with respect to market and industry conditions and market share from third party sources or that is based upon estimates using
such sources when available. We believe that such information and estimates are reasonable and reliable. We also believe the information
extracted from publications of third party sources has been accurately reproduced and, so far as we are able to ascertain from
information published by the third party sources, no facts have been omitted which would render the reproduced information inaccurate
or misleading. However, we have not independently verified any of the data from third party sources. Similarly, our internal research
is based upon the understanding of industry conditions, and such information has not been verified by any independent sources.



PART I



Item 1. Identity of Directors, Senior Management and Advisers



Not applicable.



2







Item 2. Offer Statistics and Expected Timetable



Not applicable.



Item 3. Key Information



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



The following selected consolidated statements
of operations and other consolidated financial data for the fiscal years 2011, 2010 and 2009 have been derived from our audited
consolidated financial statements included elsewhere in this annual report. You should read the selected consolidated financial
data in conjunction with our consolidated financial statements and related notes and “Item 5 — Operating and Financial
Review and Prospects” included elsewhere in this annual report. Our historical results do not necessarily indicate our expected
results for any future periods.



Our financial statements have been prepared
in Australian dollars and in accordance with International Financial Reporting Standards, as issued by the International Accounting
Standards Board.



Income statement data for the fiscal years
ended June 30, 2011, 2010 and 2009 and the balance sheet data as at June 30, 2011 and 2010 have been derived from our audited financial
statements that are included elsewhere in this annual report. Income statement data for the fiscal years ended June 30, 2008 and
2007 and the balance sheet data as at June 30, 2009, 2008 and 2007 have been derived from our audited financial statements that
are not included in this annual report.



|                                                           |  | 2011 U$ (1) |           |   | 2011 A$                                         |  |           | 2010 A$ |  |  | 2009 A$   |   |  | 2008 A$ |           |   | 2007 A$ | 
|---------------------------------------------------------- |  | ----------- | --------- | - | ----------------------------------------------- |  | --------- | ------- |  |  | --------- | - |  | ------- | --------- | - | ------- | 
|                                                           |  |             |           |   |                                                 | 
|                                                           |  |             |           |   | (in thousands, except share and per share data) | 
|Income Statement data:                                     |  |             |           |   |                                                 |  |           |         |  |  |           |   |  |         |           |   |         | 
|Total sales revenue                                        |  |             | 13,946    |   |                                                 |  | 14,080    |         |  |  | 14,394    |   |  |         | 43,368    |   |         | 
|Total other income                                         |  |             | 2,842     |   |                                                 |  | 2,869     |         |  |  | 2,066     |   |  |         | 11,809    |   |         | 
|Cost of sales                                              |  |             | (13,854   | ) |                                                 |  | (13,987   | )       |  |  | (15,021   | ) |  |         | (45,709   | ) |         | 
|Employee benefits expense                                  |  |             | (7,455    | ) |                                                 |  | (7,527    | )       |  |  | (5,307    | ) |  |         | (5,117    | ) |         | 
|Other income (expenses)                                    |  |             | (11,706   | ) |                                                 |  | (11,818   | )       |  |  | (88,751   | ) |  |         | (19,271   | ) |         | 
|Finance costs                                              |  |             | (5,238    | ) |                                                 |  | (5,288    | )       |  |  | (5,152    | ) |  |         | (8,401    | ) |         | 
|Profit/(loss) from operations before income tax            |  |             | (21,465   | ) |                                                 |  | (21,671   | )       |  |  | (97,771   | ) |  |         | (23,321   | ) |         | 
|Income tax (expense) benefit                               |  |             | 1         |   |                                                 |  | 1         |         |  |  | (29       | ) |  |         | (434      | ) |         | 
|Net (loss)/profit                                          |  |             | (21,464   | ) |                                                 |  | (21,670   | )       |  |  | (97,800   | ) |  |         | (23,755   | ) |         | 
|Basic and diluted earnings (loss) per share (2)            |  |             | (3.47     | ) |                                                 |  | (3.50     | )       |  |  | (20.76    | ) |  |         | (12.00    | ) |         | 
|Weighted average ordinary number of shares outstanding (3) |  |             | 6,199,265 |   |                                                 |  | 6,199,265 |         |  |  | 4,711,249 |   |  |         | 1,979,725 |   |         | 
|Balance Sheet data:                                        |  |             |           |   |                                                 |  |           |         |  |  |           |   |  |         |           |   |         | 
|Total current assets                                       |  |             | 31,376    |   |                                                 |  | 29,236    |         |  |  | 25,007    |   |  |         | 26,372    |   |         | 
|Total assets                                               |  |             | 39,277    |   |                                                 |  | 36,598    |         |  |  | 33,749    |   |  |         | 118,030   |   |         | 
|Total current liabilities                                  |  |             | 23,674    |   |                                                 |  | 22,059    |         |  |  | 4,300     |   |  |         | 9,550     |   |         | 
|Total non-current liabilities                              |  |             | 47,529    |   |                                                 |  | 44,287    |         |  |  | 59,137    |   |  |         | 57,441    |   |         | 
|Total liabilities                                          |  |             | 71,203    |   |                                                 |  | 66,346    |         |  |  | 63,437    |   |  |         | 66,991    |   |         | 
|Retained earnings (accumulated losses)                     |  |             | (145,655  | ) |                                                 |  | (135,720  | )       |  |  | (117,259  | ) |  |         | (19,475   | ) |         | 
|Total equity                                               |  |             | (31,926   | ) |                                                 |  | (29,748   | )       |  |  | (29,688   | ) |  |         | 51,039    |   |         | 
|Other financial data:                                      |  |             |           |   |                                                 |  |           |         |  |  |           |   |  |         |           |   |         | 
|Dividends per share                                        |  |             | -         |   |                                                 |  | —         |         |  |  | —         |   |  |         | —         |   |         | 



3







|(1) | The balance sheet data has been translated into U.S. dollars from Australian dollars based upon the noon buying rate of the City of New York for cable transfers of Australian dollars, as certified for customs purposes by the Federal Reserve Bank of New York on June 30, 2011, which exchange rate was A$1.00 = US$1.0732. The income statement data has been translated into U.S. dollars from Australian dollars based upon the weighted average of the noon buying rate of the City of New York for cable transfers of Australian dollars, as certified for customs purposes by the Federal Reserve Bank of New York for the period from July 1, 2010 to June 30, 2011 which as A$1.00 = US$0.9905. These translations are merely for the convenience of the reader and should not be construed as representations that the Australian dollar amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Net (loss)/profit per ordinary share — basic and diluted is calculated as net loss for the period divided by adjusted weighted average number of ordinary shares outstanding for the same period, after giving effect to the 50-1 share consolidation that was effected on April 4, 2011.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The weighted average number of ordinary shares outstanding is shown after giving effect to the 50-1 share consolidation that was effected on April 4, 2011.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rate Information



The Australian dollar is convertible into
U.S. dollars at freely floating rates. There are no legal restrictions on the flow of Australian dollars between Australia and
the United States.



For your convenience, we have translated
some Australian dollar amounts into U.S. dollar amounts at the noon buying rate in The City of New York for cable transfers in
Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York (the “noon buying rate”).
On June 30, 2011, the noon buying rate for Australian dollars into U.S. dollars was A$1.00 = US$1.0732. On December 2, 2011, the
noon buying rate for Australian dollars into U.S. dollars was A$1.00 = U.S $ 1.0221.



We make no representation that any Australian
dollar or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Australian dollars, as the case may
be, at any particular rate, the rates stated below, or at all.



The following table contains information
for the noon buying rate for the Australian dollar into U.S. dollars for the periods indicated.



|                                             |  | At Period End |        |  | Average Rate  (1) |  |         | High |  |  | Low    | 
|-------------------------------------------- |  | ------------- | ------ |  | ----------------- |  | ------- | ---- |  |  | ------ | 
|Fiscal year ended June 30,                   |  |               |        |  |                   |  |         |      |  |  |        | 
|2006                                         |  |               | 0.7423 |  |                   |  | 0.7472  |      |  |  | 0.7781 | 
|2007                                         |  |               | 0.8491 |  |                   |  | 0.7925  |      |  |  | 0.8491 | 
|2008                                         |  |               | 0.9562 |  |                   |  | 0.9042  |      |  |  | 0.9644 | 
|2009                                         |  |               | 0.8055 |  |                   |  | 0.7423  |      |  |  | 0.9797 | 
|2010                                         |  |               | 0.8480 |  |                   |  | 0.8837  |      |  |  | 0.9369 | 
|2011                                         |  |               | 1.0732 |  |                   |  | 0.9905  |      |  |  | 1.0970 | 
|Month ended                                  |  |               |        |  |                   |  |         |      |  |  |        | 
|June 30, 2011                                |  |               | 1.0732 |  |                   |  | 1.06166 |      |  |  | 1.0737 | 
|July 31, 2011                                |  |               | 1.1001 |  |                   |  | 1.07807 |      |  |  | 1.1026 | 
|August 31, 2011                              |  |               | 1.0702 |  |                   |  | 1.05015 |      |  |  | 1.0930 | 
|September 30, 2011                           |  |               | 0.9744 |  |                   |  | 1.02201 |      |  |  | 1.0750 | 
|October 31, 2011                             |  |               | 1.0610 |  |                   |  | 1.01678 |      |  |  | 1.0707 | 
|November 30, 2011                            |  |               | 1.0244 |  |                   |  | 1.01117 |      |  |  | 1.0366 | 
|December 31, 2011 (through December 2, 2011) |  |               | 1.0221 |  |                   |  | 1.02240 |      |  |  | 1.0227 | 



4







|(1) | For the fiscal years, determined by averaging noon buying rates on the last day of each full month during the fiscal year.
|--- | --------------------------------------------------------------------------------------------------------------------------



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



Not applicable.



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



Not applicable.



5







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



Set forth below are certain risks that
we believe are applicable to our business. You should carefully consider the risks described below and the other information in
this annual report, including our consolidated financial statements and related notes included elsewhere in this annual report,
before you decide to buy, sell or hold our ordinary shares. If any of the following risks actually occurs, our business, prospects,
financial condition and results of operations could be materially harmed. Additional risks not presently known to us, or risks
that do not seems significant today, may also impair our business operations in the future.



Risks Related to Our Business



We may not be able to continue as a going concern.



We have a history of net losses and there
is a substantial doubt about our ability to continue as a going concern. We had a loss for the twelve months ended June 30, 2011
of A$21.7 million, and as of June 30, 2011, the company had a current assets less current liability surplus of A$7.2 million and
a net asset deficiency of A$29.7 million at balance date. The net asset deficiency is primarily as a result of the impairment of
refinery assets during the financial year ended June 30, 2010.



Our ability to continue as a going concern
depends on our ability to generate positive cash flow from operations, raise further adequate funds and defer certain other capital
commitments.



The financial statements have been prepared
on a going concern basis which has been assessed based on detailed cash flow forecasts extending out twelve months from the date
of our most recent financial report. The cash flow forecasts from operations are based on the forecasted cash flows required to
sustain the business, cash on hand at June 30, 2011 of A$15.8 million, the ongoing receivables collection associated with historic
sapling sales, contributions from forecast sales of product and further capital raising. Our ability of the Group to continue as
a going concern in the ordinary course of business and to achieve the business growth strategies and objectives will be dependent
upon our ability to collect amounts owing under our receivables, defer the capital commitment relating to the second biodiesel
plant or raise further debt or equity to meet the Group’s commitments. The debt or equity funding referred to above has not
been agreed to at the date of this report.



Mission is in discussions with the turnkey
contractor about the finalisation and handover of the second biodiesel plant. When this is finalized, the final installment will
be due and payable. Mission is in discussions with the contractor to defer the payments after handover.



If we are unable to generate sufficient alternative revenue
to offset the losses from our primary business, our business and financial condition will suffer a significant adverse effect.



Revenue from our primary business, the cultivation
and conversion of Jatropha seeds and the production of Jatropha-based biodiesel, may not exceed our expenses for at least the next
two years. Should the cultivation and conversion of Jatropha seeds and the production of Jatropha-based biodiesel not produce revenue
in excess of our expenses there is substantial risk that we will not be able to generate enough alternative revenue to reverse
our pattern of historical losses and negative cash flow, which would have a significant adverse effect on our business and financial
condition.



Our substantial level of non-current debt could impair
our ability to service our indebtedness, finance our operations and compete with less leveraged players in the industry.



We have substantial non-current indebtedness.
As of June 30, 2011, we had total non-current indebtedness of A$44.3  million, including approximately A$42.2 million
outstanding under our convertible notes, and A$2.1 million of other debt. Our high level of indebtedness could have important consequences.
For example, it could:



6







| | · | make it more difficult for us to satisfy our indebtedness obligations under the convertible notes, exposing us to the risk of default, which could result in a foreclosure on our assets, which, in turn, would negatively affect our ability to operate as a going concern;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | make it more difficult for us to satisfy our obligations under our other indebtedness;
| | - | --------------------------------------------------------------------------------------



| | · | require us to dedicate a substantial portion of our cash flow from operations to interest and principal payments on our indebtedness, reducing the availability of our cash flow for other purposes, such as capital expenditures, acquisitions, dividends and working capital;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
| | - | --------------------------------------------------------------------------------------------------------------------



| | · | increase our vulnerability to general adverse economic and industry conditions;
| | - | -------------------------------------------------------------------------------



| | · | place us at a disadvantage compared to our competitors that have less debt;
| | - | ---------------------------------------------------------------------------



| | · | increase our cost of borrowing; and
| | - | -----------------------------------



| | · | limit our ability to borrow additional funds.
| | - | ---------------------------------------------



We may not be able to generate sufficient cash to service
our indebtedness and the terms of our indebtedness, as well as economic conditions, may prevent us from successfully refinancing.



Our ability to make scheduled payments on
or to refinance our debt obligations depends on our future performance, which will be affected by financial, business and economic
conditions and other factors. We will not be able to control many of these factors, such as economic conditions in the industry
in which we operate and competitive pressures. Our cash flow may not be sufficient to allow us to pay principal and interest on
our debt and to meet our other obligations. Any limitation on our ability to pay principal of, and interest on, the convertible
notes would likely reduce the value of our ordinary shares. If our cash flows and capital resources are insufficient to fund our
debt service obligation, including those obligations under our convertible notes, we may be forced to reduce or delay investments
and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the
convertible notes. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.
In addition, the terms of existing or future debt agreements, including our convertible notes, may restrict us from pursuing any
of these alternatives.



If we do not meet certain EPA requirements under Renewable
Fuels Standard 2 ("RFS2"), fuels produced from palm oil may not be able to generate retroactive Renewable Identification
Numbers, or RINs, which are commercially necessary to supply biodiesel produced from palm oil into the United States, which would
limit our market opportunity and jeopardize our near term financial viability.



In February 2010, the EPA finalized revisions
to the National Renewable Fuel Standard. The new rule, RFS2, incorporates changes mandated by the U.S. Energy Independence and
Security Act of 2007 and amends the original created under the U.S. Energy Policy Act of 2005. In December 2010, the EPA completed
the roll out of the RFS2 program by setting renewable fuel quality requirements for 2011. At the time RFS2 became effective on
July 1, 2010, the EPA had not completed its lifecycle analysis of several common biodiesel feedstocks, including palm oil. Under
the prior rule, fuels produced from these feedstocks were not recognized as having established fuel pathways and therefore did
not generate RINs. A RIN is a 38-character numeric code that is generated by the producer or importer of renewable fuel representing
gallons of renewable fuel produced/imported and assigned to batches of renewable fuel that are transferred (change of ownership)
to others. RINs are then turned into the EPA each year by petroleum refiners to prove that they have blended the required amount
of renewable fuel under RFS2. Therefore, biodiesel that does not generate a RIN has a very limited market in the U.S. In the final
rule adopted in December 2010, the EPA allowed the generation of retroactive or “delayed RINs” for fuels produced by
grain sorghum ethanol, pulpwood biofuel, palm oil biodiesel and canola oil biodiesel. To be eligible, fuel producers must meet
certain requirements, including having a commercialized production process that existed on July 1, 2010 and completing the EPA
petition process. We have historically used palm oil as feedstock for our biodiesel production. If we are not able to meet these
requirements, we may suffer a significant adverse effect on our business, financial performance and financial condition and could
cause us to cease operations. Additionally, our offtake agreement with Valero Energy Corporation is contingent upon meeting these
requirements and we will not have any near term sales under that agreement if we fail to meet these requirements.



7







If Jatropha oil is not approved as a feedstock under Renewable
Fuels Standard 2, biodiesel produced from Jatropha oil will not generate RINs which will significantly limit our market opportunity
and could have a significant adverse effect on our business, financial performance and financial condition.



Under RFS2, biofuels produced from Jatropha
oil are not yet recognized by the EPA as having established fuel pathways and therefore do not generate RINs. Jatropha-based biodiesel
must demonstrate that it meets certain environmental and green house gas requirements prior to its approval by the EPA as a feedstock
eligible to generate RINs under RFS2.



There is no assurance that this feedstock
will meet the RFS2 requirements or that approval of this feedstock will be achieved. We have historically used palm oil as feedstock
for our biodiesel production and our future strategy is conditioned upon the viability of Jatropha oil as a feedstock. Palm oil
is not presently, and in the future may not be, approved under RFS2. Any significant delay or the failure of palm or Jatropha oil
to be accepted under the RFS2 requirements in the United States could have a significant adverse effect on our business, financial
performance and financial condition and could cause us to cease operations.



If more of our palm oil suppliers are not certified as
compliant with the Renewable Energy Directive, our ability to sell palm-based biodiesel into the European Union will be significantly
constrained and the results of our operations will be adversely impacted.



In July 2010, the European Union introduced,
effective December 5, 2010, the Renewable Energy Directive, which requires palm-based biodiesel to be based on new sustainability
criteria. This will require the use of certified palm oil. Our production facilities have been registered and are compliant with
the Renewable Energy Directive, although the majority of our suppliers of the palm oil feedstock that is used in our production
facilities have not yet been certified. This includes Cargill and Felda, who have historically been our primary suppliers of palm
oil, along with a range of palm oil producers and traders that supply to us. Failure by our suppliers of palm oil feedstock to
satisfy the Renewable Energy Directive could affect our ability to sell palm-based biodiesel into the European Union., The European
Union has been and remains a key market for us. Any limitation on our ability to sell biodiesel into the European Union could have
a significant adverse effect on our business, financial performance and financial condition.



The design and technology of our refineries may be unable
to meet future biodiesel specifications and further capital expenditures may be required.



Specifications in the United States require
biodiesel to meet the cold soak filtration test. For a discussion of, see “Item 4.B — Information on the Company —
Business Overview — Biodiesel Production — Refining Process.” We are also in the process of retrofitting our
refineries with a distillation column to meet current quality specifications for our biodiesel despite the use of varying feedstock.
If the distillation column does not perform to its specifications, we may be unable to meet the requirements of the cold soak filtration
test and we would be unable to meet the current performance specifications and sell compliant biodiesel into the United States
market. The specifications for biodiesel are continually evolving and are subject to further change. Further capital expenditures
may be required to ensure that our refineries meet new specifications, adversely affecting our financial performance and financial
position. There is also no assurance that the equipment and technology used in our capital improvements will achieve performance
specifications. The failure of utilized equipment and technology in this regard may adversely affect our business.



The operation and maintenance of our refineries involve
significant risks that could result in disruptions in production or reduced output.



The operations of our refineries are exposed
to significant risks, including:



| | · | failure of equipment or processes;
| | - | ----------------------------------



| | · | operator or maintenance errors;
| | - | -------------------------------



| | · | labor disruptions;
| | - | ------------------



8







| | · | extended and unscheduled interruptions to production;
| | - | -----------------------------------------------------



| | · | accidents; and
| | - | --------------



| | · | damage to equipment and disaster whether arising from the actions or omissions by us or our employees or from external factors.
| | - | -------------------------------------------------------------------------------------------------------------------------------



There are operational hazards inherent in
chemical manufacturing industries, such as fires, explosions, abnormal pressures, blowouts, pipeline ruptures, and transportation
accidents. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property
and equipment or environmental damage, and may result in suspension or termination of operations and the imposition of civil or
criminal penalties. In addition, our insurance may not be adequate to fully cover the potential operation hazards described above,
and we may not be able to renew our insurance on commercially reasonable terms or at all. See “Item 3.D — Key Information
— Risk Factors — Our insurance coverage may not be sufficient to cover our liability risks.”



If we are unable to replace the sales historically generated
by one off term contracts this may significantly reduce our revenues and harm our results of operations.



In 2011, our biofuel revenue was generated
primarily from two new customers, with our by-products readily sold to a number of customers. Notwithstanding our continuing efforts
to further diversify our customer base, Trafigura Beheer B.V. Amsterdam, a European oil trading company, contributed over 82% of
our biofuel sales in fiscal 2009 and fiscal 2010. Our contracts with Trafigura and our new customers in 2011 have since expired
and we cannot assure you that we will be able to source new customers and establish and maintain long-term relationships with such
customers. As a result, if we are unable to replace the sales historically generated, such inability may significantly reduce our
revenues and could have a material adverse effect on our results of operations.



An increase in cost or an interruption in the supply of
our feedstock may inhibit production and adversely affect our financial performance.



The operation of our refineries is dependent
on our ability to procure substantial quantities of suitable quality feedstock. While the commercial oil yields from our feedstock
cultivation business of Jatropha ramp up, palm oil is likely to be our primary feedstock.



At this time, our palm oil supply is sourced
primarily from Felda through a contracted supply agreement and secondarily from a range of palm oil producers and traders. Crude
palm oil accounted for approximately 85% of our input costs associated with our production of biodiesel in fiscal 2010 and fiscal
2011, respectively. The failure to procure a sufficient supply of raw materials satisfying our quality, quantity and cost requirements
in a timely manner could impair our ability to produce our products or could increase our costs. Any interruption to the supply
of suitable quality feedstock may result in disruptions in production or reduced output, which may materially and adversely affect
our financial performance.



Additionally, our financial results are
substantially dependant on the prices for our feedstock. A substantial increase in feedstock price relative to the value of our
end products would adversely affect our financial performance. Although we may attempt to offset the effects of fluctuations in
prices by entering into arrangements with our customers on a feedstock price plus contract basis through which we receive a predetermined
margin over the price of the feedstock or by engaging in transactions that involve exchange-traded futures contracts (or other
contractual arrangements securing future commodity prices), the amount and duration of these hedging and risk mitigation activities
may vary substantially over time. These activities also involve substantial risks.



Additionally, if a negative spread exists
between our input costs to produce biodiesel and the potential sales price of the biodiesel, we will be unable to profitably produce
product and to generate revenue. We did not operate for nine  months in each of fiscal 2011 and 2010 due to negative
spreads that existed during those periods. Future increases in purchased feedstock costs may prevent us from resuming production
and may materially and adversely affect our performance and ability to continue as a going concern.



9







Our contract farming model is subject to inherent risks
and if we cannot improve the results of poor performing farmers in certain states, our Jatropha oil yield and the results of our
operations will be adversely impacted.



We have diversified our operations to include
the cultivation of Jatropha to meet our feedstock supply requirements internally in the future and to protect us from increases
in cost and interruptions in delivery from external suppliers. In that regard, we have entered into contracts with farmers in five
different states in India to grow the Jatropha plants and provide the seeds that are crushed to produce feedstock oil. However,
there is no assurance that the contracted farmers will be able meet our expected yields of seeds for feedstock oil whether due
to the poor farm management of individual farmers or the poor health, low productivity or mortality of the Jatropha plants. We
employ a continuous review of the condition and success of the contract farming across the wide geographic area in which we have
acreage under contract and we have noted differing results from state to state. If we are unable to enhance the results of the
low performing states, we will have to focus our operations in the areas giving the best results and a lower than expected yield
of oil will occur. Given that our current strategy is based on contract farming and that the Jatropha oil is primarily an agricultural
product subject to agronomic risks, it is unlikely that all recorded acreage will provide us with Jatropha oil and we can provide
no assurances as to our Jatropha oil yield.



If our farmers are unable to obtain financing, they may
be unable to perform under their contracts and our feedstock supply could be disrupted.



The model for our feedstock cultivation
strategy relies on a contract farming agreement with our farmers. To assist our farmers in their purchase of saplings from us and
to provide the necessary working capital to operate their farms until their acreage produces yield, we have facilitated arrangements
with certain Indian banks to provide loans to some of the farmers to finance their planting, including purchases from us of saplings
and materials required for the cultivation of Jatropha plants. If we cannot facilitate such loans on similar terms or at all in
the future, the farmers with whom we have entered into contracts will likely be unable to pay for the saplings provided by us and
therefore may limit our ability to grow our business. An inability to collect payment on accounts receivable for sold saplings
may require us to alter our intended growth of acreage under contract, which ultimately could adversely affect our financial performance.
In addition, the inability of our contract farmers to obtain financing or their failure to perform under their contracts for any
reason would cause disruptions in our future feedstock supply chain and subject us to risks of disruption and reduction in output
at our plants.



We have experienced and may in the future experience volatile
capacity utilization which may adversely affect our results of operations.



As we ramp up our Jatropha cultivation,
we remain reliant on palm oil as a feedstock. If the price of palm oil is greater than the value of our biodiesel, which is priced
relative to ultra low sulphur diesel (“ULSD”), we may not be able to profitably sell biodiesel into the immediate cash
payment and delivery market. Our ability to supply palm-based biodiesel profitably is based on having positive margins where our
input costs are lower than the value of our refined product. We are unable to influence the price of palm oil or the price of biodiesel.
Resultantly, our biodiesel profitability is reliant on the existence of a positive spread between these two commodities. As we
only operate when a positive operating margin exists, we have and expect to continue to have in the future erratic capacity utilization
which may adversely affect our results of operations.



We have suffered and may continue to suffer low capacity
utilization if we are unable to secure term contracts.



Given the volatility of profit margins on
biodiesel production due to fluctuations in commodity pricing for palm oil (our major input until our Jatropha supply matures)
and the value of our finished product, we have not converted palm oil to biodiesel unless we have a committed contract customer
willing to accept pricing based on our cost of purchasing feedstock and earning a positive margin from refining. Historically,
we have had few such contract customers and their purchases have been insufficient to utilize our full refining capacity, resulting
in our historic low capacity utilization. If palm oil is approved under RFS2, the contract with Valero would meet these criteria.
However, if palm oil does not receive approval, there is no assurance that we can find another customer willing to do so.



10







We have suffered and may continue to suffer low capacity
utilization if we are unable to secure material volumes of biodiesel sales under the Malaysian Biodiesel mandate.



After numerous years discussing the possible
implementation of a biodiesel blending mandate in Malaysia, the Malaysian Government introduced a scheme to mandate a 5% biodiesel
blend into commercial diesel sales in the Central region of Malaysia. In addition the scheme was for a lower volume than previously
communicated to Malaysian Biodiesel producers. Accordingly we secured relatively low volumes of biodiesel sales under this scheme.
If the scheme is not extended, or cancelled altogether, or commercially viable quantities are not secured by us, this may adversely
affect our results of operations.



If we are unable to perform under the offtake agreement
with Valero or if there is a breach, termination or reduction by Valero of its commitments under the agreement, our financial performance
and condition would be adversely impacted.



Our offtake agreement with Valero is currently
for 60 million gallons per annum of biodiesel, which represents 57% of our nameplate refining capacity upon title transfer of our
second refinery to us. This is currently the only major long-term biodiesel customer contract that we have. Changes in economic,
regulatory or other factors could have a significant effect on this customer or our contractual relationship.



Due to recent regulatory changes, our palm
and Jatropha-based biodiesel is not compliant with governmental mandates in the United States, the intended market for the biodiesel
under the offtake agreement. In February 2010, the EPA finalized RFS2, which requires our feedstock of palm and Jatropha oil to
meet certain environmental and green house gas requirements prior to approval. Palm oil and Jatropha oil are not presently, and
in the future may not be, approved under RFS2. Additionally, ASTM International has recently revised the U.S. standard ASTMD6751
to include specifications for a Cold Soak Filter Test. We are currently installing additional equipment that will enable both our
refineries to meet the standard. However, our biodiesel is presently not compliant with RFS2 and does not meet the ASTMD6751 standard
as is contractually required under the offtake agreement.



As a result, we do not expect to supply
biodiesel to Valero under the offtake agreement until these regulatory hurdles are resolved. The term of the offtake agreement
with Valero does not begin nor do payment obligations for Valero arise under the offtake agreement until the first shipment of
biodiesel to Valero. The termination of, or a significant reduction in biodiesel purchased under, the Valero offtake agreement
for any reason, including our inability to perform under the agreement, would materially affect our revenue and would harm our
financial condition and results of operations. Additionally, if Valero failed to pay us or was delayed in its payments under the
offtake agreement, we would be adversely affected to the extent that we were unable to find other customers at the same level of
profitability. A failure to make payments under the offtake agreement with Valero or another material breach of the offtake agreement
would have a significant adverse affect on our business, financial performance and financial condition.



If we are unable to enter into sufficient offtake agreements
for our second biodiesel refinery, our financial performance could be adversely affected.



We have contracted to supply Valero with
60 million gallons per annum of biodiesel, which represents 57% of the nameplate refining capacity of our two refineries upon title
transfer of the second refinery to us. If we are unable to increase our contracted capacity utilization to higher levels, our ability
to generate revenue will be limited and our financial condition will be adversely affected. The offtake agreement does not expressly
prohibit our entry into other offtake agreements. However, our contractual relationship with Valero may affect our ability to secure
other offtake agreements, which could reduce our profitability and limit our ability to grow.



Our ability to supply biodiesel under the offtake agreement
with Valero may be adversely affected by markets risks that are beyond our control.



Under the biodiesel offtake agreement, Valero
will purchase our entire production of Jatropha-based biodiesel up to 60 million gallons per annum with an option for Valero to
double this amount. We have the option to cover any production shortfall from the contracted amount with palm-based biodiesel.
However, with a pricing formula benchmarked off Gulf Coast Harbor ULSD, our ability to supply palm-based biodiesel is subject to
favorable pricing for the palm oil and Gulf Coast Harbor ULSD and the availability of palm oil. Already subject to fluctuations
in price and availability, new or revised standards in key markets may impose requirements to limit production of palm-based diesel
from sustainable crude palm oil, further limiting availability and subjecting the palm oil to unfavorable commodity price movements.
If we are unable to source palm oil at favorable prices and a negative spread exists between our input costs and the potential
sales price of the biodiesel, we will be unable to make profitable sales and we would halt production. As a result, our ability
to supply biodiesel to Valero under the offtake agreement may be adversely affected. See “— An increase in cost or
an interruption in the supply of our feedstock may inhibit production and adversely affect our financial performance.”



11







Our inability to meet margin calls on hedged positions
would adversely affect our financial condition.



To maximize and protect the profitability
of the offtake agreement with Valero, we may enter into hedging positions on both palm oil and ULSD. Upon entering the hedging
positions and the inherent volatility in the commodity markets, we will likely be required to make margin call payments from time
to time. Inability to meet such margin calls would adversely affect our financial condition and financial performance.



We may suffer losses due to sales of competing products
that infringe on our intellectual property.



We rely on a combination of patents, trademarks,
domain names and contractual rights to protect our intellectual property. We cannot assure you that the measures we take to protect
our intellectual property rights will be sufficient to prevent any misappropriation of our intellectual property, or that our competitors
will not independently develop alternative technologies that are equivalent or superior to technologies based on our intellectual
property. In the event that the steps we have taken and the protection afforded by law do not adequately safeguard our proprietary
technology, we could suffer losses due to the sales of competing products that exploit our intellectual property, and our profitability
would be adversely affected.



If we are subject to claims of infringement of the intellectual
property of others, the defense of these claims could drain our resources and any adverse determination could adversely impact
or halt our biodiesel production.



Our biodiesel refineries include contracts
with Crown Iron Works, Inc., or Crown, and Axens for the supply of our proprietary systems, over which they have intellectual property
that they have licensed to us. This intellectual property includes the operating procedures and technical schematics of our biodiesel
refineries, which are required to operate and maintain the plants. The unauthorized use or disclosure of Crown’s, Axens’
or our intellectual property or the infringement by us of another person’s intellectual property right may adversely affect
our financial performance.



To the best of our knowledge, our patented
process does not infringe any third party’s intellectual property rights. However, intellectual property rights are complex
and there exists the risk that our process may infringe, or be alleged to infringe, another party’s intellectual property
rights.



The defense and prosecution of intellectual
property suits, patent opposition proceedings and related legal and administrative proceedings can be both costly and time consuming
and may significantly divert the efforts and resources of our technical and management personnel. An adverse determination in any
such litigation or proceedings to which we may become a party could subject us to significant liability to third parties, require
us to seek licenses from third parties, to pay ongoing royalties, or to redesign our products or manufacturing processes or subject
us to injunctions prohibiting the manufacture and sale of our products or the use of our technologies.



Any inability to obtain and maintain all the required
licenses and permits related to our business and the resulting increased compliance costs may adversely affect our financial performance.



We are required to hold or obtain a number
of licenses and permits, including environmental and those related to materials handling, in various jurisdictions in order to
implement and operate our business. In particular our biodiesel refining operation in Malaysia holds a Lembaga Minyak Sawit Malaysia
license (which allows for the buying, selling, movement and importation of palm oil products) and a Kementerian Perusahaan Perladangan
& Komoditi license (which allows the production of biodiesel). The Lembaga Minyak Sawit Malaysia license is renewed annually
and is currently valid until June 30, 2012. We have no reason to believe that this license will not be renewed, although renewal
is not assured. The Kementerian Perusahaan Perladangan & Komoditi license is renewed every three years and is currently valid
until July 20, 2012 and we have no reason to believe that this license will not be renewed, although renewal is not assured. In
particular, our Jatropha operations in India hold a Foreign Investment Promotion Board (“FIRB”) license (which allows
investment by Mission into its Indian feedstock business and approves the activity of being engaged in the contract farming of
Jatropha Curcas and utilization of the Jatropha oil for domestic or export markets). This license is in place and is not required
to be renewed. There is a risk that we will not comply with the ongoing requirements imposed under those licenses or permits, although
we are not aware of any compliance deficiency that jeopardizes our standing as a licensee. There is also a risk that the licenses
and permits required, or the conditions imposed on us under them, will change from time to time. Our ongoing compliance costs may
increase as a result. Either of the above may adversely affect our financial performance.



12







We are subject to environmental regulations, the compliance
with which imposes substantial costs on us and the violation of which could result in penalties and other liabilities.



Laws dealing with protection of the environment
provide for penalties and other liabilities for the violation of such laws and establish, in certain circumstances, obligations
to remediate facilities and locations where operations are conducted. We may incur substantial costs in the future as part of our
continued efforts to comply with these environmental laws and to avoid violations of them.



We may experience a significant chemical
or biodiesel spill at our refineries or we may experience a chemical spill or human ingestion of toxic materials during the Jatropha
crude oil crushing process. If any of these events occur or if we otherwise fail to comply with the applicable environmental or
other regulations, we could be subject to significant monetary damages and fines or suspensions of our operations, and our business
reputation and profitability could be adversely affected.



Any amendments to the environmental laws
could impose substantial pollution control measures that could require us to make significant expenditures to modify our production
process or change the design of our products to limit actual or potential impact to the environment. Moreover, new laws, new interpretations
of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant
additional expenditures, which may adversely affect our business, results of operations and financial condition.



Our insurance coverage may not be sufficient to cover
our liability risks.



Our insurance arrangements may not adequately
protect us against liability for all losses, including but not limited to environmental losses, property damage, public liability
or losses arising from business interruption and product liability risk. Additionally, we may be unable to renew our existing insurance
arrangements on commercially reasonable terms or at all. Should we be unable to maintain sufficient insurance coverage in the future
or experience losses in excess of the scope of our insurance coverage, our financial performance could be adversely affected.



Changes in government policy could adversely affect our
business .



Our contract farming operations are in India,
our refineries are located in Malaysia and the bulk of our expected biodiesel sales will be in the United States and Europe. In
addition, the equipment for our plants is imported from, and our products are sold in, various other countries. There is a risk
that actions of a government in any of these countries may adversely affect our ability to implement and operate our business.



Government action or policy change in relation
to access to lands and infrastructure, import and export regulations, environmental regulations, taxation, royalties and subsidies
could adversely affect our operations and financial performance. In particular, upon significant changes in U.S. legislation, including
changes in the renewable fuels standard or the biodiesel blenders excise tax credit, our offtake agreement with Valero can be renegotiated.
Generally, however, a policy change in any of the jurisdictions in which we operate, or intend to operate, may inhibit our ability
or the financial viability of our operations to export feedstock oil or the refined products that we market. This, in turn, could
adversely affect our operations and financial performance.



The Indian government has developed a National
Policy on Biofuels, which establishes a framework for the industry until 2017. The policy limits the export of biofuels until domestic
Indian usage mandates are met. If we are unable to produce biofuels domestically in India, the legislation is changed to limit
the export of feedstock, such as Jatropha, or our existing export approval for unlimited amounts of Jatropha is repealed, we would
be unable to sell Indian sourced Jatropha-based biodiesel into the key markets of the European Union and the United States which
would adversely affect our operations and financial performance.



13







Our financial performance may be adversely affected by
fluctuations in exchange rates.



Our revenues and expenditures are denominated
in a number of currencies, including U.S. dollars, euros, Australian dollars, Indian rupees and Malaysian ringgit. Historically,
we have experienced losses due to unhedged negative changes in exchange rate. Additionally, we have experienced foreign currency
translation differences (which are held on our balance sheet in the foreign currency translation reserve) as a result of reporting
consolidation of non-Australian subsidies. We have limited foreign currency hedging arrangements in place. As a result, our financial
performance may be adversely affected by fluctuations in exchange rates.



Risks Related to Our Strategy



Our future growth will depend on our ability to establish
and maintain strategic relationships with distributors and feedstock suppliers.



Our future growth depends on our ability
to establish and maintain relationships with third parties, including distributors and feedstock suppliers. We may not be able
to establish strategic relationships with third parties on terms satisfactory to us or at all, and any arrangements that we enter
into may not result in the type of collaborative relationship with the third party that we are seeking. Further, these third parties
may not place sufficient importance on their relationship with us and may not perform their obligations as agreed. Any failure
to develop and maintain satisfactory relationships with distributors and feedstock suppliers would have a material adverse effect
on our business.



If we fail to effectively manage our planned expansion,
we may fail to meet our strategies and objectives and our financial performance could be materially and adversely impacted.



The further expansion of our refining and
production, including our biodiesel refining, upstream vegetable oil extraction and processing is one of our key growth strategies.
Additionally our planned Jatropha operations expansion requires us to identify suitable locations for plantations and related infrastructure
(such as nurseries, warehouses, ports and mills) at competitive prices. Even if we successfully identify suitable locations, we
may be unable to expand our business into these new locations if potential competitors enter the market before us. In addition,
we may not have the necessary management or financial resources to oversee the successful and timely development of plantations
and construction of new facilities. Additionally, our ability to generate cash from existing operations may be slower than expected
or not eventuate at all, resulting in the requirement for further funding to achieve our expansion plans. Our expansion plans could
also be affected by cost overruns, failures or delays in obtaining government approvals of necessary permits and our inability
to secure the necessary equipment.



We cannot assure you that we will be able
to effectively manage our planned expansion or achieve our expansion plans at all. If we are unable to do so, we may not be able
to take advantage of market opportunities, execute our business strategies or respond to competitive pressures, any of which could
materially and adversely affect our business, results of operations and financial condition.



If we are unable to successfully enter new markets for
Jatropha by-products, we may be unable to enhance by-product realization.



One of our key strategies is to lower our
effective biodiesel cost base through increased by-product value realization. Our ability to enhance the value of the by-products
of our Jatropha-based biodiesel production process, such as Jatropha seed cake, will require us to enter and operate in new markets
for us. We cannot be sure of our ability to enter into these new markets, nor the market reaction to us as a new entrant. If we
are unable or unsuccessful in these new markets, it would limit our ability to enhance the value of our by-products, which could
have a significant adverse effect on our strategy and on our business, financial performance and financial condition.



If our contract farming model does not perform to expectations
our business may suffer.



Our access to Jatropha oil is based on our
ability to buy Jatropha seeds under our existing contract farming model. Despite our contract farmers being under definitive contract
farming agreements we may be unable to effectively enforce these contracts in the event of a breach. Our expansion strategy includes
entering into further contract farming agreements to increase our access to Jatropha seeds. If we are unable to enforce our contract
farming agreements or enter into additional contract farming agreements, this could have a significant adverse effect upon our
business, financial performance and financial condition.



14







We may be unable to generate sufficient revenue to fund
our operational and capital requirements and service our existing indebtedness and we may be unable to obtain adequate financing
on favorable terms to meet these needs.



We expect that over the next several years,
a portion of our cash flow will be used to fund operating losses and capital expenditures. We will also require substantial working
capital and, given that we may enter into derivative transactions in connection with our offtake agreement with Valero, margin
call capital in the future. Additionally, as of the date of this annual report we are required to repay approximately A$45.8 million
to redeem our outstanding convertible notes in May 2014. We cannot assure you that we will be successful in generating sufficient
revenue and we may require financing to meet our needs.



Our ability to access to equity and debt
capital and trade financing on favorable terms may be limited by factors such as:



| | · | general economic and market conditions;
| | - | ---------------------------------------



| | · | conditions in energy markets;
| | - | -----------------------------



| | · | credit availability from banks or other lenders for us and our industry peers;
| | - | ------------------------------------------------------------------------------



| | · | investor confidence in the industry;
| | - | ------------------------------------



| | · | the operation of our refineries;
| | - | --------------------------------



| | · | our financial performance; and
| | - | ------------------------------



| | · | our levels of indebtedness.
| | - | ---------------------------



Our ability to access equity capital is limited without
shareholder approval and we may be unable to obtain the required shareholder approval to obtain financing in future equity offerings.



Our ability to access equity capital is
also limited by ASX Listing Rule 7.1, which provides that a company must not, subject to specified exceptions (including approval
by shareholders), issue or agree to issue during any 12-month period any equity securities, or other securities with rights to
conversion to equity, if the number of those securities exceeds 15% of the number of securities in the same class on issue at the
commencement of that 12-month period. Our ability to issue shares in certain subsequent offerings will be restricted by this 15%
annual placement capacity to the extent that we are unable to obtain shareholder approval of the offerings.



The sale of our wind farm assets may not generate sufficient
funds to pay off the related loans and we may need to scale back planned initiatives as a result.



Our wind farm assets and our office buildings
in Malaysia and India are mortgaged or otherwise secured in relation to loan financings. We are exploring discontinuing our wind
business, which may result in the sale of our wind farm asset. If we are unable to realize sufficient funds from the sale of these
assets to fully pay off the loan associated with the mortgage on the wind farm assets or if we are unable to obtain additional
financing as needed, we might need to reduce the scope of our operations and scale back expansion and development programs.



15







Risks Related to Our Industry



A decline in the price of diesel or other fuel sources
or an increase in their supply could constrain the selling price of our biodiesel.



Biodiesel prices are influenced by market
prices for petroleum diesel, the pricing of which is affected by global and domestic market prices for crude oil. The pricing of
petroleum diesel is also subject to typical market movements and decreases when there is an increase in supply in the face of unchanged
or decreased demand. To remain competitive, the price of biodiesel tends to decrease as the price of petroleum diesel decreases.
As a result, any decline in petroleum prices will likely lead to lower prices for biodiesel. If the price of our inputs, such as
palm oil feedstock, is greater than the price of our biodiesel in the market, we will be unable to make profitable sales and we
would halt production. We did not operate our refinery for  nine months of fiscal 2011, nine months in fiscal 2010 and
five months in fiscal 2009 due to negative spreads that existed between the potential sales price of biodiesel and the input costs
to produce the biodiesel. Declines in the pricing of our biodiesel relative to the cost of the inputs for production may cause
us to halt production in the future which may materially and adversely affect our performance.



The biodiesel industry is a new industry and its continued
development is subject to a number of risks and obstacles.



Our primary product is biodiesel. The global
biodiesel industry is at an early stage of development and acceptance as compared to petroleum-based fuels. Biodiesel has experienced
significant growth only during that last five years and demand for biodiesel as our primary product may not grow as rapidly as
expected or at all. Biodiesel and the global biodiesel industry, as a whole, also face a number of obstacles and drawbacks, including:



| | · | gelling at lower temperatures than petroleum diesel, which can require the use of low percentage biodiesel blends in colder climates or the use of heated fuel tanks;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | potential water contamination that can complicate handling and long-term storage;
| | - | ---------------------------------------------------------------------------------



| | · | reluctance on the part of some auto manufacturers and industry groups to endorse biodiesel and their recommendations against the use of biodiesel or high percentage biodiesel blends;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | potentially reduced fuel economy due to the lower energy content of biodiesel as compared with petroleum diesel; and
| | - | --------------------------------------------------------------------------------------------------------------------



| | · | potentially impaired growth due to a lack of infrastructure such as dedicated rail tanker cars and truck fleets, sufficient storage facilities, and refining and blending facilities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Delayed market acceptance of our products
may adversely affect our pricing and profitability. The lack of infrastructure to store, ship and distribute our products may also
increase our logistical costs and diminish our profitability.



We may be subjected to new or amended standards for biodiesel
from time to time and required to modify our production process or procure alternate or additional feedstock.



New standards may be introduced and existing
standards may be amended or repealed from time to time. The production of biodiesel that meets stringent quality standards is complex.
Concerns about fuel quality may impact our ability to successfully market and sell our biodiesel. If we are unable to produce biodiesel
that meets the industry quality standard, our credibility and the market acceptance and sales of our biodiesel could be negatively
affected. In addition, actual or perceived problems with quality control in the industry generally may lead to a lack of consumer
confidence in biodiesel. This could result in a decrease in demand or mandates for biodiesel, with a resulting decrease in revenue.



A change to the quality standards for biodiesel
in any market in which we sell biodiesel may require us to modify our production process or procure alternate or additional feedstock,
which may affect our revenue and expenditure and adversely affect our results of operations. While we have no reason to believe
that Jatropha will not be a suitable feedstock for our existing refineries, should Jatropha prove to not be suitable, we may need
to modify our existing refineries and this could have an adverse affect on our financial condition.



We face significant competition from existing and new
competitors as well as competing technologies and other clean energy sources.



Our primary product is a substitute for
mineral diesel and a global commodity and as such is highly cost competitive. There are already many global producers of biodiesel
with which we currently compete. While these existing competitors are limited by installed refining capacity, we would expect further
new entrants into the market if economic opportunities present themselves thereby increasing competition. In addition to existing
and new direct competitors, as a relatively new industry with distribution channels still in the development stage, market forces
may limit our access to end markets or make our costs of delivering product to end-users uncompetitive. Our future financial performance
and earnings growth may be adversely affected if either of the above occurs.



16







In addition, new technologies may be developed
or implemented for alternative energy sources and products that use such energy sources. Advances in the development of fuels other
than biodiesel, or the development of products that use energy sources other than diesel, such as gasoline hybrid vehicles and
plug-in electric vehicles, could significantly reduce demand for biodiesel and thus affect our sales. Biodiesel also faces competition
from fuel additives that help petroleum diesel burn cleaner and therefore reduce the comparative environmental benefits of biodiesel
in relation to petroleum diesel.



Other clean energy sources such as liquefied
petroleum gas, hydrogen and electricity from clean sources may be more cost-effective to produce, store, distribute or use, more
environmentally friendly, or otherwise more successfully developed for commercial production than our products. These other energy
sources may also receive greater government support than our products in the form of subsidies, incentives or minimum use requirements.
As a result, demand for our products may decline and our business model may no longer be viable and our results of operations and
financial condition may be materially adversely affected. The introduction, increase in the availability or reduction in costs
of alternative energy sources may materially and adversely affect the demand for our products and our financial performance.



Any increase in competition arising from
an increase in the number or size of competitors or from competing technologies or other clean energy sources may result in price
reductions, reduced gross profit margins, loss of our market share and departure of key management, any of which could adversely
affect our financial condition and profitability.



Risks Related to Our Ordinary Shares



As a foreign private issuer, we follow certain home country
corporate governance practices in lieu of certain NASDAQ Global Market requirements applicable to U.S. issuers. This may afford
less protection to holders of our ordinary shares.



As a foreign private issuer whose ordinary
shares are listed on the NASDAQ Global Market, we are permitted to follow certain home country corporate governance practices in
lieu of certain NASDAQ Global Market requirements. A foreign private issuer must disclose  in its annual reports filed
with the Securities and Exchange Commission, or SEC, each NASDAQ Global Market requirement with which it does not comply followed
by a description of its applicable home country practice. As a company incorporated in Australia and listed on the Australian Securities
Exchange, or ASX, we expect to follow our home country practice with respect to the composition of our board of directors and nominations
committee and executive sessions. Unlike the requirements of the NASDAQ Global Market, the corporate governance practice and requirements
in Australia do not require us as to have a majority of our board of directors to be independent, do not require us to establish
a nominations committee, and do not require us to hold regular executive sessions where only independent directors shall be present.
Such Australian home country practices may afford less protection to holders of our ordinary shares.



We may be classified as a passive foreign investment company,
which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares.



We do not expect to be a passive foreign
investment company, or PFIC, for U.S. federal income tax purposes for our current fiscal year ending June 30, 2011. However, we
must make a separate determination each fiscal year as to whether we are a PFIC (after the close of each taxable year). Accordingly,
we cannot assure you that we will not be a PFIC for our current taxable year ending June 30, 2011 or any future fiscal year. A
non-U.S. corporation will be considered a PFIC for any fiscal year if either (1) at least 75% of its gross income is passive income
or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during the fiscal year)
is attributable to assets that produce or are held for the production of passive income. Because the value of our assets for purposes
of the PFIC test will generally be determined by reference to the market price of our ordinary shares, fluctuations in the market
price of the ordinary shares may cause us to become a PFIC. In addition, changes in the composition of our income or assets may
cause us to become a PFIC. If we are a PFIC for any fiscal year during which a U.S. holder (as defined in “Item 10.E - Additional
Information Taxation — U.S. Federal Income Tax Considerations”) holds an ordinary share, certain adverse
U.S. federal income tax consequences could apply to such U.S. holder. See “Item 10.E - Additional Information Taxation — U.S.
Federal Income Tax Considerations — Passive Foreign Investment Company Considerations.”



17







Currency fluctuations may adversely affect the price of
our ordinary shares.



Our ordinary shares are quoted in Australian
dollars on the ASX and in U.S. dollars on the NASDAQ Global Market. Movements in the Australian dollar/U.S. dollar exchange rate
may adversely affect the U.S. dollar price of our ordinary shares. In the past year the Australian dollar has generally appreciated
against the U.S. dollar. Any continuation of this trend may positively affect the U.S. dollar price of our ordinary shares, even
if the price of our ordinary shares in Australian dollars increases or remains unchanged. However, this trend may not continue
and may be reversed. If the Australian dollar weakens against the U.S. dollar, the U.S. dollar price of the ordinary shares could
decline, even if the price of our ordinary shares in Australian dollars increases or remains unchanged.



Our ordinary shares may be delisted from the NASDAQ Global
Market as a result of our not meeting the NASDAQ continued listing requirements.



Our ordinary shares are currently listed
on the NASDAQ Global Market under the symbol “MNEL.”  On September 20, 2011, we received a letter from The
NASDAQ Stock Market indicating that we were not in compliance with the minimum Market Value of Listed Securities (“MVLS”)
on the NASDAQ Global Market (as set forth in NASDAQ Listing Rule 5450(b)) because the market value of our listed securities was
below the NASDAQ Global Market minimum requirement of US$50.0 million.  The company has been provided an initial period
of 180 calendar days, or until March 19, 2012, to regain compliance, which will be gained if at any time before March 19, 2012,
our MVLS closes at US$50.0 million or more for a minimum of ten (10) consecutive business days.



If we do not regain compliance by March
19, 2012, NASDAQ will provide written notification to us that our ordinary shares will be delisted.  At that time, we
may appeal NASDAQ’s delisting determination to a NASDAQ Listing Qualifications Panel.  Alternatively, we may consider
applying for a transfer to The NASDAQ Capital Market provided that we satisfy the requirements for continued listing on that market.



If we fail to meet all applicable NASDAQ
Global Market requirements in the future and NASDAQ determines to delist our ordinary shares, the delisting could adversely affect
the market liquidity of our ordinary shares and adversely affect our ability to obtain financing for the continuation of our operations.  This
delisting could also impair the value of your investment.



Risks Relating to Takeovers



Australian takeovers laws may discourage takeover offers
being made for us or may discourage the acquisition of large numbers of our ordinary shares.



We are incorporated in Australia and are
subject to the takeovers laws of Australia. Among other things, we are subject to the Australian Corporations Act 2001, or the
Corporations Act. Subject to a range of exceptions, the Corporations Act prohibits the acquisition of a direct or indirect interest
in our issued voting shares if the acquisition of that interest will lead to a person’s voting power in us increasing from
20% or below to more than 20%, or increasing from a starting point that is above 20% and below 90%. Australian takeovers laws may
discourage takeover offers being made for us or may discourage the acquisition of large numbers of our ordinary shares. This may
have the ancillary effect of entrenching our board of directors and may deprive or limit our shareholders’ strategic opportunities
to sell their ordinary shares and may restrict the ability of our shareholders to obtain a premium from such transactions.



Our Constitution and other Australian laws and regulations
applicable to us may adversely affect our ability to take actions that could be beneficial to our shareholders.



As an Australian company we are subject
to different corporate requirements than a corporation organized under the laws of the United States. Our Constitution, as well
as the Corporations Act, set forth various rights and obligations that are unique to us as an Australian company. These requirements
operate differently than from many U.S. companies and may limit or otherwise adversely affect our ability to take actions that
could be beneficial to our shareholders. For more information, you should carefully review the summary of these matters set forth
under the section entitled, “Item 10.B — Additional Information — Memorandum and Articles of Association”
as well as our Constitution.



18







Item 4. Information on the Company



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



Our legal and commercial name is Mission
NewEnergy Limited, which was incorporated in Western Australia under the laws of Australia (specifically, the Australian Corporations
Act) in November 2005. We are an Australian public company, limited by shares.



In May 2006, we conducted an initial public
offering in Australia, raising A$27.0 million, and listed on the Australian Securities Exchange.



In August 2006, we commenced construction
of our first biodiesel refinery with a 100,000 tonnes (30 million gallons) per year nameplate capacity at an industrial hub in
Port Kuantan, Malaysia along the eastern coast of Malaysia.



In early calendar 2007, we commenced non-food
biodiesel feedstock cultivation operations in India. We focused on the cultivation of Jatropha Curcas, or Jatropha, an inedible,
low cost dedicated energy crop with the intention to become self-sufficient with respect to our feedstock supply and not in competition
with the food supply.



In April 2007, recognizing the need to scale
up both our feedstock cultivation and biodiesel production operations, we completed a convertible note offering and raised A$65.0
million in new capital. These funds were raised to fund the expansion of our feedstock cultivation operations in India and the
construction of a second larger biodiesel refinery in Port Kuantan with a 250,000 tonnes (75 million gallons) per year nameplate
capacity.



In mid-2008, we commenced commercial operations
of our first biodiesel refinery, using locally sourced palm oil as feedstock.



Since January 2009, we have raised approximately
A$35.1 million in equity capital from institutional investors in private placements to complete the funding requirement for our
second biodiesel refinery and provide working capital.



In December 2009, we entered into a long
term biodiesel offtake agreement with Valero.



In mid-2010, we received our first commercial
quantities of Jatropha oil from our feedstock cultivation operations.



Also in mid-2010, we commissioned our second
biodiesel trans-esterification refinery with a 250,000 tonnes (75 million gallons) per year nameplate capacity.



In April 2011, we conducted our initial
public offering in the U.S., raising U.S. $25.1 million, and listed on the NASDAQ Global Market.



Our principal office is located at Unit
4, 97 Hector Street West, Osborne Park, Western Australia 6017 Australia. Our telephone number is +61-8-9445-1006. Our website
address is www.missionnewenergy.com. Information on our website and websites linked to it do not constitute part of this annual
report. Our agent for service of process in the United States is PJ Trading LLC, whose principal place of business address is 1777
NE Loop 410, Suite 600, San Antonio, Texas 78217.



19







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



Overview



Mission NewEnergy is a producer of biodiesel
that integrates sustainable biodiesel feedstock cultivation, biodiesel production and wholesale biodiesel distribution focused
on the government mandated markets of the United States and Europe. Our business model is illustrated below:







Although portions of our operation are still
in the development stage we have achieved the following key milestones:



| | · | we have successfully built our Jatropha contract farming business to commercial scale, although the cultivated acreage is not yet mature;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | we have already crushed and exported our first commercial quantity of Jatropha oil;
| | - | -----------------------------------------------------------------------------------



| | · | palm-based biodiesel like the type we produce is widely understood in the major transport fuels markets in the European Union and the United States, according to the U.S. Energy Information Administration, with its price and volumes quoted and tracked by energy industry sources, such as Platts, Bloomberg and OPIS, and governments;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we have built large scale refineries that have delivered positive margins from their refining operations;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | we have in place a long-term, large scale offtake agreement with one of the largest obligated parties under RFS2;
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | we already have a presence in emerging markets such as India and Malaysia and we believe we are well poised for later entry into these large diesels markets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we have proven risk management systems and operating procedures; and
| | - | --------------------------------------------------------------------



| | · | our management team has biofuels industry experience and has navigated the business through challenging operating environments.
| | - | -------------------------------------------------------------------------------------------------------------------------------



20







We believe that being vertically integrated
will allow us to control our input costs and realize revenues from both our feedstock cultivation and our biodiesel production
operations. For this reason, following the commissioning of our first refinery we developed a low-cost and sustainable approach
to the cultivation of Jatropha in 2007 and have been expanding our cultivated acreage ever since. Jatropha is an inedible perennial
oil seed plant that we seek to grow on marginal soil without displacing agricultural land used for food supply. The inedible oil
from the crushed Jatropha seed is a suitable feedstock for biodiesel and the remaining meal, or seedcake, is valued as an input
for biofertilizer. Until our existing Jatropha cultivations fully mature, which will not occur for at least two more years, we
have sought to utilize our low-cost refinery to opportunistically produce biodiesel on short-term contracts for third parties using
purchased feedstocks other than Jatropha oil. With the completion of our first commercial crush (albeit small) of Jatropha seeds
at the end of calendar year 2009, we negotiated our first long-term supply agreement that includes Jatropha-based biodiesel. This
offtake agreement gives us defined long-term access to a downstream market with a large, well capitalized customer. We hope that
deliveries under this agreement will begin when Palm and Jatropha Crude oil is approved by the EPA, although there is no assurance
that we will be able to do so. Our ability to deliver biodiesel under this agreement is largely dependent on the regulatory approval
of palm oil and Jatropha oil as feedstock under RFS2 and the successful installation of equipment that will enable both our refineries
to produce biodiesel that meets the ASTMD6751 standard, the applicable U.S. standard for biodiesel. Palm oil and Jatropha oil are
not presently, and in the future may not be, approved under RFS2.



As illustrated by the diagram below, our
business footprint spans multiple countries, with developing Jatropha plantation operations in India, established biodiesel refining
operations in Malaysia, a history of sales to multiple European Union countries and a long-term offtake agreement in the United
States. Our principal markets are those that utilize biodiesel and the by-products produced during the biodiesel production process,
notably being crude glycerine and palm fatty acid distillate. During fiscal 2011, sales were made to customers located in Europe
(28%) and South east Asia (72%). In fiscal 2010, 99% of our sales were to European customers with the remainder to South east Asia
based customers.  The configuration of our operations allow us to selectively sell our products into government mandated
markets while operating in low-cost jurisdictions.







All of our feedstock cultivation is currently
based in India, focused solely on Jatropha and still in the development stage. It encompasses the growth of Jatropha saplings in
our nurseries, the sale of saplings to contract farmers, long-term support of those farmers to implement sound agronomy practices
through the Jatropha plant life-cycle and the purchase of harvested Jatropha seeds from our contract farmer network. Under our
control and supervision, purchased seeds are then crushed and crude Jatropha oil is extracted to be used as feedstock in the biodiesel
production process. The residual Jatropha seed cake, a by-product of the oil extraction process, can be sold to manufacturers of
bio-fertilizer or potentially used by us in the production of our own bio-fertilizer.



21







Based on (i) our experience as an active
participant in the Jatropha industry, while operating in multiple jurisdictions with global attention from equity capital markets,
news media and direct contact with other industry participants, and (ii) our review of what we believe to be the most recent comprehensive
study on Jatropha, the Global Market Study on Jatropha produced by GEXSI (2008), we believe that we are one of the world’s
largest Jatropha feedstock cultivation business in terms of acreage under contract. As of June 30, 2011, we had contracts with
139,778 farmers in India to cultivate Jatropha in five states in India. We determined that as of June 30, 2011, we had 194,323
acres of Jatropha under cultivation that was growing to expectations, which we refer to as productive acres. We expect that our
current productive acreage will produce at maturity approximately 120 thousand tonnes per year of Jatropha oil and approximately
double that amount of seed cake. See “— Feedstock Cultivation — Seed yield expectations” and “—
Feedstock Cultivation — Crude Jatropha oil estimate.”



Our biodiesel production facilities are
comprised of two separate transesterification refineries that convert feedstock oil to biodiesel located at Port Kuantan, Malaysia.
Our first biodiesel refinery (Plant I) has a 30 million gallons-per-year nameplate capacity. Plant I has achieved ISO9001:2008
certification. Plant I is also the only non-German biodiesel production facility certified to produce BPAC-AGQM technical standard
biodiesel. The BPAC-AGQM is a quality German certification system that assures customers that our products are high quality. This
certification assists us to sell compliant biodiesel in Germany, the largest biodiesel market in Europe. The transesterification
process utilized at this facility incorporates leading proprietary technology that allows us to produce biodiesel simultaneously
from multiple feedstocks, allowing us to shift in and out of different feedstocks based on feedstock supply, customer demand and
market cost dynamics. Our second biodiesel transesterification refinery (Plant II) was commissioned adjacent to Plant I with a
75 million gallons-per-year nameplate capacity. As further discussed below, Plant II uses highly efficient second-generation transesterification
technology. Our production facility in Kuantan is connected by two-way pipelines to a dedicated jetty 200 meters away at an all-weather,
deep sea, international port.



Historically, we have produced biodiesel
product for the European market that we have sold to various customers. As more fully described below, we have arranged for initial
access for our biodiesel to the U.S. market pursuant to the Valero offtake agreement.



We have a captive supply of second generation
feedstock, commercial scale refining capacity and a large scale offtake agreement.



We have incurred the following capital expenditures
over the last three years:



|                              |  | For the fiscal year ended June 30, |      
|----------------------------- |  | ---------------------------------- | -----
|                              |  | 2011 A$'000                        |      
|Biodiesel refineries          |  |                                    | 2,981
|Land & buildings              |  |                                    | -    
|IT systems & office equipment |  |                                    | 182  
|Vehicles & sundry equipment   |  |                                    | -    



Since June 30, 2011 to the date of this
annual report, Mission’s principle capital expenditure primarily relates to the installation of a distillation column at
Mission’s refineries.



Our Competitive Strengths



We believe that the following strengths
enable us to compete successfully in the biofuels industry:



Our Jatropha-based biodiesel is cost competitive at prevailing
crude oil prices and we have the potential to further reduce our cost base and competitiveness with petroleum-based fuels



Based on our first commercial scale crush
of Jatropha oil and our analysis of historical results, we believe that as of December 15, 2011 our Jatropha-based biodiesel can
be cost competitive with petroleum-based diesel at a crude oil price above US$52.15 per barrel (US$1.25 per gallon) calculated
based on the average premium of ULSD to crude oil since 2006 without any government subsidies or financial support. As discussed
below under the heading “Item 4.B — Information on the Company — Business Overview — Feedstock Cultivation
— Our net production costs of Jatropha-based biodiesel”, with an increase in by-product realization and continued scale
efficiencies, we aim to further reduce our production costs and significantly increase our cost competitive nature with petroleum-based
products at prevailing market prices for petroleum.



22







We have a captive supply of cost competitive feedstock
that does not compete with food crops



We expect that Jatropha will be one of the
lowest cost feedstock that can be viably used for biodiesel production. We have established a contract farmer network that provides
us with an abundant supply of this low cost and relatively price stable feedstock. This captive supply gives us some protection
from feedstock pricing pressure. Also, as Jatropha is inedible, its price and availability are unlikely to be significantly influenced
by demand for food crops. Based on our existing productive acreage at June 30, 2011, the median yield scenario and our analysis
of historical results, we estimate that we will be able to produce approximately 22.3 million barrels of Jatropha oil over the
life of our productive acreage. See “Business — Feedstock Cultivation — Crude Jatropha oil estimate.”



Our existing contract farming platform allows for continued
growth of contracted acreage with no significant direct capital expenditure



We can expand our existing contract farming
network without any significant direct additional capital expenditure on our part. During the Jatropha maturing cycle, our only
capital requirements are limited to maintaining general working capital and corporate overhead. Our contract farming management
systems are scalable and the planting costs are borne by our contract farmers.



By growing on marginal land, the farming
of Jatropha represents a low opportunity cost for our contract farmers. Additionally, by arranging third party financing and providing
support services to our farmers, we have demand from new and existing contract farmers to add acreage to our contract network.
With these favorable arrangements, we believe that we can continue to grow the number of our contract farmers to meet the needs
of our biodiesel production operations without any significant capital expenditures on our end. Based on our median growth in productive
acreage over the next five years and the median yield scenario, we estimate that we would be able to produce approximately 51 million
barrels of Jatropha oil over the life of our cumulative productive acreage. See “Business — Feedstock Cultivation —
Crude Jatropha oil estimate.”



We believe our leadership position in Jatropha cultivation
creates commercial opportunities for us



We began cultivating Jatropha in 2007 and
realized our first commercial oil yields in 2010. Unlike potential innovations in the areas of cellulosic, algae and green diesel
which are not yet proven at commercial scale, our products do not require major research and development achievements or the market
adoption of new technology. We have used the breadth of our experience gained over this time to optimize our agronomic practices
in the cultivation of Jatropha. We believe our leadership position in Jatropha cultivation gives us a competitive advantage in
securing high-volume customers, favorable supply and distribution agreements and strategic site locations. For instance, we entered
into a favorably priced long-term offtake agreement with Valero Energy Corporation, North America’s largest independent petroleum
refiner for 57% of the nameplate production capacity upon title transfer of the second refinery to us. Under the terms of the agreement,
while our Jatropha oil supply is ramping up to the maximum contract volume, our sales price of biodiesel may be priced at a premium
to ultra low sulphur diesel, which lessens the impact of commodity price volatility that has severely hindered the industry.



We believe that we will be able to negotiate
additional long term, large scale, premium priced contracts with other large buyers.



We have established a large scale, cost competitive refining
operation



With a cumulative nameplate production capacity
of 105 million gallons per annum (350,000 tonnes per annum), we are one of the world’s largest biodiesel refiners. This scale
makes us commercially relevant to large scale fuel blenders. While our Jatropha plantations mature, we utilize crude palm oil as
a feedstock, which is historically the lowest cost currently available feedstock. Management believes that we are a low cost producer
of biodiesel as we have been able to competitively price our biodiesel to capture market share. Management believes our cost competitive
nature is due to operations in a low cost jurisdiction with local access to commercial quantities of low cost feedstock.



23







We have established sustainable socially responsible feedstock
cultivation and refining operations



As an inedible feedstock that grows on marginal
land without displacing food crops, Jatropha is a completely sustainable feedstock. Unlike petroleum, which is a finite resource,
we can plant, and replant feedstock sources thereby replenishing our supply on a perpetual basis. We anticipate that our pioneering
position in Jatropha cultivation will allow us to become the first company to utilize only dedicated non-food energy crops to produce
biodiesel on a commercial scale.



Our Jatropha-based biodiesel is a fully
sustainable, socially responsible substitute for diesel. By providing our farmers with a long term annuity income at limited opportunity
cost, our contract farming model will directly help to alleviate the poverty cycle for over 139,000 farmers with which we are currently
contracted and indirectly provide income for many more. Under our contract farming program on marginal lands, we have successfully
planted over 277 million Jatropha saplings to date.



Our leadership in social responsibility
provides the political and social support necessary to grow our business.



Our Strategies



In order to achieve our goal of becoming
a leading vertically integrated supplier of biodiesel, we intend to pursue the following strategies:



Focus on government mandated markets



While in transition from our existing feedstock
to our Jatropha, we are focused on markets that are supported with government mandates. Subsidies, mandate blending requirements
and other market forces in Europe and the United States have historically created greater market potential.



Lower our effective biodiesel cost base through increased
by-product value realization and economies of scale



We will continue to identify areas where
we can add value and develop multiple ancillary income streams. We seek to realize greater value of the by-products from our Jatropha
operation and our refining process.



Through a solvent extraction process used
to separate compounds based on their relative solubility in two different liquids, we expect that each three tonnes of Jatropha
seeds will yield one tonne of oil and two tonnes of Jatropha seed cake. If standard mechanical extraction is applied as opposed
to solvent extraction, the yield of oil would be lower. The Jatropha seed cake is a valuable biomass with profitable commercial
applications. With no additional capital expenditure, Jatropha seed cake can be sold as an input to bio-fertilizers. In addition,
we believe that our Jatropha seed cake can be enhanced into a competitive bio-fertilizer, thereby realizing increased value.



Refining biodiesel generates the readily
saleable by-products of glycerin and fatty acid distillate. Our refineries are equipped to improve the quality of this glycerin
to pharmaceutical grade glycerin. The sale of high quality glycerin and other refining by-products further reduces our effective
conversion cost.



We expect as our volume of Jatropha increases,
our logistics and transportation cost, which make up 34% of our cost base, can be significantly reduced through the realization
of cost per unit reductions. Further, we intend to concentrate our go forward planting efforts on our most successful geographic
locations thereby increasing density and lowering per unit logistics costs.



We expect to realize further production
cost savings from economies of scale and be able to receive incremental contribution from by-product sales, such that in combination
we could generate a positive   contribution margin from our production and sale of biodiesel. See “Business —
Feedstock Cultivation — Our net production costs of Jatropha-based biodiesel.”



We believe through by-product value realization
and economies of scale, we can achieve a net cost of production for our biodiesel that makes us highly cost competitive with petroleum-based
transport fuels and other existing biofuels.



24







Continue to expand our Jatropha contract farming operation



Our contract farming provides our business
with access to low-cost, high-yield feedstock. We intend to continue build on our success and expand our contract farming acreage.



Our contract farming model is to plant on
marginal land so that our farmers have a low opportunity cost. We guarantee to buy back 100% of their crop providing them with
considerable income. We have increasingly sought to assist willing farmers to arrange bank financing for their required capital
expenditures so they have no upfront cash outlay. Farmers who do not arrange, or are ineligible for, bank loans may seek to fund
the operations themselves. This model is highly attractive to small scale farmers.



Our existing business systems, practices
and successful commercial scale rollout of contract farming provide us with a platform to continue to grow our acreage under contract,
as discussed under “Item 4.B — Information on the Company — Business Overview — Feedstock Cultivation —
Productive acreage growth plans,” we do not expect to be constrained by the availability of suitable land.



Continue Jatropha research and development efforts to
increase the productivity of our contract farming operation and move into Mission owned and operated plantations



Engaging in large scale contract farming
has spread the development risk of domesticating Jatropha. We believe that the knowledge gained from our contract farming operation
will be vital in successfully entering into large scale corporate farming of Jatropha.



In collaboration with recognized universities,
we continue to advance the genetic development and cultivation practices of Jatropha.



We expect that the genetic characteristics
of Jatropha will advance as the crop becomes more domesticated, which will provide the necessary consistency to profitably undertake
large scale contiguous corporate style cultivation of Jatropha, including mechanization and other more sophisticated agronomic
practices. We expect owning the land and operating the plantation acreage will result in higher yield per acre and lower per unit
cost, as a result of uniform agronomy practices and reduced logistics costs.



We have conducted scoping studies to establish
plantations that we may be able to own and operate in Africa, Central America, South America and South East Asia. We remain encouraged
by the prospects of large-scale corporate farming of Jatropha in each of the aforementioned geographies.



Extend vertical integration of our business model



After establishing refining capacity, we
have successfully developed our feedstock cultivation operations. Having secured a long-term offtake agreement in the United States,
we are pursuing strategic acquisitions or structured contractual arrangements for biodiesel storage facilities, terminals operations
and toll processing in key U.S. markets to grow our distribution capacity. A potential benefit of such acquired facilities or arrangements,
if consumated, would be to allow us to store and blend large volumes of biodiesel “off the rack” to customers at the
point of delivery, without the need for an intermediary distributor. We believe that this distribution capacity will give us key
access to the growing U.S. markets and a strategic advantage over our competitors. Once we have achieved full vertical integration,
we will continue to further expand our feedstock and refining operations in tandem.



Feedstock Cultivation



Jatropha



Jatropha is an inedible perennial oil-seed
plant that can grow on marginal soil with limited water and without displacing agricultural land used for food supply, factors
that make it an ecologically responsible source of fuel oil. The Jatropha plant produces seeds annually over its average productive
life of 30 years. Harvested seeds of the Jatropha plant are crushed to produce an inedible oil that is a suitable feedstock for
the production of biodiesel. The remaining meal of the seed, or seed cake is a valuable by-product of the oil extraction process
that we sell for various uses. The amount of biodiesel produced from a hectare of Jatropha on a well managed and irrigated field
compares favorably with most other biodiesel feedstocks as indicated by the table below.



25







|Typical biodiesel yields |  |                 |      | 
|------------------------ |  | --------------- | ---- | 
|Plant species            |  | Tonnes per acre |     
|Palm oil                 |  |                 | 1.40 | 
|Jatropha                 |  |                 | 1.29 | 
|Castor bean              |  |                 | 0.74 | 
|Coconut                  |  |                 | 0.65 | 
|Tung oil                 |  |                 | 0.63 | 
|Sesame                   |  |                 | 0.47 | 
|Sunflowers               |  |                 | 0.31 | 
|Groundnuts               |  |                 | 0.30 | 
|Rapeseed                 |  |                 | 0.30 | 
|Safflower                |  |                 | 0.29 | 
|Linseed                  |  |                 | 0.26 | 
|Mustard seed             |  |                 | 0.21 | 
|Soybean                  |  |                 | 0.12 | 
|Cotton                   |  |                 | 0.06 | 



Source:  The Biofuels Market:
Current Situation and Alternative Scenarios, United Nations Conference on Trade and Development, 2009.



These favorable yield dynamics and the perennial
nature of palm and Jatropha plants contribute to the overall cost advantage that these oil plants have relative to other types
of oil-producing species and explain our focus on utilizing these feedstocks. Jatropha, however, has not been widely cultivated
for purposes of harvesting seeds and therefore does not yet figure prominently as a feedstock for biodiesel.



By cultivating Jatropha plants in India,
we are working to overcome the limited availability of Jatropha oil. Until our Jatropha cultivations mature, we are striving to
take advantage of the relatively low cost of palm oil cost and its ready availability to our refineries in Malaysia. Malaysia is
one of the world’s largest sources of palm oil and having access to abundant, locally produced feedstock significantly reduces
the cost of inbound transportation and assures us of reliability in our supplies.



Approach to cultivating a new energy crop



Jatropha has been growing wild in India
for many years and is well known to local farmers. Historically, its inedible properties and hearty nature led to it becoming widely
planted as a hedge for protecting valuable food crops from animals.



The ecological sustainability, low production
cost and physical characteristics of Jatropha oil make it a highly sought after feedstock for biodiesel production. However, the
plant has not historically been cultivated on a commercial scale for energy use or other purposes. As is typical of a crop in the
early stages of commercial development, the yields of Jatropha on our contracted acreage have varied dramatically. It is expected,
like most other crops, that the yields will become more consistent and abundant as the agronomy practice develops and higher yielding
varieties of the Jatropha plant are cultivated.



Our contract farming model is to plant on
marginal land so that our farmers have low opportunity cost and a commercial incentive to share in the development risk of domesticating
Jatropha. By engaging in large scale contract farming with over 139,000 different farmers, with wide geographical dispersion, Mission
is gaining the practical expertise necessary to better understand and drive yield improvement. With these learnings and the subsequent
domestication of the crop, we are positioned to roll out large scale corporate farming of Jatropha.



Scope of Jatropha cultivation operations



We have an upstream feedstock cultivation
operation consisting of Jatropha seed research and development, nurseries, contract farming with advanced farm management systems,
warehousing and logistics capability, seed crushing and oil extraction capability and access to a banking and financing network.



26







Our Jatropha cultivation operation is diagrammed
below:







We typically enter into 30 year farming
contracts, whereby a farmer plants Jatropha saplings in the marginal portions of their fields and we agree to buy back all the
seeds from the farmer once the planted saplings have matured into trees and have begun to bear fruit. The farmers with whom we
have contracted provide us with a reliable source of low cost feedstock for our biodiesel productions.



We lease and operate nurseries to grow Jatropha
saplings, which we sell to our contract farmers. We have an extensive network of field personnel in India to manage harvesting,
storage, extraction and transportation of Jatropha seeds and oil. As of November 30, 2011, the network extended over the five different
states in which substantially all of our contracted acreage lies. We have management on the ground in India and have implemented
systems to assure the reliable delivery of Jatropha seeds from our farmers. Our management and operations team in India of over
472 full time employees, are supported by field representatives.



To assist our contract farmers to maximize
their yield of Jatropha and therefore our supply of Jatropha, our management and operations teams provides farmer extension services
and farmer agronomy support. The extension services are primarily related to education about best practices for Jatropha farming
and ongoing trouble shooting as it relates to specific Jatropha agronomy.



Our extensive network of field agents allows
us to efficiently provide the extension services to our farmers. Our field agents are enabled with hand-held, data tracking and
communication devices including Global Positioning Systems, which will allow us to manage our field agents and ensure that extension
services are fully utilized, tracked and monitored.



Through our extensive field agent network
and access to state warehouses and facilities, we are able to aggregate commercial quantities of Jatropha seeds, which via tolling
arrangements are then crushed yielding crude Jatropha oil and Jatropha seed sake. Historically, we have sold Jatropha seed cake
as a bulk input to bio-fertilizer, but we are evaluating the implementation of processes to produce finished bio-fertilizer that
we believe we could sell at a higher profit margin.



Mission Agro Technologies



The management and operations team in India
has successfully rolled out our proprietary GPS mapping and agronomy management system, Mission Agro Technologies, or MAT, and
is in the process of enhancing the system as a result of lessons learned in the field. The system enhancements are intended to
collate and report on the detailed reviews of the conditions on the various farms, including maturity and existence of saplings,
conditions and stem girth. The system was designed to provide us with a clear understanding of the performance of our contract
farming network, allowing us to improve and rectify the performance of any underperforming contract farmers.



The agronomy software underlying the MAT
system is driven by our proprietary Jatropha algorithm, which will determine on a farm by farm basis at any particular month what
agronomy activities need to happen given the profile of the specific farm. This software will allow us to maximize the seed yield
of each contract farmer, optimize harvesting and extraction and schedule logistics movements, all of which will ultimately maximize
system wide yields and minimize costs.



27







Our MAT system will allow us to capture
extensive information about the condition and quality of our contract farming acreage. We will use this detailed information to
profile and analyze the development of our contract farms and the data will provide us with a clear understanding of the performance
of our contract farming system and will be used to improve the accuracy of our yield prediction and prioritize new plantings. Our
last survey captured additional descriptive information covering the matters listed in the table below:



|Descriptive Information Captured in MAT Database
|------------------------------------------------
|·Average number of branches per plant           
|                                                
|·Average number of fruits per plant             
|                                                
|·Average plant height                           
|                                                
|·Average stem girth (circumference)             
|                                                
|·Farmer attitude in taking care of plantation   
|                                                
|·Flowering and fruiting status                  
|                                                
|·Month of pruning                               
|                                                
|·Mortality                                      



Productive acreage estimates



Based upon information gathered from our
field force and using tracking information from our MAT system, as of June 30, 2011, we had approximately 194,323 productive acres
of Jatropha under cultivation. We classify areas as productive acres when the Jatropha plants are growing in line with our expectations.
Based on lessons learned from our initial years of cultivation, we have been able to develop and define the agronomy practices
and planting techniques that we expect will lead to higher success rates for our Jatropha cultivation.



Productive acreage growth plans



There is ample land in India that is not
considered by the Indian government to be suitable or productive for growing food crops on which we could potentially expand our
productive acreage. We intend to try to take advantage of this by planting additional acreage annually in the future. Historically,
we have planted as few as 7,000 and as many as 280,000 new acres in a single year. Based on our learning, we believe that planting
about 50,000 new acres per year is an appropriate target and will allow our field forces to ensure that best planting practices
are followed to an acceptable degree. Notwithstanding this objective, the actual acres we plant annually may vary and the productive
acreage achieved from such new cultivations may be less than the total number or acres planted.



In addition to planting new acreage, we
are encouraging some of our existing contract farmers to recover previously planted acreage where soil and climate conditions warrant
doing so in order to transform it to productive acreage. This entails replacing Jatropha plants that died prematurely, more carefully
tending to plants that are weak or underdeveloped and ensuring that agronomy best practices are consistently employed throughout
their acreage. At this point, we are unable to estimate the number of acres that can be recovered to productive acreage status.
We are also evaluating the merits of planting some directly controlled acreage and, if we decide this would be cost effective,
it would further augment our annual targets for adding productive acreage.



Jatropha yield algorithm



The collection of data from such a large
number of geographically disperse farmers, each with uniquely different planting environments, has provided us with a rich source
of data and a deep understanding of the many factors that affect Jatropha seed and oil yield. Based on our practical field experience
and analysis of the data that we have collected on our productive acres, we believe the majority of yield deviations are explained
by the following factors:



28







Crude Jatropha Oil:  The amount of the yield
is based on total acreage, plants per acre and yield per plant.



Yield per Plant:  The amount of the yield
is based on quality of land, genetic stock, inputs and agronomy practice.



| | · | Quality of Land:   planting Jatropha on high-quality
agricultural land decidedly improves yield; however, our policy is to plant Jatropha on marginal land; determination of soil conditions
is important in selecting acreage and predicting plant growth rates and seed yields.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Genetic Stock :  our research and development program,
like other Jatropha research and development programs around the world, is focused on the development of high yielding varieties;
to date, we have cultivated using wild seeds but have sought to use the highest yielding genetic stock available in the industry.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Inputs :  the use of irrigation and fertilizer unquestionably
improves the yield performance of Jatropha.
| | - | ---------------------------------------------------------------------------------------------------------



| | · | Agronomy Practice :  the development and consistent
implementation of best agronomic practices can drive increases in yield; through our ability to deliver extension services and
monitor the performance of a large number of highly distributed farmers, we are uniquely capable to influence agronomic practices.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following factors have been identified
by us as the most important factors in achieving sound agronomic practices.



Agronomy Practice :  The
amount of the yield is based on grade of farmer, plant architecture, weeding, planting practices.



| | · | Grade of Farmer:   the more agronomic skill the farmer
has, the higher the yield.
| | - | ---------------------------------------------------------------------------------



| | · | Plant Architecture:   primarily driven through pruning
practices, the more branches a Jatropha tree has the higher its fruit yield.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | · | Weeding:   the keeping of weeds and other pests away
from the Jatropha plant results in higher yield.
| | - | -----------------------------------------------------------------------------------------------------



| | · | Planting Practices:   planting the Jatropha saplings
at the correct time and in the correct fashion results in stronger plants and earlier and higher yield.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



Based on the published research on Jatropha,
we expect that a Jatropha sapling will take around three years to begin to bear fruit and an additional three years to reach full
maturity. At full maturity, the trees will continuously bear fruit for approximately the following 30 years.



Our productive acreage is not yet mature
and we do not yet have empirical evidence of yields at maturity. We are aware of 16 published scientific studies of Jatropha seed
yields. At maturity, the median seed yields reported in these studies is 1.9 tonnes per acre. We expect, but can provide no assurance,
that seed and oil yields on our productive acreage will be at or above reported median levels as a result of dissemination and
implementation of sound agronomic practices through our contract farmer base and our efforts to plant Jatropha saplings grown from
robust genetic stock available in suitable quantities.



29







According to The Energy Research Institute
of India, or TERI, in a report commissioned and prepared for us in May 2006, Jatropha seed yields will vary with climate and soil
conditions and with the method of cultivation as previously discussed. This report after taking into account averages across different
climate conditions and assuming partial irrigation and fertilization shows that seed yields will increase through the sixth year
of plant life and stabilize thereafter. However, based on our productive acreage, we have anecdotal evidence to suggest that without
fertilizer, irrigation and proper pruning that the development cycle might be delayed, as such we rely on the following maturity
curve:



|Year Following Planting                    |  | Year 1 |     |   | Year 2 |  |     | Year 3 |  |  | Year 4 |   |  | Year 5 |      |   | Year 6 |  |      | Year 7 and Onward | 
|------------------------------------------ |  | ------ | --- | - | ------ |  | --- | ------ |  |  | ------ | - |  | ------ | ---- | - | ------ |  | ---- | ----------------- | 
|                                           |  |        |     |   |        |  |     |        |  |  |        |   |  |        |      |   |        |  |      |                   | 
|Seed yield as percent of yield at maturity |  |        | 0.0 | % |        |  | 0.0 | %      |  |  | 13.5   | % |  |        | 33.3 | % |        |  | 50.0 | %                 | 



At the end of the 2012 calendar-year harvest,
we expect to begin to have meaningful empirical evidence about the development cycle of our cultivated productive acreage.



Crude Jatropha oil estimate



The published literature also includes statistics
on oil yields from Jatropha seeds and consistently reports average yields of oil equal to about one-third of seed mass and average
yields of seed cake of about two-thirds of seed mass. Our experience on our first commercial crush is that we can achieve yields
consistent with these averages but that we will need to use solvent extraction techniques to do so. Assuming the use of solvent
extraction techniques to achieve a 33% oil extraction rate and assuming the aforementioned expected seed yield of approximately
1.9 tonnes per acre at maturity, we would expect to realize 0.6 tonnes of Jatropha oil per productive acre annually at maturity
for our contract Jatropha fields. Based on our existing productive acreage of 194,323 acres, we calculate a harvest yield of approximately
120,452 tonnes per year of crude Jatropha oil.



The below table shows a range of potential
crude Jatropha oil that can be harvested from our existing contract farming acreage over an expected 30-year life of our current
productive acreage, assuming that achieved seed yields vary as much as 20% in either direction of the published median and that
the oil-to-seedcake ratio is 1:2. Based on our assumed median seed yield per acre, we calculate that our current productive acreage
would produce approximately 936.9 million gallons (22.3 million barrels) of crude Jatropha oil over an estimated productive life
of 30 years.



|Yield Per Acre at Maturity (Tonnes per year) |      |  | Total Jatropha Oil Per Acre over 30 Years (in barrels) |  |        | Total Crude Jatropha Oil Estimate over 30 Years (in millions of barrels) |  |  | Total Crude Jatropha Oil Estimate over 30 Years (in millions of gallons) | 
|-------------------------------------------- | ---- |  | ------------------------------------------------------ |  | ------ | ------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------ | 
|                                             | 0.48 |  |                                                        |  | 88.87  |                                                                          |  |  | 17.27                                                                    | 
|                                             | 0.54 |  |                                                        |  | 99.98  |                                                                          |  |  | 19.43                                                                    | 
|                                             | 0.62 |  |                                                        |  | 114.79 |                                                                          |  |  | 22.31                                                                    | 
|                                             | 0.68 |  |                                                        |  | 125.90 |                                                                          |  |  | 24.47                                                                    | 
|                                             | 0.74 |  |                                                        |  | 137.01 |                                                                          |  |  | 26.62                                                                    | 





30







| | (1) | The estimates of total Jatropha oil per acre are determined by the predicted life of the Jatropha tree, the yield at maturity
and the ramp up to maturity.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The estimates of total crude Jatropha oil are equal to total Jatropha oil per acre over 30 years multiplied by the current
existing productive acreage of 194,323 acres.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The above figures are illustrative and not intended to be
a projection . The yields that we actually achieve cannot be accurately predicted from the limited data we have available
on our immature cultivations and could vary outside of the ranges shown.



If we are able to augment our productive
acreage annually as planned, our potential aggregate Jatropha oil production over the expected 30-year life of each productive
acre could increase dramatically over the next five years as reflected in the table below. This table was prepared assuming median
seed yield and a 1:2 ratio of Jatropha oil to seed cake. Based on our assumed median of growth estimates and mid range of yield
per acreage, we believe we could produce approximately 49.34 million barrels of Jatropha oil over 30 years.



Total existing crude Jatropha oil estimate
scenarios based on our cumulative productive acreage, which includes existing productive acreage and new productive acreage we
intend to contract over the next 5 years, are as follows:



|                                                       |  | 5-Year Scenarios |        
|------------------------------------------------------ |  | ---------------- | -------
|New productive acreage added per year for next 5 years |  |                  | 30,000 
|Total New Productive Acreage                           |  |                  | 150,000
|Cumulative Productive Acreage                          |  |                  | 344,323
|Crude Jatropha Oil 30-Year Production Estimate         |  |                  |        
|Barrels (millions)                                     |  |                  | 39.53  
|Gallons (millions)                                     |  |                  | 1660.07



31







The range of outcomes presented in the table above and elsewhere
in this report have been prepared by us based on assumptions relating to, plant yield, extraction rate, monsoon seasonality, agronomy
practices and numerous other assumptions, all of which are inherently uncertain and are subject to significant business, economic,
meteorological, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those
projected, which could have a material adverse effect on our results of operation and financial condition.



Our net production costs of Jatropha-based biodiesel



We have successfully delivered our first
commercial scale crush of Jatropha oil. From this we have generated sufficient cost data to estimate our cost of producing and
delivering Jatropha-based biodiesel to the United States, without subsidies or government support. This estimated amount is US$107.13
per barrel, which includes US$36.32 per barrel of logistics costs related to accumulating and temporarily storing Jatropha seeds
and transporting crude Jatropha oil to our refinery and finished biodiesel to the United States. Our business model entails buying
seeds from our farmers, which, when crushed, yield crude Jatropha oil and Jatropha seed cake. We estimate that we will be able
to realize US$43.78 per barrel from the Jatropha seed cake and other by-products sales at prevailing market prices. Therefore,
based on our analysis of historical results, we estimate that our effective net cost of goods sold ( i.e. , total cost less
revenue realized from by-products) for Jatropha-based biodiesel could be US$63.35 per barrel.



Our Jatropha-based biodiesel costing is
based on the following:



| | · | No subsidy or other government financial support;
| | - | -------------------------------------------------



| | · | A forecast of the cost of Jatropha seeds which is based on our contract
farming agreement which stipulates a range of prices to pay for Jatropha seeds, depending on the market price of Jatropha seeds;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Actual logistics and oil extraction costs, including transportation,
handling, warehousing and oil extraction but excluding anticipated costs relating to the solvent extraction process to achieve
the 32% oil extraction rate;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | An estimate of costs to transport biodiesel from Malaysia to the U.S.
at prevailing tanker rates;
| | - | -------------------------------------------------------------------------------------------------



| | · | Sale price of by-products including 18 Indian rupees, or INR, per
kilogram for Jatropha seedcake and historic refining by-product sales; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | An achieved oil extraction rate of 33%,
| | - | ---------------------------------------



Over time, we expect to be able to reduce
this net cost for Jatropha oil through incremental realization on the sales of Jatropha seed by-products and economies achieved
as the scale of our Jatropha production grows.



By-product Value Realization



Based on our analysis of historical results,
we believe that 41% or more of the total cost of producing Jatropha biodiesel can be offset through by-product realization. The
bulk of this offset would come from the Jatropha seed cake, a by-product of the Jatropha oil extraction process.



32







Based on our median seed-yield estimate
of 1.87 tonnes per productive acre, and assuming that we generate about two tonnes of seed cake for every three tonnes of seed
harvested (based on the information presented above), seed cake would be our largest by-product by volume and value. Based on our
analysis of the information presented above, we would expect to generate approximately 1.25 tonnes of Jatropha seed cake per productive
acre annually over the expected 30 year life of the cultivations or about 244 thousand tonnes per annum from our existing productive
acreage. However, our actual experience may differ from expectations and the table below illustrates the sensitivity of seed cake
that would be generated at maturity from our existing productive acreage if average seed yields are as much 20% higher or lower
than expected averages.



|Annual Seed Yield Per Acre at Maturity (in tonnes) |      |  | Annual Seed Cake Yield Per Acre at Maturity (in tonnes) |  |      | Annual Jatropha Seed Cake Produced from Existing Productive Acres (in tonnes) |  |  | Jatropha Seed Cake Produced over 30 Year Crop Life from Existing Productive Acres (in tonnes) | 
|-------------------------------------------------- | ---- |  | ------------------------------------------------------- |  | ---- | ----------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------- | 
|                                                   | 1.45 |  |                                                         |  | 0.97 |                                                                               |  |  | 189,377                                                                                       | 
|                                                   | 1.64 |  |                                                         |  | 1.10 |                                                                               |  |  | 213,049                                                                                       | 
|                                                   | 1.87 |  |                                                         |  | 1.25 |                                                                               |  |  | 244,611                                                                                       | 
|                                                   | 2.06 |  |                                                         |  | 1.38 |                                                                               |  |  | 268,284                                                                                       | 
|                                                   | 2.24 |  |                                                         |  | 1.50 |                                                                               |  |  | 291,956                                                                                       | 



The above figures are illustrative and not intended to be a
projection.



Jatropha seed cake can be sold as a wholesale
ingredient for the production of bio-fertilizer in India however, we intend to produce a competitive bio-fertilizer and sell directly
to the end markets when our seed cake yields are large enough to justify commercial entry into this market. Based on our work with
the University of Agriculture Science in Bangalore, India to formulate a Jatropha seed cake-based product that is technically superior
to currently available bio-fertilizers in the India market, we believe that we can achieve this initiative, although there can
be no assurance, that we will be successful.



Further processing Jatropha seedcake into
bio-fertilizer to capture additional margin will require that we incur incremental costs. However, we estimate that after giving
effect to such costs we can increase our contribution margin from Jatropha seed cake. Based on our market research, the lowest
bio-fertilizer price that we are aware of in India is currently less than INR 62 per Kg (US$1,519 per tonne). The average of the
bottom of the price range products across the companies surveyed was INR 122 per Kg (2,659 per tonne). In order to capture additional
margin from seed cake sales we intend to further process our Jatropha seedcake into biofertilizer. While this processing will incur
incremental costs, we believe that we can increase our contribution margin from Jatropha seed cake throughout this value adding
process.



The table below illustrates our estimate
of the potential impact on our revenue and contribution margin if we are able to convert seedcake and sell it is as bio-fertilizer.
The scenario analysis illustrates the potential impact of Jatropha seed cake margin realization where seed cake margin realized
is the difference between our sales price and the total cost of sales.



Utilizing these prices as the basis for
calculating revenue from Jatropha seedcake bio-fertilizer and our estimates of incremental costs to produce the bio-fertilizer
from Jatropha seed cake, the table below shows the contribution margin expected at the lowest market price and the average market
price of bio-fertilizer relative to our current realization for bulk sales of unprocessed seedcake.



33







|                                               |  | Revenue Realized (in INR per Kg) |     |  | Contribution from By-products (in US$ per barrel) |  |        | Annual Contribution from Seed Cake of Existing Productive Acreage at Maturity and Median Yield Scenario (in US$) | 
|---------------------------------------------- |  | -------------------------------- | --- |  | ------------------------------------------------- |  | ------ | ---------------------------------------------------------------------------------------------------------------- | 
|Current Realization                            |  |                                  | 18  |  |                                                   |  | 48.65  |                                                                                                                  | 
|Realization based on bio-fertilizer market low |  |                                  | 62  |  |                                                   |  | 167.57 |                                                                                                                  | 
|Realization base on market average             |  |                                  | 122 |  |                                                   |  | 329.73 |                                                                                                                  | 



The above figures are illustrative and not intended to be a
projection and relies on the above discussed median yield scenario of 1.25 tonnes seed cake per year at maturity and an exchange
rates of US$1 for INR#50.



Our primary product is currently biodiesel.
Achieving enhanced realization from Jatropha seedcake, bio-fertilizer and other by-product will require us to enter into a new
market where we have not historically operated. It is likely that we will require further capital expenditure and increase our
operating overheads to enter into this line of business. There is no assurance that we will be successful in obtaining increased
realization from by-products or be able to generate material by-product revenue at all.



Scale Efficiencies



Based on our analysis of historical results,
34% of our cost of producing and selling our first batch of Jatropha-based biodiesel from its first crush in early 2010 were logistics
costs, including logistic costs within India, transport of crude oil to our refineries in Malaysia and transport of end product
from Malaysia to the United States.



We believe that over time, with larger seed
volumes from our maturing productive acreage and increased density of productive acres from new cultivation, our unit costs for
gathering, storing and transporting Jatropha seeds within India will drop, although we do not yet have empirical data to support
revised cost projections. In addition, we believe, based on published shipping tariffs, that if and when we can contract for larger
bulk shipments, our unit costs of transporting Jatropha oil from India to Malaysia can also be reduced.



Biodiesel Production



Refinery overview



Refining capability is a key element of
our integration strategy as it provides the market linkage mechanism needed to realize maximum value for feedstock oil.



Our two refineries, Plant I and Plant II,
are located at Port Kuantan, Malaysia. Plant I was built as a stand-alone biodiesel refinery with a 30 million gallon (100,000
tonne) per year nameplate capacity. It has been demonstrated to produce at this capacity and produces high quality biodiesel meeting
quality standards for biodiesel, including Europe’s EN14214 specifications. To our knowledge, Plant I is the first and only
non-German biodiesel facility to be certified to the BPAC-AGQM technical standard. Meeting this standard provides us with access
to the German biodiesel market, a large market in Europe that is important in terms of establishing product and usage standards
and credibility as a supplier. Our refining process for Plant I has also been certified for compliance to ISO 9001:2008, which
is the highest commercial quality management certification. The combination of the above certifications provides our customers
with comfort that our refining process meets best practices.



34







We constructed and in June 2010 we commissioned
Plant II at the Kuantan facility with a 75 million gallon (250,000 tonne) per year nameplate capacity, using second-generation
biodiesel technology developed by Axens, a subsidiary of the French Institute of Petroleum. Plant II has the flexibility to convert
a variety of feedstocks to biodiesel, similar to the capability of Plant I. However, the Axens’ technology does not require
the use of sodium methoxide as catalyst, which is used in Plant I. Rather, it employs a solid state, proprietary catalyst with
an expected multi-year lifetime to trigger the required transesterification reaction central to the biodiesel production process.
The change in catalyst technology results in a lower per unit conversion cost of Plant II relative to Plant I at volumes over 100,000
tonnes per year.



For general market acceptance, biodiesel
sold to customers in the United States must meet the technical standards of ASTM D6751-08, which specifies 18 required properties
of pure biodiesel (sometimes referred to herein as B100) for use as a blend component with petroleum-based diesel fuel. This standard
of ASTM International, an open forum for the development of high-quality, market-relevant international standards, specifies, among
other parameters, the maximum amounts of certain residual by-products that can remain in the finished product after the conversion
process, including acid, free glycerine, total glycerine, water and sediment content, sulphated ash, total sulphur, carbon residue
and phosphorous. The standard also specifies minimum flash point, cetane numbers and copper corrosivity and ASTM has recently revised
the standards to include specifications for a Cold Soak Filter Test. The test is intended to replicate performance of the biodiesel
in cold climates. Compliance with this standard requires a process that provides for complete transesterification and efficient
and thorough separation and purification processes. We are currently installing additional equipment that will enable both our
conversion units to meet the U.S. standard ASTMD6751-08. We are contractually required under the offtake agreement with Valero
to supply biodiesel that meets the ASTMD6751 standard. The term of the offtake agreement with Valero does not begin nor do payment
obligations for Valero arise under the offtake agreement until the first shipment of compliant diesel to them.



Biodiesel Conversion Process



The biodiesel conversion process (transesterification)
shown in the diagram below is based on the Axens technology utilized in Plant II.



35











Grey:  Inputs



Light Green:  Saleable by-products



Dark Green:  Saleable primary products



Feedstock (typically palm oil or, increasingly,
Jatropha oil) is pre-treated to remove high molecular-weight (long-chain) fatty acids and other impurities. The treated oil is
then reacted with methanol in the presence of a liquid or solid catalyst, and this chemical reaction produces biodiesel (fatty-acid
esters of varying molecular weights) and glycerine. The glycerine from the Plant I process is crude glycerine with a purity of
approximately 80%. The glycerine by-product from the Axens’ production process in Plant II is technical grade glycerine with
a purity of 97% and it can be sold at a higher price than crude glycerine without further processing. Plant II has the capacity
to produce 25,000 tonnes (7.5 million gallons) per year of this technical grade glycerine and 10,000 tonnes (3 million gallons)
per year of fatty acid distillate, another marketable by-product. Both forms of glycerine are marketable by-products for which
there is a worldwide market and numerous commercial applications. However, a higher market value is assigned to the higher purity
of glycerine. We have also equipped our Kuantan facility with a secondary stand-alone glycerine purification capability having
a capacity of about 2.4 million gallons per year. The production of each 1,000 tonnes of biodiesel results in the production of
98 tonnes of glycerine. From this secondary refinery we can produce 99.7% pure pharmaceutical grade glycerine if market prices
justify doing so. Refining by-product sales represent 3.5% of total revenue from biodiesel and by-product sales, of which 1.5%
is glycerine sales revenue. Both the by-products of crude glycerine and fatty acid distillate are in high demand and we have been
able to sell these by-products without difficulty. As Plant II has not yet run commercially we have not yet sold any technical
grade glycerine.



Both our plants have technologies that allow
us to produce biodiesel simultaneously from multiple feedstocks. The technology to handle multiple feedstocks gives us the potential
to optimize our costs by shifting in and out of different feedstocks based on feedstock availability, price, customer requirements
and other market dynamics. We expect this flexibility to be most important during the period before our supply of crude Jatropha
oil equals the combined capacity of our refinery.



36







Quality control



We employ strict quality control procedures
at each stage of the manufacturing process in accordance with ISO 9001 quality management standards to ensure the consistency of
our product quality and compliance with our internal production benchmarks. We have achieved ISO9001:2008 certification for our
refining process at Plant I.



We have established systematic inspections
at various manufacturing stages, from raw material procurement to finished product testing. Raw materials that fail to pass our
incoming inspection are returned to suppliers. We believe that we are able to maintain the quality and reliability of our products
through close monitoring of our manufacturing processes by our quality control team and scheduled maintenance of our equipment.



To ensure the effectiveness of our quality
control procedures, we also provide periodic training to our production line employees. Our quality control team also consists
of experienced equipment maintenance technicians that oversee the operation of our production facilities to avoid unintended interruptions
and minimize the amount of time required for scheduled equipment maintenance.



Our management team has implemented policies
to proactively safeguard against accidents. In addition, we conduct regular inspections and maintenance of our facilities to help
ensure product quality and safety.



Plant Utilization & Operating History



Historic Biofuel Sales



We sell our products via our own direct
sale force in the wholesale market. We historically have only sold our biodiesel to oil trading companies. Generally, oil traders
aggregate biodiesel, blend it with mineral diesel and sell the blended product to major oil companies who distribute the product
via their distribution channel to the end market. Sales to oil trading companies are highly competitive and pricing fluctuates
with market conditions. Because we have not historically had control of the costs of our feedstock, there have been few times when
we could procure feedstock at a price which we could convert to biodiesel and sell profitably. Consequently, we have not fully
utilized our biodiesel production capacity.



The following chart shows actual sales production
and utilization of the refining complex.



|                     |  | For the fiscal year ended June 30, |       
|-------------------- |  | ---------------------------------- | ------
|                     |  | 2009                               |       
|Production           |  |                                    | 37,626
|Capacity Utilization |  |                                    | 38    



Subsequent to its commissioning of the transesterification
unit, we have not yet used Plant II to produce biodiesel for commercial sale.



In fiscal 2011, our biofuel revenue was
generated primarily from two new customers, with our by-products readily sold to a number of customers. Our largest customer, Trafigura
Beheer B.V. Amsterdam, a European oil trading company, contributed over 82% of our biodiesel sales in fiscal 2009 and fiscal 2010.
Our contract with this customer has expired. Our ability to produce product at a positive contribution margin during 2009 and 2010
was driven solely by our intermittent ability to buy feedstock on favourable terms and not by the availability of buyers. We believe
that in the periods when we sold product to our primary customer we could have consummated sales to other trading company counterparties
for substantially the same volumes and prices if we had sought to do so. We also believe that we are not significantly dependant
on any single customer and that our historical customer concentration is not a reflection of the market opportunity that is open
to us.



Because our historical biodiesel sales have
been irregular, encompass a single product type and have been concentrated among a small number of customers in the European region,
we do not break out revenue by segment and trend data is not presented because it is not considered meaningful under the circumstances.
Currently our plants are idle, but in excellent condition and on full operational standby to produce biodiesel as and when required.



37







Refining By-product Sales



We sell our glycerin and fatty acid distillates
ex works into the immediate cash payment and delivery market.



Strategic long term offtake agreement



We have entered into a large biodiesel offtake
agreement with subsidiaries of Valero Energy Corporation, a Fortune 500 company based in Texas.



To minimize historic volatility for palm
oil and to ensure positive operating margins, we entered into the long term biodiesel offtake agreement on a cost plus basis, subject
to a floor price and a ceiling price. In exchange for the favorable pricing on palm-based biodiesel, we agreed to provide a discounted
price on further Jatropha-based biodiesel production. We deem this agreement to be favorable to us given the development stage
of our feedstock cultivations. However, the discounted price on our Jatropha-based biodiesel over the long term may reduce our
revenue potential and future margins from processing Jatropha oil into biodiesel.



Subject to the terms and conditions of the
biodiesel offtake agreement, Valero has agreed to purchase our entire Jatropha-based biodiesel up to 200,000 tonnes (60 million
gallons) of biodiesel per year for five years. This initial five year term of the agreement does not begin until our first shipment
of biodiesel to Valero. Valero has the right to double that quantity to 400,000 tonnes (120 million gallons) per year and to extend
the term by an additional five years, depending upon conditions.



While our Jatropha-based biodiesel production
is ramping up, we are able to cover any shortfall from the contracted quantity with palm-based biodiesel if it is economically
favorable for us to do so. This offtake agreement lessens the impact of commodity price volatility, which has severely hindered
the industry. The long term nature of the agreement provides us with greater sales predictability, locking in demand for up to
57% of our nameplate production capacity of 105 million gallons upon title transfer of Plant II to us and based on the assumption
that we produce 200,000 tonnes per annum of biodiesel for Valero.



Once we begin shipping under the Valero
agreement and until Jatropha oil production exceeds 400,000 tonnes per year, we expect that Valero will be our largest customer
and, assuming we are unable to attract other customers, Valero may represent 100% of our revenue from refined products. This degree
of customer concentration is likely to continue until we can produce Jatropha oil in quantities that are surplus to the amounts
stipulated in the Valero agreement, acquire additional refining capacity or the Valero agreement expires.



We do not have an exclusive selling arrangement
with Valero and can sell to other parties. In addition, we have not committed 100% of our refining capacity to Valero. We are not
singularly reliant on Valero to commercialize or roll out our business plan.



In connection with the offtake agreement,
we also issued Valero 81.41 million warrants at A$0.45 per ordinary share. The warrants were not exercised and expired on August
31, 2010.



As of the date of this annual report, we
have not provided to, or received from, Valero, any other consideration in connection with the offtake agreement.



38







Summary of Historic Sales



The tables below outlines Mission’s
historic sales by country and by product:



|Indian Operations:               |  |                            |         |  |                       |  |        |                        | 
|-------------------------------- |  | -------------------------- | ------- |  | --------------------- |  | ------ | ---------------------- | 
|Description                      |  | Fiscal Year June 2009      |         |  | Fiscal Year June 2010 |  |        | Fiscal Year June 2 011 | 
|                                 |  | Indian rupees, in millions |        
|Agricultural Income              |  |                            | 296,868 |  |                       |  | 27,538 |                        | 
|Wind Mill electricity generation |  |                            | 18,114  |  |                       |  | 21,473 |                        | 
|Crude Jatropha Oil               |  |                            | —       |  |                       |  | 5,006  |                        | 
|Others                           |  |                            | —       |  |                       |  | —      |                        | 
|Total                            |  |                            | 314,982 |  |                       |  | 54,017 |                        | 



|Malaysian Operations: |  |                       |             |  |                       | 
|--------------------- |  | --------------------- | ----------- |  | --------------------- | 
|Description           |  | Fiscal Year June 2009 |             |  | Fiscal Year June 2010 | 
|                      |  | Malaysian ringgits    |            
|Biofuels              |  |                       | 108,738,699 |  |                       | 
|Pure Glycerin         |  |                       | 2,603,501   |  |                       | 
|Crude Glycerin        |  |                       | 2,113,408   |  |                       | 
|PFAD                  |  |                       | 2,633,486   |  |                       | 
|Crude Jatropha Oil    |  |                       | -           |  |                       | 
|Total                 |  |                       | 116,089,093 |  |                       | 



Intellectual Property



We have a perpetual license for the life
of Plant I for all patents and intellectual property rights relating to Crown Iron Works’ process technology and engineering
design used in construction and operation of the refinery. We similarly have a perpetual license for the life of Plant II for all
patents and intellectual property rights relating to Axens’ process technology and engineering design used in construction
and operation of that refinery. In connection with the distillation column that we are installing to retrofit our refineries, we
will also have a perpetual license for the life of each refinery for the patents and intellectual property rights from the manufacturer.



Seasonality



Palm-based biodiesel is prone to gelling
in cold climates. We have therefore experienced lower demand for palm-based biodiesel from Europe in the winter months. We hope
to counter seasonal demand from Europe for palm-based biodiesel by establishing and expanding demand in the southern hemisphere.
Jatropha-based biodiesel has superior gelling properties to palm-based biodiesel and is less susceptible to seasonal demand.



Approximately 90 days after the onset of
the monsoon season in India, Jatropha plants are expected to be ready to harvest. At the same time we are obligated to purchase
Jatropha seeds from our contracted farmers. Given the wide geographic spread of our contract farming operations and the variability
in the cycle of the monsoon season in India, we expect the harvest season to last approximately four months. Our contracted farmers
aggregate their seeds and deliver the seeds to our field agents in the relevant village. Upon aggregation of quantities of Jatropha
seeds sufficient to justify the transportation costs, these seeds are transferred to a state-owned and operated warehouse where
the weight of the seeds is confirmed. Once the quantity of Jatropha seeds is confirmed, we disburse payment to each contracted
farmer. Once quantities of Jatropha seeds are aggregated at the warehouse sufficient to reduce our per unit transport cost, the
seeds are transported to an outsourced crushing facility, where the seeds are converted to Jatropha oil and seed cake. The seed
cake is sold directly at the crushing site and the Jatropha oil is transported to a port and then shipped to our refineries. It
is expected that we will only ship quantities of Jatropha oil to our refineries when we have sufficient quantities to reduce the
per unit transport cost, resulting in a requirement to store Jatropha oil either at the port in India or at our refineries. In
addition, we have the option to sell the Jatropha crude oil to third parties.



39







Competition and Competitive Dynamics



Our primary product, biodiesel, sells in
the liquid fuels market. The liquid fuels market is a highly competitive, large global market with many well established market
participants.



Historically, there have been many entrants
into the biodiesel market in the United States and elsewhere in the world as governments encourage the use of renewable energy
and seek to reduce greenhouse gas emissions, thus inviting new entrants into the market. Despite the over capacity of biodiesel
refining in much of the world, much of the built capacity is rendered either uneconomic or non-competitive by the limited number
of long term offtake agreements, the limited access to necessary working capital and the limited access to sustainable feedstock.



Competitive Forces



We believe the principal competitive factors
for biodiesel producers are as follows:



| | · | Scale.   Considerable refining capacity to attract
long term significant offtake agreements.
| | - | --------------------------------------------------------------------------------------------



| | · | Pricing.  A producer’s ability to set pricing
of products and the ability to use economies of scale to secure competitive cost advantages to be able to price biofuels below
prevailing oil prices.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Technology.   A producer’s ability to produce
biodiesel and by-products efficiently and to utilize low cost raw materials.
| | - | --------------------------------------------------------------------------------------------------------------------------



| | · | Sustainability.  Bearing in mind social responsibility
towards the environment, a producer’s ability to produce biodiesel from a feedstock that is not a crop (such as corn) but
rather a weed (such as Jatropha).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Access to Second Generation Feedstock. A producer’s
access to commercial scale quantities of second generation biodiesel to attract long term offtake agreements.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Access to Working Capital & Commodities Risk Management.
A producer’s ability to take advantage of positive spreads depends on having access to working capital.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Connectivity to Existing Infrastructure. The distribution
of product relies on the ability to fit within the existing infrastructure.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



We have developed our business strategy
with the above-mentioned competitive forces in mind to meet technical requirements, reach scale, be integrated and have the lowest
cost and sustainable product.



Production Safety and Environmental Matters



Safety



We have had no material safety issues since
commencement of operations.



Environment



We are committed to environmental protection
that complies with or exceeds local environmental standards. Our plant designs have incorporated world class engineering solutions
to pollution as listed below:



| | · | Waste water.   In-house waste treatment plants within
our facilities meet the Malaysian standard for discharge. To conserve water resources, we also recycle waste water generated during
our production process, which decreases our consumption of water and reduces the discharge of waste water into the environment.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Exhaust fumes.  We generate exhaust fumes during
our production process. Exhaust fumes are treated to comply with Malaysian air quality standards.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Noise. We generate noise through the operation
of our heating, ventilation and pumping systems. The equipment in the plant is ergonomically designed and sound proofed to operate
well below the regulatory standards for noise of 80 decibels.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40







We have not been subject to any material
fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or
pending action, by any environmental regulatory authority.



Wind Farm



We are exploring the sale of our two wind
turbines and we do not intend to maintain or expand in the wind energy business.



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



Set forth below is the organizational structure
of Mission NewEnergy:







All subsidiaries are 100% owned at June
30, 2011, except Mission Agro Diesel (India) which is 51% owned by us. Mission Biotechnologies Sdn Bhd and Mission Biofuels Sdn
Bhd were incorporated in Malaysia. Mission Agro Energy Limited was incorporated in Mauritius and Mission Biofuels (India) Private
Limited and Mission Agro Diesel (India) Private Limited were incorporated in India.



Our refining operations and all associated
business contracts are held by two wholly owned subsidiaries. Mission Biotechnologies Sdn Bhd owns the first biodiesel refinery
with the 100,000 tonnes (30 million gallons) per year nameplate capacity and Mission Biofuels Sdn Bhd owns the second biodiesel
refinery with the 250,000 tonnes (75 million gallons) per year nameplate capacity.



Our feedstock cultivation operations are
conducted by Mission Agro Energy Limited and Mission Biofuels (India) Private Limited. Mission Agro Diesel (India) Private Limited
and Indas Green Acquisition Corporation are dormant corporations with no active operations.



If we operate in the U.S., we expect that
our U.S. operations will be conducted by Mission NewEnergy USA, Inc. (a Delaware corporation) and its wholly owned subsidiary,
PJ Trading LLC (a Delaware limited liability company) and its wholly owned subsidiary, PJ Trading Pennsylvania LLC (a Pennsylvania
limited liability company). Although not currently operating, we intend that any future operations will be focused on financial
functions for the group and the trading of biodiesel.



41







For a list of our wholly-owned and indirectly
owned subsidiaries, see Exhibit 8.1 filed hereto.



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



We own two biodiesel production facilities
(with leases for the underlying land) that are located adjacent to one another at Port Kuantan, Malaysia.



The following is further information about
each facility:



|Biodiesel Facility |  | Site area (Acres) |      |  | Total Capacity   (1)  (million
    gallons per year) |  |    | Capacity Utilization  (2)(percentage) |  |  | Commissioning Date
|------------------ |  | ----------------- | ---- |  | ---------------------------------------------------- |  | -- | ------------------------------------- |  |  | ------------------
|Plant I and II     |  |                   | 13.0 |  |                                                      |  | 30 |                                       |  |  | 3.5               



| | (1) | Nominal operating capacity.
| | --- | ---------------------------



| | (2) | For Plant I, percentage is based on nameplate capacity and the cumulative production during the period from the plant opening
in January 2008 to June 2011. The total tonnage produced during this period was 70,638 tonnes and the nameplate capacity is 258,333
tonnes for the entire period.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Until we make a final payment to our turnkey
contractor, KNM is not obligated to formally transfer title of Plant II to us. We are in discussions with KNM to finalize the transfer
of the second biodiesel refinery to us. However, we cannot be certain when such discussions will be finalized.



Our principal executive and administrative
offices are located on premises comprising approximately 60 square meters in an office building in Perth, Australia. The lease
expires in February 2012, subject to renewal.

We also lease properties for purposes of production, research
and development and employee living quarters in Malaysia and India. All 13.2 acres of the site area in Malaysia are leased. We
also lease apartments in Kuantan Port and Kuala Lumpur, Malaysia for use by the operational staff. In addition, due to land ownership
laws in India regarding foreign ownership, we lease 572.21 acres of nursery lands in India. We also lease an apartment in India
for use by the operational staff.



We have no significant long term capital
expenditure commitments.



Item 4A. Unresolved Staff Comments



None.



Item 5. Operating and Financial Review and Prospects



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



You should read the following discussion
and analysis of our financial condition and results of operations in conjunction with “Item 3.A — Selected Financial
Data” and our consolidated financial statements and related notes included elsewhere in this annual report. This discussion
contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events
could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but
not limited to, those set forth under “Item 3.D — Risk Factors” and elsewhere in this annual report. Unless specifically
noted, all figures in this section do not take into account and are exclusive of the 50-1 share consolidation that was effected
on April 4, 2011.



42







Overview



We are a producer of biodiesel that integrates
sustainable biodiesel feedstock cultivation, biodiesel production and wholesale biodiesel distribution, focused on the government
mandated markets of the United States and Europe.



During fiscal 2011, we incurred a net loss
of A$21.7 million (US$21.5 million). We generated revenues of A$16.9 million (US$16.8 million) in fiscal 2011. If we are unable
to achieve our business growth strategies and objectives and obtain sufficient financing on acceptable terms in order to meet our
future operational needs, there is a significant doubt as to whether we will be able to continue as a going concern.



We have three sources of total revenue:
biodiesel refining, upstream feedstock business and wind farm operations. In fiscal 2011, biodiesel refining contributed 81% of
our revenue, upstream feedstock business contributed 6% of our revenue and other operations (including wind farm operations) contributed
13% of our revenue.



Revenue from our primary business, the cultivation
and conversion of Jatropha seeds and the production of Jatropha-based biodiesel, is unlikely to exceed our expenses for at least
two years. We have already crushed and exported commercial quantities of Jatropha oil, but we have not yet produced a commercial
quantity of Jatropha-based biodiesel. There is substantial risk that we will not be able to generate alternative revenue during
the interim to offset the shortfall from our primary business and reverse our pattern of historical losses and negative cash flow.



Biodiesel refining



Our first biodiesel refinery plant began
operations in fiscal 2008 under immediate cash payment and delivery market and term contracts. Due to unattractive refining margins,
capacity utilization was low and the revenue generated from biodiesel sales has thus far been insufficient to cover costs.



Selling prices (and profit margin) for biodiesel
are largely affected by the price of crude oil and the price of feedstock oil. During recent years, crude oil prices have fluctuated
significantly as has the price of feedstock oils. We are positioned to operate with a positive contribution margin when the spread
between our feedstock oil (primary input cost) and oil prices (primary output value) are greater than our other variable costs.
Greater contribution margin per tonne or greater number of tonnes produced drives our profitability.



Our financial performance relies on successfully
arranging positive — margin sales contracts for biodiesel, crude Jatropha oil or Jatropha by-products. During each of the
past two fiscal years we have been successful in arranging positive-margin sales for immediate cash payment and delivery (i.e.
on the spot market) and we anticipate that there will be opportunities to do so in the coming fiscal years, although the timing
and quantity of such sales is unpredictable and there is no assurance that we will achieve this objective.



With our long-term off-take agreement with
Valero, we expect to improve capacity utilization and profitability as the refining margins under our long-term contract are more
attractive than traditional immediate cash payment and delivery market contracts. The significant base production expected from
the Valero off-take agreement should enable us to avoid costly shut-down procedures experienced in the past and allow us to be
more responsive to short term pricing movements in the immediate cash payment and delivery market. In order to start selling product
to Valero, the use of palm oil and Jatropha oil as biodiesel feedstock must meet certain EPA requirements under the RFS2. We expect
the approval of palm-based and Jatropha-based biodiesel, but there is no assurance that approval of either feedstock will be achieved.
See “Item 3.D — Key Information — Risk Factors — Risks Related to Our Business — If we do not meet
certain EPA requirements under Renewable Fuels Standard 2, fuels produced from palm oil may not be able to generate retroactive
Renewable Identification Numbers, or RINs, which are commercially necessary to supply biodiesel produced from palm oil into the
United States, which would limit our market opportunity and jeopardize our near term financial viability” and “—
If Jatropha oil is not approved as a feedstock under Renewable Fuels Standard 2, biodiesel produced from Jatropha oil will not
generate RINs, which will significantly limit our market opportunity and could have a significant adverse effect on our business,
financial performance and financial condition.”



The production of biodiesel from vegetable
oil feedstock (e.g. palm and Jatropha) results in the generation of glycerin and a limited quantity of fatty acids. We can sell
these products into the immediate cash payment and delivery market without further processing, although the price varies unpredictably
depending on market conditions at the time. Our production complex in Malaysia is capable of further refining the glycerin into
a pharmaceutical-grade glycerin. We expect to undertake this further refinement of glycerin if the value of the higher-grade glycerin
(which is also subject to significant price volatility) is sufficiently greater than the incremental cost to undertake the enhancement
process.



43







Our cost of goods sold is primarily affected
by the cost of feedstock oil and other refining inputs such as light fuel oil and methanol. The principal feedstock for our refinery
has historically been palm oil. The price of palm oil can vary as a result of a variety of factors, including weather, market demand
and general economic conditions. As our Jatropha plantation operation matures, we will shift the mix of feedstock from palm oil
to Jatropha oil, and we expect to reduce our costs of feedstock from their current levels.



Upstream Feedstock Business



Our feedstock business generates other revenue
from the recognition of fair value revenue of Jatropha sapling biological assets in the initial years of the business, and sales
revenue of Jatropha oil and Jatropha seed cake (which is used as an input for organic fertilizer) in subsequent years. Although
our Jatropha feedstock contract farming operations are still in the development stage (i.e. not yet producing quantities of Jatropha
crude oil that allow us to continually run our biodiesel refineries) we are striving to expand our future revenue potential by
taking steps to increase the supply of Jatropha seeds from existing acreage under contract, by coordinating the planting of additional
Jatropha saplings and by contracting for the expansion of our acreage under contract.



We currently generate other revenue in the
feedstock business solely by growing and then selling Jatropha saplings from our nurseries to contract farmers. Please note the
discussion on revenue recognition principles discussed in - “Critical Accounting Policies”. The sale of saplings to
a contract farmer is a one time upfront event for us and therefore sapling sales to our contracted farmers does not constitute
recurring income, except to the extent that we are able to expand our acreage under contract.



Our contract farming arrangements, whereby
we sell Jatropha saplings to farmers who plant and maintain them, include agreements with these farmers to buy back all the seeds
from the farmers once the planted saplings have matured into trees and begin to bear fruit. We are the exclusive supplier of Jatropha
saplings to our contract farmers. As saplings take approximately three years to begin providing fruits, continue to mature for
an additional three to five years and then continue to bear fruit for approximately 30 years thereafter, it will be several years
before we will be in a position to generate significant cash flows from seed cake sales.



We sell the Jatropha saplings to farmers
on credit, securing the receivables of the farmers against our future purchase of oil seeds produced by these saplings. In order
to accelerate the recovery of such receivables, we have established relationships with a number of Indian banks that are willing
to fund the farmers associated with us. These loans are required to be processed and approved by small rural branches, which require
extensive documentation and a physical inspection of the fields. This process has taken more time than expected and we continue
to work with the banks and farmers to improve the receipt of cash. Mission has no obligation to pay the banks that made loans to
its contract farmers if those contract farmers default on their loans.



We expect to continue to increase the number
of farmers under contract because they are attracted by the ability to grow Jatropha where most other crops cannot successfully
grow, the guaranteed market for the product, the lack of any capital outlay by them and the provision of necessary technical support
by us.



The quantity of seed cake (husk and meal
left over from the crude oil extraction process) by-product from our Jatropha-seed oil-extraction process is insignificant at this
stage due to the low quantity of Jatropha seeds available from our plantations, which are in an early stage of development. As
a result, we have had minimal Jatropha seed cake revenue to date. In the future we expect that for each three tonnes of Jatropha
seeds, we will generate two tonnes of Jatropha seed cake that can be sold as an input to organic fertilizer, and that this will
become a material source of revenue and cash flow.



Windfarm Business



Mission NewEnergy’s two wind mills
began generating electricity in February 2008 in India. By June 30, 2011, the two wind mills had generated and delivered 6,082,344  kwh
of total electricity. The electricity is supplied to the Maharashtra State Electricity Distribution Company Limited under a power
purchase agreement that expires in 2021.



44







We are in the process of exploring the disposition
of our two wind turbines and do not currently expect to make further investments in or realize material financial contributions
from this line of business. If the turbines are sold, we do not expect that it would have a material financial impact on our balance
sheet or cash flow, given the partial impairment in the valuation of these assets recognized during fiscal 2010 and 2011.



Seasonality



Jatropha sapling fair value income is recognized
at the beginning of the planting season in India, which generally runs from late June to the end of October. Therefore, income
from the recognition of the fair value of Jatropha saplings is minimal during other periods of the year. An outline of the yearly
cycle for our Jatropha business is presented below:



|Year 1                       
|-----------------------------
|                             
|                             
|Business operational activity



45







|Year 1                                      
|--------------------------------------------
|                                            
|                                            
|Biological asset and other income assessment
|                                            
|                                            



|Year 1                        
|------------------------------
|                              
|                              
|Revenue recognition assessment
|                              
|Receivables                   



46







|Year 1       
|-------------
|             
|             
|Cost of sales



|Event                                                                                                               |  | Years 2 – 5                                                                                                                                                                                                                                                                                                                                                           |  | Years 6 – 30                                                                                                                                                                                                                                                                                                                                                         
|------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Business operational activities                                                                                     |  | Continued monitoring, agronomy support and assisting farmers to get bank loans.                                                                                                                                                                                                                                                                                       |  | Continued monitoring, agronomy support, assisting farmers to get bank loans and purchase seeds. Seeds will be crushed to produce Jatropha crude oil and Jatropha seedcake.                                                                                                                                                                                           
|                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                      
|Condition of sapling/tree                                                                                           |  | Sapling grows steadily into a fruit/seed producing tree.
        
        Minimal seeds produced during these initial years.                                                                                                                                                                                                                                          |  | Mature tree delivers fruit/seeds.                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                      
|Mission purchases seeds from the farmer.                                                                            |  | Mission buys whatever seeds are delivered to our warehouses, but volume expected to be low.                                                                                                                                                                                                                                                                           |  | Mission buys seeds from farmers.                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                      
|Mission can offset the purchase value payable to the contract farmers against any outstanding receivables (if any). |  | If the receivable is still outstanding, Mission has the right
        to offset any amounts payable for the purchase of seeds against any outstanding receivable.
        
        If a portion of the saplings/trees owned and managed were to
        die, Mission can still recover the full value of the receivable through the offset against purchase of seeds. |  | If the receivable is still outstanding, Mission has the right
        to offset any amounts payable for the purchase of seeds against any outstanding receivable.
        
        If a portion of the saplings/trees owned and managed were to
        die, Mission can still recover the full value of the receivable through the offset against purchase of seeds.



47







|Event                                                                                                               |  | Years 2 – 5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Years 6 – 30                                                                                                                                                                                                                                                 
|------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Mission assists the contract farmer in applying for the bank loans and will act as a collection agent for the bank. |  | If no bank loan has been applied for or granted the Mission
        team assist the contract farmer in arranging bank finance. A portion of the proceeds of the bank loan to the contract farmer is
        utilized to pay Mission for the outstanding receivable.
        
        Under this bank loan process, the lending bank is paid directly
        by us with the proceeds from our purchase of the farmer’s seeds and the remaining proceeds are paid to the farmer. Mission
        has no obligation to pay the banks that made loans to its contract farmers if those contract farmers default on their loans.
        
        When Mission buys seeds from the farmer, the value of the seeds
        procured will be recognized as inventory, along with a corresponding payable to the bank (to the value owing by the farmer to the
        bank) with any remaining value recognized as a payable to the farmer. Mission will then pay the bank and the farmer the value of
        the payable outstanding. For example, Mission buys $300 worth of seeds from the farmer, which is recognized as inventory. Assuming
        the farmer owes the bank $100, a payable of $100 will be recognized to the bank, with the remaining $200 recognized as a payable
        to the farmer. |  | Bank loan activities may continue for a number of years.                                                                                                                                                                                                     
|                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                              
|Impairment of receivables                                                                                           |  | Mission assesses the recoverability of the receivable based on an estimate of mortality of the saplings, as mortalities will affect seed yield, and hence reduce Mission’s ability to recover the receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | The Board assesses the recoverability of the receivable based on an estimate of mortality of the saplings, as mortalities will affect seed yield, and hence reduce Mission’s, ability to recover the receivable.                                             
|                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                              
|Revenue recognition                                                                                                 |  | Nil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | The Jatropha crude oil can be sold directly to the market and
        revenue is recognized when the oil is sold.
        
        The seedcake produced can also be sold directly to the market
        and revenue is recognized when the seedcake is sold.



Revenue growth



Our Jatropha feedstock plantations have
not yet matured and we have therefore not yet achieved vertical integration or realized the economic benefits of our Jatropha plantations.
While our Jatropha feedstock cultivations are maturing we are seeking to generate revenue from the immediate cash payment and delivery
market for biodiesel contracts that utilize our existing refinery capacity. Our ability to significantly increase revenue from
current levels and become profitable depends upon the following:



| | · | increasing quantities of Jatropha oil and seed cake from our plantation
operations;
| | - | -----------------------------------------------------------------------------------



| | · | meeting certain EPA requirements for palm-based and Jatropha-based
biodiesel under the RFS2 in the United States, resulting in an ability to commence sales under the Valero agreement;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | execution of new offtake agreements;
| | - | ------------------------------------



| | · | improvement in the underlying economics for the immediate cash payment
and delivery market for biodiesel production (i.e. a positive spread between feedstock oil and mineral oil);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to generate revenue from immediate cash payment and delivery
market contracts that utilize our existing refinery capacity prior to maturation of our Jatropha cultivations; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | increasing global mandates and subsidies for biodiesel.
| | - | -------------------------------------------------------



Many of these events are outside our control.
There can be no assurance as to if or when any of these events will occur.



Critical Accounting Policies



Our discussion and analysis of our operating
and financial performance and prospects are based upon our consolidated financial statements. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts of revenue, assets, liabilities
and expenses. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions.



48







Our significant accounting policies are
more fully described in Note 3  to our audited consolidated financial statements included elsewhere in this annual  report.
However, critical accounting policies that affect our more significant judgments and estimates used in the preparation of our financial
statements are set forth below.



Sale of goods



We recognize revenue from the sale of goods
when reasonable certainty exists that such revenues will be realized and the risks and rewards of ownership have been transferred.
In the case of biodiesel sales the transfer of risks and rewards of ownership under Free on Board and Cost Insurance Freight sales
contracts occurs when the biodiesel passes the ships flange, i.e. when it is pumped onto the ship directly from our refinery.



Change in fair value of Biological assets



We recognize revenue in our feedstock segment
in two primary phases. The first phase recognizes the change in fair value of the Jatropha saplings where we grow saplings from
seeds in our own self managed nurseries. The saplings meet the definition of biological assets under International Accounting Standard
(IAS) 41 Agriculture and hence the change in fair value of these biological assets is recognized in other income. The seeds germinate
into saplings over a period of three to four months into a condition that can be sold to the contract farmers and the fair value
of the biological assets (and hence other income) is recognized at this point in time. These saplings are sold to contract farmers
(at principally the same value as the fair value) who are responsible for tending to the saplings until they mature into seed producing
trees. We do not recognize revenue again when the sapling is sold to the farmer because this would result in revenue being recognized
twice. When the biological assets are sold and delivered to the contract farmer, management control and the risks and rewards beneficial
to the ownership of the saplings are lost and, as a result, the saplings are derecognized as biological assets at this point in
time.



The second phase where we recognize revenue
results from sale of Jatropha crude oil and the by-product, seedcake. This occurs after we buy the seeds from these contract farmers
and crush the seeds into Jatropha crude oil with seedcake being the by-product. We then recognize revenue from the sale of the
Jatropha crude oil or seedcake in line with the sale of goods policy above.



Impairment of assets



We assess impairment of assets by evaluating
conditions that may lead to impairment of particular assets. Where an impairment trigger exists, the recoverable amount of the
asset is determined. We have based a number of assumptions and estimates on an independent review commissioned to determine the
life span, yield of fruit, yield of oil and key operating costs of the Jatropha Curcas feedstock operations.



Property, Plant and Equipment



Property, plant and equipment are reviewed
for impairment if there is any indication that the carrying amount may not be recoverable. Where a review for impairment is conducted,
the recoverable amount is assessed by reference to the higher of “value in use” (being the net present value of expected
future cash flows of the relevant cash generating unit) and “fair value less costs to sell.”



In determining value in use, future cash
flows are based on:



| | · | forecast future production and sales levels;
| | - | --------------------------------------------



| | · | sales forecasts are based on current contracted volumes in accordance
with the Valero off-take agreement and an assumption that these volumes will be rolled forward, plus an estimate of sales volumes
resulting directly from biodiesel mandates in Malaysia; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | forecast future commodity prices.
| | - | ---------------------------------



49







Value in use is calculated based on the
present value of cash flow projections over the anticipated lives of the assets, with the material portion of the assets having
anticipated lives of 20 years, with a discount rate for each cash generating unit (e.g., refinery operations, Jatropha operations
and windfarm operations) was estimated based on our weighted average cost of capital, adapted for the regions in which the cash
generating unit operates.



There is a risk of the actual outcomes being
different from those forecast due to changes in economic, market and agricultural conditions and/or assumption regarding events,
which may result in the carrying value of biodiesel plants exceeding the recoverable amount.



During fiscal 2010, we announced the completion
of our new 250,000 tonnes per annum transesterification plant, adjacent to the 100,000 tonnes per annum plant in Kuantan Port,
Malaysia. Both plants are on full operational standby to produce biodiesel as and when required. In addition, the construction
of a distillation column within the plant property is underway which will allow the refineries to meet different specifications
of biodiesel, as required by various customers.



As of December 31, 2009, the value of the
refinery assets were carried at their depreciated cost (A$66.9 million) because the forecast profits to be generated by the refineries
exceeded their carrying value. This assessment was based on a number of assumptions including forecast oil yields, commodity prices,
and volumes. In addition, management considered the absence of orders to date under our 5-year Valero offtake sales contract signed
in December 2009.



During the second half of fiscal 2010, the
United States introduced its revised RFS2. RFS2 introduced a requirement for vegetable oil feedstocks, such as soy, rape seed,
palm oil and Jatropha oil to meet certain environmental and green house gas requirements. At this point in time, the detailed analysis
required to demonstrate that palm and Jatropha will meet these requirements is in progress. Palm oil and Jatropha oil are not presently,
and in the future may not be, approved under RFS2. In addition, a key subsidy, called the Biodiesel Blending Tax Credit (being
US$1 per gallon), lapsed on December 31, 2009. In December 2010, the subsidy was retroactively reinstated and extended through
2011.



In addition, in July 2010 the European Union
introduced, with effect from December 5, 2010, the Renewable Energy Directive, which requires palm-based biodiesel to be based
on new sustainability criteria. This will require the use of certified palm oil. Our production facilities have been registered
and are compliant with the Renewable Energy Directive, although the majority of our suppliers of the palm oil feedstock that is
used in our production facilities have not yet been certified under the Renewable Energy Directive, which would affect our ability
to sell palm-based biodiesel to the European Union.



Despite our efforts to address RFS2 compliance
and the Renewable Energy Directive compliance and despite the reinstatement of the Biodiesel Blending Tax Credit, we are required,
under International Financial Reporting Standards, to assess the refineries ability to generate revenue based on existing conditions.
At the time of assessment, the recent legislative developments and our lack of other contracts or evidence that would indicate
profitable sales, forced us to provide for an impairment of the refining assets in fiscal 2010 until the legislative hurdles are
cleared or alternative sales contracts are secured. Additional impairment of assets was made in the 2011 financial year relating
to asset expenditure additions incurred in the year. This accounting write-off is not indicative that the refinery assets cannot
produce biodiesel under the required specifications.



A reversal of the impairment value (up to
depreciated cost) of our refinery assets would occur if and when the following occurred:



| | · | palm oil and Jatropha are approved as a feedstock source for biodiesel
to be produced for the United States;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | we are able to produce palm-based biodiesel complying with the Renewable
Energy Directive at a price that would be profitable to us; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | further sales contracts are secured in markets outside of the United
States and Europe.
| | - | ---------------------------------------------------------------------------------------



50







Credit risk of receivables in feedstock business



The carrying value of receivables is reviewed
for impairment and expected timing of receipt at each reporting date. The carrying value of our receivables (after providing for
impairment and discounting) as at June 30, 2011 was A$0.7 million.



In assessing such recoverability, the following
factors are taken into account:



| | · | actual recovery of receivables to date; and
| | - | -------------------------------------------



| | · | anticipated timing of future receipts, based on anticipated loan disbursal
rates from the banks to the farmers that enable the farmer to repay the receivable to Mission NewEnergy; estimates of expected
yields of oil seeds from the Jatropha Curcas saplings; and estimated mortality of Jatropha Curcas saplings.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During fiscal 2011 we achieved continuing
collection of receivables from our contracted farmers, primarily as a result of our role in facilitating discussions between some
of our farmers with financial institutions in India in relation to the provision of finance to the farmers for their purchase of
Jatropha saplings and to repay receivables owed by the farmers to us.



In fiscal 2010 we introduced a proprietary
GPS mapping and agronomy management system into a significant portion of our Jatropha fields and reviewed the existence, condition,
maturity and stem girth of the Jatropha saplings. The results indicated that approximately 50% of the plantation acreage were performing
to target. While we have increased agronomy training for underperforming farmers, given the results of our review in relation to
sapling mortality, we have revised our assessment of recoverability of receivables from the sale of saplings and increased the
provision for impairment to A$17 million as at June 30, 2011. The table below demonstrates the gross carrying value of receivables
at each financial year end, the provision for impairment, discounting and the allocation between current and noncurrent receivables.
At June 30, 2008 Mission had signed memorandums of understanding with a number of banks in India and the management’s view
was that receivables would be collected via the farmer bank loan process within the forthcoming year. By June 2009, the practical
issues around the bank’s inability to process a large number of small value loans to the farmers became evident, and hence
a reallocation of receivables to noncurrent was made. This re-allocation reflected the view that despite the slow take up of bank
loans by farmers, Mission would still be able to recover the loans through the purchase of seeds from the farmer and the associated
offset against the outstanding receivable. In addition the provision for doubtful debts was increased to reflect the estimate of
plant mortality at that point in time. The provision was then re-assessed again at June 30, 2010 and at June 30, 2011 to take into
account amendments to the USA renewable fuel standard, which requires Jatropha-based biodiesel to be approved by the EPA. The Board
was unable to provide sufficient audit evidence at June 30, 2011 to substantiate the recoverability of these receivables and thus
the Board took the decision to fully provide for the non current receivables at June 30, 2011.





51







|                                                    |  | As of and for the year ended |      
|--------------------------------------------------- |  | ---------------------------- | -----
|                                                    |  | June 30, 2011 A$ in millions |      
|Gross carrying value of the sapling sale receivable |  |                              | 20.9 
|Provision for impairment                            |  |                              | (17.6
|Discount on non-current portion of receivable       |  |                              | (2.6 
|Net carrying value of receivables                   |  |                              | 0.7  
|Current                                             |  |                              | 0.7  
|Non-current                                         |  |                              | -    
|Total Carrying value                                |  |                              | 0.7  



Amounts collected in the Jatropha operations are presented below:



|               |  | As of and for the year ended |    
|-------------- |  | ---------------------------- | ---
|               |  | June 30, 2011 A$ in millions |    
|Cash collected |  |                              | 0.7



Comparison of Results of Operations



Fiscal 2011 compared with fiscal 2010



Revenue . Revenue
increased by A$0.4 million (3%) from A$16.5 million in fiscal 2010 to A$16.9 million in fiscal 2011 principally as a result of
an increase in other revenue (increased A$ 0.8 million from A$ 2.0 million in 2010 to A$2.9 million in 2011). On the other hand,
revenue from the refining segment reduced marginally (reduced A$ 0.04 million from A$13.9 million in 2010 to A$13.5 million in
2011). Our refinery operated for approximately three months in fiscal 2011 and approximately three months in 2010. We operated
at lower than full capacity (12% in 2011 and 14% in 2010. This lower capacity utilization was due to lower than expected demand
as a result of the negative margin spread which existed between the potential sales price of biodiesel and the input costs to produce
the biodiesel or more simply, the cost of producing biodiesel was more expensive than the price the market was prepared to pay
for the biodiesel. The change in margin spread is as a direct comparison between the market price of crude palm oil as the key
input for biodiesel and the price of ULSD which is closely linked to the price of crude oil. We expect that our revenue will increase
from our refining operations if and when margins between the sales price and input costs are profitable, and other income in our
feedstock operations if and when we sell more saplings and generate revenue from Jatropha crude oil sales.



Of the total sales revenue in fiscal 2011,
the refinery business generated revenue of A$13.5 million (96%), with other operations (including wind farm) generating A$0.5 million
(4%).



Of the other income in fiscal 2011, the
fair value revenue from biological assets in the feedstock business generated revenue of A$0.8 million (28%), with sundry income
(including interest) generating A$ 2.1 million (72%).



Our production capacity for Plant I is 8,333
tonnes per month or 274 tonnes per day. We run the plant to meet scheduled sales orders, which may result in a utilization rate
of less than 100% for a given month.



|         |  | Fiscal 2010                              |  | Fiscal 2011                             
|-------- |  | ---------------------------------------- |  | ----------------------------------------
|Plant I  |  | – Plant fully commissioned twelve months |  | – Plant fully commissioned twelve months
|         |  | – Plant operated three months            |  | – Plant operated three months           
|         |  | – Yearly capacity utilization of 13%     |  | – Yearly capacity utilization of 12%    
|Plant II |  | – Not commissioned                       |  | – In the process of being handed over   
|         |  | – No capacity utilization                |  | – No capacity utilization               



52







Our operating margins are primarily dependent
on the relationship between the price of crude palm oil as our feedstock for the month of production and the price of mineral diesel,
or the end market price for our refined product. Both the feedstock and refined product are commodities with highly volatile prices.



Cost of sales. Cost of biodiesel
decreased from A$ 13.6 million in fiscal 2010 (98% of sales revenue) to A$13.4 million in fiscal 20110 (99% of sales revenue).



Cost of growing our biological assets reduced
from A$1.5 million in fiscal 2010 to A$0.6 million in fiscal 2011, attributed to efficiencies in operations and the timing of expenditures
in 2011.



Expenses . Total
expenses decreased by A$74.5 million (75%) from A$99.2 million in fiscal 2010 to A$24.6 million in fiscal 2011 principally due
to a non-cash impairment of property plant and equipment of A$73.1 million in fiscal 2010 compared to A$3.5 in fiscal 2011.



53







Additional movements in expenses include:



| | • | Employee benefits expenses.   Employee benefit expenses increased A$2.2 million (42%)
from A$5.3 million in fiscal 2010 to A$7.5 million in fiscal 2011 principally due to an increase in non-cash expenses related to
equity based payments to employees.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Impairment of trade receivables.   Impairment of trade receivables decreased A$7.2 million
(79%) from A$9.2 million in fiscal 2010 to A$1.9 million in fiscal 2011. The reduction reflects the lower value of sales of Jatropha
saplings in fiscal 2011 financial year. The impairment is driven by amendments to the USA renewable fuel standard, which requires
Jatropha-based biodiesel to be approved, and thus the Board was unable to provide sufficient audit evidence at June 30, 2010 and
June 30, 2011 to substantiate the recoverability of these receivables. Thus the Board has taken the decision to fully provide for
the non-current receivables at June 30, 2010 and June 30, 2011.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Depreciation and amortization.  Depreciation and amortization decreased approximately
A$1.6 million (73.0%) from A$2.2 million in fiscal 2010 year to A$0.6 million in fiscal 2011, primarily due to the impairment of
the Group's refinery assets in 2010.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Finance costs .  Finance costs of A$5.3 million for the 2011 fiscal year are in line
with the 2010 fiscal year.
| | - | ---------------------------------------------------------------------------------------------------------------



Income tax.
  Income tax expense decreased from A$29,000 in fiscal 2010 to A$1,000 in fiscal 2011.



(Lo ss) for the year.
  As a result of the foregoing, our loss before income tax decreased from A$97.8 million in fiscal 2010 to A$21.7 million
in fiscal 2011.



Fiscal 2010 compared with fiscal 2009



Revenue. Revenue decreased
A$38.7 million (70%) from A$55.2 million in fiscal 2009 to A$16.5 million in fiscal 2010 principally as a result of a lower volume
in sales from the refining segment (reduced A$29 million from A$42.9 million in 2009 to A$13.9 million in 2010) and reduced other
income primarily from fair value revenue of Jatropha Curcas saplings in the feedstock segment (reduced A$7.7 million from A$9.4
million in 2009 to A$1.7 million in 2010). Our refinery operated for approximately three months in fiscal 2010 and approximately
7 months in 2009. We operated at lower than full capacity (13% in 2010 and 32% in 2009), and hence generated less revenue in 2010
than 2009. This lower capacity utilization was due to lower than expected demand as a result of the negative margin spread which
existed between the potential sales price of biodiesel and the input costs to produce the biodiesel or more simply, the cost of
producing biodiesel was more expensive than the price the market was prepared to pay for the biodiesel. The sales made in 2010
were pursuant to a contract signed in early 2009 when margins were positive. The change in margin spread is as a direct comparison
between the market price of crude palm oil as the key input for biodiesel and the price of ULSD which is closely linked to the
price of crude oil.. In addition, fiscal 2010 was a year of consolidation in the feedstock business, with minimal new sapling planting
undertaken, resulting in other income in the feedstock business decreasing from fiscal 2009. We expect that our revenue will increase
from our refining operations if and when margins between the sales price and input costs are profitable, and other income in our
feedstock operations if and when we sell more saplings and generate revenue from Jatropha crude oil sales.



Of the total sales revenue in fiscal 2010,
the refinery business generated revenue of A$13.9 million (97%), with other operations (including wind farm) generating A$0.5 million
(3%).



Of the other income in fiscal 2010, the
fair value revenue from biological assets in the feedstock business generated revenue of A$1.7 million (80%), with sundry income
(including interest) generating A$0.4 million (20%).



Our production capacity for Plant I is 8,333
tonnes per month or 274 tonnes per day. We run the plant to meet scheduled sales orders, which may result in a utilization rate
of less than 100% for a given month.

54







|         |  | Fiscal 2009                              |  | Fiscal 2010                             
|-------- |  | ---------------------------------------- |  | ----------------------------------------
|Plant I  |  | – Plant fully commissioned twelve months |  | – Plant fully commissioned twelve months
|         |  | – Plant operated seven months            |  | – Plant operated three months           
|         |  | – Yearly capacity utilization of 32%     |  | – Yearly capacity utilization of 13%    
|         |  |                                          |  |                                         
|Plant II |  | – Not commissioned                       |  | – Not commissioned                      
|         |  | – No capacity utilization                |  | – No capacity utilization               



Our operating margins are primarily dependent
on the relationship between the price of crude palm oil as our feedstock for the month of production and the price of mineral diesel,
or the end market price for our   refined product. Both the feedstock and refined product are commodities with highly volatile
prices. During 2009, feedstock was more expensive than refined product 32.9% of the days. During 2010, our feedstock was more expensive
than refined product 67.7% of the days.



Cost of sales. Cost of biodiesel
decreased from A$44.1 million in fiscal 2009 (102% of sales revenue) to A$13.6 million in fiscal 2010 (93% of sales revenue), in
line with the reduced level of sales revenue.



Cost of growing our biological assets reduced
from A$1.6 million in fiscal 2009 to A$1.4 million in fiscal 2010, attributed to lower production volumes in 2009.



Expenses. Total expenses increased
by A$66.4 million (202%) from A$32.8 million in fiscal 2009 to A$99.2 million in fiscal 2010 principally due to a non-cash impairment
of property plant and equipment of A$73.1 million in fiscal 2010 compared to none in fiscal 2009.



Our Board reviews the carrying value of
our refinery assets at each reporting date. During fiscal 2010, the United States introduced its Renewable Fuels Standard 2, which
legislated a significant mandate for the use of biodiesel in the United States. This in itself is promising for the biofuels industry.
However, this legislation also introduced a requirement for vegetable oil feedstocks such as soy, rape seed, palm oil and Jatropha
oil to meet certain environmental and green house gas requirements. At this time, the detailed analysis required to demonstrate
that palm and Jatropha will meet these requirements is in progress. In addition, a key subsidy, called the Biodiesel blending credit
(being US$1 per gallon), lapsed in December 2009. In December 2010, the subsidy was retroactively reinstated and extended through
2011.



In addition, the European Union will introduce,
with effect in January 2011, legislation that requires all biodiesel to be based on new sustainability criteria (named the Renewable
Energy Directive). Currently, there are limited suppliers of palm oil that meet these criteria. However, numerous producers of
palm oil are in the process of getting their product certified to be in compliance with the European requirements. Our biodiesel
refineries are already attested under the ISCC which has been recognized as an approved certification by the German Government.



Despite the significant efforts to address
these legal requirements, we are required under the accounting standards to assess the refining cash generating unit’s ability
to generate sufficient revenue based on existing conditions. The combination of these factors in the United States and Europe have
compelled us to provide for an impairment of the refining assets until the legislative hurdles are cleared. This non-cash accounting
write-off is in no way an indication that the plant cannot produce biodiesel under the required specifications.



We anticipate that the Malaysian Palm Oil
Board who is in regular communication with the EPA international community will make it possible for the refining assets to be
put to productive use in fiscal 2011, at which time the value of these refining assets can may be reinstated to their useful carrying
value at that point in time.



55







Additional movements in expenses include:



| | • | Employee benefits expenses.   Employee benefit expenses increased A$200,000 (4%) from A$5.1 million
in fiscal 2009 to A$5.3 million in fiscal 2010 principally due to an increase in non-cash expenses related to equity based payments
to employees.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Impairment of trade receivables.   Impairment of trade receivables increased A$0.9 million (10%) from
A$8.3 million in fiscal 2009 to A$9.2 million in fiscal 2010 due to revised assessments of receivables recoverability undertaken
by Mission NewEnergy in December 2009 and June 2010. Given amendments to the USA renewable fuel standard, which requires Jatropha-based
biodiesel to be approved, the Board was unable to provide sufficient audit evidence at 30 June 2010 to substantiate the recoverability
of these receivables and thus the Board has taken the decision to fully provide for these receivables at 30 June 2010.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Depreciation and amortization.   Depreciation and amortization decreased approximately A$350,000 (16.5%)
from A$2.5 million in fiscal 2009 year to A$2.1 million in fiscal 2010 due to changes in foreign currency exchange rates in relation
to the Indian Rupee and Malaysian Ringgit compared to the Australian Dollar, our reporting currency.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Finance costs.   Finance costs decreased A$3.2 million (38%) from A$8.4 million in fiscal 2009 to A$5.2
million in fiscal 2010 principally due to the discounting of non-current receivables in fiscal 2009 that did not occur in fiscal
2010, as well as a reduction in interest payments on working capital facilities to zero in fiscal 2010.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Income tax. Income tax expense
decreased from A$434,000 in fiscal 2009 to A$29,000 in fiscal 2010 principally due to higher deferred taxes in the feedstock business
being recognized in fiscal 2009.



Profit/(loss) for the year.
As a result of the foregoing, our loss before income tax increased from A$23.3 million in fiscal 2009 to A$97.8 million in fiscal
2010.



Effects of Currency Fluctuations



Our reporting currency is the Australian
dollar. In accordance with IFRS, costs not denominated in Australian dollars are re-measured in Australian dollars, when recorded,
at the prevailing exchange rates for the purposes of our financial statements. Consequently, fluctuations in the rates of exchange
between the Australian dollar, Malaysian Ringgit, Indian Rupee and the U.S. dollar affect our results of operations. An increase
in the value of a particular currency relative to the Australian dollar will reduce the Australian dollar reporting value for transactions
in that particular currency, and a decrease in the value of that currency relative to the Australian dollar will increase the Australian
dollar reporting value for those transactions.



The effect of foreign currency translation
is reflected in our financial statements in the statements of changes in shareholders’ equity and is reported as accumulated
foreign currency translation reserve. We have not entered into any hedging arrangements to mitigate the effects of currency fluctuations.



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



Overview



Our operations have been financed primarily
from operating activities and the issuance of convertible notes and equity securities to investors.



The following table sets forth our consolidated
cash flows since fiscal 2009.





56











|                                                                 |  | Year ended June 30 |        
|---------------------------------------------------------------- |  | ------------------ | -------
|                                                                 |  | 2011               |        
|                                                                 |  | (audited)          |        
|                                                                 |  |                    |        
|Net cash provided by (used in) operating activities              |  |                    | (15,089
|Net cash provided by (used in) investing activities              |  |                    | (4,094 
|Net cash provided by (used in) financing activities              |  |                    | 19,640 
|Effect of exchange rate changes on cash held in foreign currency |  |                    | (1,851 
|Net movement in cash and cash equivalents                        |  |                    | (1,394 
|Cash and cash equivalents at the beginning of the year           |  |                    | 17,155 
|Cash and cash equivalents at the end of the year                 |  |                    | 15,761 



Fiscal 2011 compared with fiscal 2010



Net cash used in operating activities in
fiscal 2011 and 2010 consisted of losses incurred in operations.



Net cash used in investing activities related
principally to purchases of property, plant and equipment for our refineries.



Net cash provided from financing activities
was A$19.6 million in fiscal 2011. The money was raised through a public offering in 2011 of 2,785,000 ordinary shares at the price
of US$9.00 dollar per share. The A$19.6 million raised is net of capital raising costs and repayment of borrowings during the year.
In fiscal year 2010, capital raised consisted of A$7.8 million from the issuance of 50 million units (prior to the 50-1 share consolidation
that was effected on April 4, 2011, with each comprising one ordinary share and one warrant to purchase one ordinary share) to
Ir Lee Swee Eng and net proceeds of A$7.7 million from the issue of 30 million (prior to the 50-1 share consolidation) ordinary
shares to various accredited investors in a private placement, less loan repayments in the amount of A$0.6 million.



Fiscal 2010 compared with fiscal 2009



Net cash used in operating activities in
fiscal 2009 and 2010 consisted of losses incurred in operations.



Net cash used in investing activities related
principally to purchases of property, plant and equipment for our refineries.



Net cash provided from financing activities
was A$14.9 million in fiscal 2010, consisting of A$7.8 million from the issuance of 50 million units (prior to the 50-1 share consolidation
that was effected on April 4, 2011, with each comprising one ordinary share and one warrant to purchase one ordinary share) to
Ir Lee Swee Eng and net proceeds of A$7.7 million from the issue of 30 million (prior to the 50-1 share consolidation) ordinary
shares to various accredited investors in a private placement, less loan repayments in the amount of A$0.6 million. In comparison,
net cash provided from financing activities was A$12.4 million in fiscal 2009, including a private placement of 100 million units
(each comprising one ordinary share and one warrant to purchase one ordinary share) that raised gross proceeds of A$16.0 million
in fiscal 2009, less asset and working capital loan repayments of A$3.8 million



57







Impact on liquidity as a result of less than expected
productive acres



Our 194,323 productive acres as compared
to our estimate of 321,383 total cumulative acres planted will have an impact on liquidity in two areas. Firstly, the reduction
is as a result of sapling mortality, and thus less than expected seeds will be purchased. To the extent that Mission has not been
paid from bank loans received by the farmer the reduction in seed collection will limit our ability to offset the receivable, thereby
we are less likely to collect the receivable relating to the sale of the sapling. The impact of this factor has been taken into
account in assessing the recoverability of receivables and an appropriate impairment provision has been made. Secondly, due to
the lower than expected productive acreage, we would expect lower quantities of seeds available for procurement from the contract
farmers. The result of lower volumes of seeds would negatively impact Mission’s profitability and therefore negatively impact
retained earnings and liquidity. The carrying value of receivables as at June 30, 2011 is A$0.7 million. We expect that the full
value of these receivables will be funded through bank loans to farmers.



Credit terms for receivables



Historically, the receipt of payment for
sales to biodiesel customers was required on the date the ship was loaded with biodiesel. Credit risk was managed through the use
of letters of credit. However market conditions dictate that future sales to customers may be made on credit terms of up to 60
days, depending on our assessment of customers’ creditworthiness, and we may have to maintain ownership of products during
transit to customers which could extend our cash collection cycle well beyond our historical experience and increase our need for
working capital.



For sales of Jatropha saplings to contract
farmers, the receivable arises and is recorded as of the date of delivery of the saplings, with credit risk mitigated by our right
to offset the receivable for each farmer against amounts we may owe that farmer for future purchases of seeds. Our current assessment
is that we cannot begin to collect a material fraction of receivables from sapling sales prior to the third harvest season following
planting unless farmers elect to take bank loans and apply the proceeds to satisfy their obligations to pay for saplings. Our limited
experience to date is that the majority of farmers approached to partake in the scheme apply for the loans and are successful.
We are working closely with banks and farmers through our field personnel to improve the take up of these loans.



Convertible Notes



We issued 50,000,000 convertible notes at
a price of A$1.30 per note in May 2007. During the 2011 fiscal year, the majority of these notes (75.33%) were restructured into
Series 2 Convertible Notes with an extension of the maturity date from May 2012 to May 2014. Holders may convert all or part of
the notes at any time until maturity (May 16, 2014) at a conversion price of A$65.00 per note. At the date of this annual report
we have settled the liability relating to the remaining Series 1 Convertible Note holder. Each remaining Series 2 note is convertible
into four ordinary shares (subject to adjustment for customary events, such as share consolidation). The notes bear interest at
a rate of 4.0% per annum and interest is payable semi-annually.   Mission NewEnergy may convert some or all of the notes at
any time if the daily volume weighted average price of Mission NewEnergy’s ordinary shares on the Australian Securities Exchange,
or ASX, for a period of 90 consecutive days is 1.5 times the face value of the notes.



The remaining series 2 notes totaling 704,789
convertible notes can be convertible into an aggregate of 2,819,156 ordinary shares at a conversion price of A$16.25 per share.



We are subject to negative covenants under
the convertible note deed poll that may impact our ability to undertake additional debt or equity financing. Without noteholders'
consent in each instance, we cannot incur total indebtedness in excess of 2.5 times our net worth nor can we issue more than 25%
of our share capital in options or convertible notes. We believe that these are the only two covenants reasonably likely to impact
our ability to undertake additional financing. We confirm that we are in compliance with these covenants.



Bank facility



We do not currently have any bank credit
facility but are in discussions with financial institutions and expect to enter into a working capital facility during the last
quarter of calendar 2011 or early 2012.



Secured loans



As of June 30, 2011, we had loans of A$
2.6 million that relate to our windmill in India and our office in Kuala Lumpur, Malaysia. The loan for the windmill is secured
over an office in Mumbai, India. These loans are recourse only to the assets securing the loans.



58









As of June 30, 2010, we had secured loans
of A$ 3.7 million that relate to our wind mill in India and our offices in Mumbai, India and Kuala Lumpur, Malaysia. These loans
are recourse only to the assets securing the loans.



Other material commitments



Our only material capital expenditures commitment
relates to our second biodiesel refinery. In 2007, we entered into an engineering, procurement, construction and commissioning
contract, or the EPCC Contract, with KNM Process Systems Sdn Bhd, or KNM.



We are in discussions with KNM to finalize
the transfer of the second biodiesel refinery to us. We cannot be certain when such discussions will be finalized. We have secured
all approvals and licenses required to operate the second biodiesel refinery. When the transfer of the second biodiesel refinery
to us has been completed, we would owe KNM approximately 30.5 million Ringgit (A$9.5 million), before any late delivery fees and
other costs incurred by us on behalf of KNM that may be offset against the outstanding payments. We believe that we can fund the
outstanding payments from cash on hand and cash flow from operations.



In addition to the transfer of the second
biodiesel refinery, a new process capable of producing different “cuts” of biodiesel is being incorporated into our
refinery operations. We have commenced construction of this new process, which is a stand-alone unit which will serve both of our
refineries and should enable us to become one of the few biodiesel producers in the South East Asian region who can meet the Cold
Soak Filter Test requirements under the revised ASTM D6751:2009 biodiesel specification. When the installation of this new process
is completed we will owe a final payment of approximately A$0.03 million.



Warrants



Over the past three fiscal years, we issued
a total of 150 million units (each comprising one ordinary share and one warrant to purchase one ordinary share at an exercise
price of A$15.00 per share). The expiration date is five years from the date of issuance. If at any time on or after April 15,
2012 the preceding 20-trading day volume weighted average price of our ordinary shares on the ASX is at least A$50.00, then Mission
NewEnergy may give written notice to each warrant holder that if such holder does not exercise its warrants within 15 days from
the date of such notice, then the warrants would expire on the 15th day.



In addition, we have issued 731,492 warrants
to placement advisers with a strike price of A$50.00 and A$60.00. At the date of this annual report, all these warrants have lapsed.
We have also issued 70,000 warrants in accordance with the shareholder approved employee option plan to senior executives which
lapsed on June 30, 2011.



| | C. | Research and Development, Patents and Licenses, etc.
| | -- | ----------------------------------------------------



Our research and development efforts are
focused on development of Jatropha and its related products including the use of seed cake material We are no longer focused on
production of lingo-cellulosic ethanol. These efforts are discussed in “Item 4.B - Information on the Company - Business
Overview” Our R&D team comprises internal professional research experts. In addition to our internal capability, Mission
NewEnergy has technical research collaborations with:



| | • | The Energy Resource Institute in India concerning the genetic improvement of Jatropha;
| | - | --------------------------------------------------------------------------------------



| | • | Center for Excellence, Tamilnadu Agriculture University in India concerning the development of planting material and efficient agronomic practices; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Forest College & Research Institute in India concerning the development of Jatropha hybrids.
| | - | --------------------------------------------------------------------------------------------



Much of the cash expenditure relating to
our collaborative research efforts has been borne by our collaborative partners. Our expenditure on research and development was
A$168,000 and A$154,000 in fiscal years 2011 and 2010, respectively. We did not have any research and development expenditure in
fiscal 2008.



We are presently exploring the future viability
of selling crude Jatropha oil as another means of revenue. While biodiesel refining remains our primary business, we are considering
future sales of crude Jatropha oil should demand materialize at an attractive price.



59









The sale of our Jatropha seed cake at the
moment is limited to sales as an input for organic fertilizer. We may in the future also explore the possibility of producing our
own organic fertilizer to expand our revenue stream.



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



Other than as disclosed elsewhere in this
annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have
a material effect on our revenue, income, profitability, liquidity or capital resources or that would cause reported financial
information not necessarily to be indicative of future operating results or financial condition.



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



Except for amounts due under the EPCC Contract
(discussed above) and operating lease commitments disclosed in “Item 5.F — Operating and Financial Review and Prospects
— Tabular Disclosure of Contractual Obligations,” we do not have any material off-balance sheet commitments or arrangements.



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



The following table summarizes our contractual
obligations and commitments as of June 30, 2011:



|                              |  | Payments due by period |       
|----------------------------- |  | ---------------------- | ------
|                              |  | Total A$’000           |       
|Operating lease obligations   |  |                        | 3,412 
|Secured loans                 |  |                        | 2,558 
|Convertible notes             |  |                        | 60,812
|Interest on convertible notes |  |                        | 6,097 
|Capital commitments           |  |                        | 5,290 
|Total                         |  |                        | 78,169



Depending on specific market prices for
Jatropha relative to our contracted price, we have a contractual obligation to buy back all seeds from our contract farmers delivered
to Mission’s warehouse. At this point in time it is not possible to reasonably estimate what this value could be.



Item 6. Directors, Senior Management and Employees



| | A. | Directors and Senior Management.
| | -- | --------------------------------



The following table sets forth information
of our directors and executive officers as of the date of this annual report. The directors have served in their respective capacities
since their election or appointment and will serve until the next annual general shareholders meeting or until a successor is duly
elected.



|Name                                                          |  | Age           |  | Position                                                                                                         
|------------------------------------------------------------- |  | ------------- |  | -----------------------------------------------------------------------------------------------------------------
|Dario Amara                                                   |  | 56            |  | Chairman                                                                                                         
|Nathan Mahalingam                                             |  | 54            |  | Chief Executive Officer and Director                                                                             
|Guy Burnett                                                   |  | 43            |  | Chief Financial Officer, Director and Company Secretary                                                          
|Datuk Zain Yusuf                                              |  | 72            |  | Director                                                                                                         
|Admiral (Ret) Tan Sri Dato’ Seri Mohd Anwar bin Haji Mohd Nor |  | 61            |  | Director                                                                                                         
|Arun Bhatnagar                                                |  | 67            |  | Director                                                                                                         
|Peter Torre                                                   |  | 39            |  | Director                                                                                                         
|James Garton                                                  |  | 35            |  | Head of Corporate Finance/Mergers and Acquisitions                                                               
|Samsudeen Ganny
        Kalaiselvan Somasundaram              |  | 52
        60 |  | Vice President of Refining (joined on July 1, 2011)
        Vice President of Refining (resigned on July 1, 2011)
|Nadason Sinnasami                                             |  | 65            |  | Chief Operating Officer Feedstock Operations                                                                     



60









Dario Amara.   Mr. Amara
has been Chairman and a Director of Mission NewEnergy since 2006. Mr. Amara is an engineer with extensive business experience gained
over 30 years in the Australian and international markets and across the resources and infrastructure sectors. Prior to co-founding
Emerson Stewart in 2005 and for over 16 years, he occupied senior executive roles with major construction and engineering groups.
Mr. Amara successfully led GRD Minproc as managing director/chief executive and John Holland Asia as chief executive officer. Mr.
Amara has a record of achievement in establishing, growing and rejuvenating businesses and strategic leadership. He is currently
a non-executive director of Austal and non-executive chairman of Mission New Energy (both ASX listed). Mr. Amara has also served
as chairman of the West Australian Opera Company and the Art Gallery of Western Australia, and as a board member of the Perth International
Arts Festival. He is a Fellow of the Institution of Engineers Australia.



Nathan Mahalingam.  
Mr. Mahalingam has been Chief Executive Officer (formerly having the title of Managing Director) and a Director of Mission NewEnergy
since 2005. He has over 25 years of management experience in banking and finance, heavy industries and infrastructure development.
He has successfully implemented numerous startup manufacturing operations in Malaysia during his tenure of service with a large
Malaysian conglomerate. Between 1995 and 2000, he served as project director in the Westport Group, developers of one of Malaysia’s
largest privatised port and transhipment facility. Mr. Mahalingam has gained extensive project advisory, corporate finance, mergers
and acquisitions experience while running his own boutique corporate advisory practice between 2000 and 2004.



Guy Burnett. Mr. Burnett has
been Chief Financial Officer (formerly having the title of Finance Director) since 2008, a Director since 2009 and Company Secretary
of Mission NewEnergy since September 2010. He is a Chartered Accountant and has worked as a financial professional in several large
corporations. Prior to joining Mission NewEnergy, Mr. Burnett was Manager, Corporate Accounting & Tax with Western Power (an
electricity networks corporation owned by the Western Australian government) from 2006 to 2008 and, before that, worked as a financial
accountant for Water Corporation from 2004 to 2005 and served as a Manager with KPMG from 2005 to 2006 where he assisted clients
with implementing International Financial Reporting Standards.



Datuk Zain Yusuf. Datuk Zain
has been a non-executive Director of Mission NewEnergy since 2006. Datuk Zain has over 25 years experience in Shell Malaysia. From
1986 to 1988, he was seconded to Shell International, United Kingdom and worked as Marketing Consultant in Shell UK and Shell Caribbean.
Upon his return to Malaysia, he was made Marketing Director of Shell Malaysia. He subsequently served on the Board of Directors
of Shell Group Malaysia as Executive Director, with responsibility over a total of 18 group subsidiaries involved in both the upstream
and downstream petrochemical business. Datuk Zain is currently a director of Faber Group Bhd, and chairman of Malacca Securities
Sdn Bhd.



Admiral (Ret) Tan Sri Dato’
Seri Mohd Anwar bin Haji Mohd Nor (Tan Sri Anwar). Tan Sri Anwar has been a non-executive Director of Mission NewEnergy
since 2009. Tan Sri Anwar made history in April 2005 when he became the first naval chief in the Malaysian Armed Forces (MAF) to
ascend to its highest military office, the Chief of Defence Force, commanding a strength of nearly 100,000. With nearly 40 years
of military experience with the Royal Malaysian Navy (RMN) and MAF, he has acquired a massive portfolio of achievements. 
His outstanding performance extends to the academic arena as well inclusive of stints at the Naval Staff College (Rhode Island,
USA), Navigation and Direction Course and Principal Warfare Officers, Course (HMS DRYAD, United Kingdom). He also holds a Master
of Science in Engineering Business Management from the University of Warwick, United Kingdom. Tan Sri Anwar has received numerous
commendations, awards and accolades in recognition of his talents, and was bestowed the Panglima Mangku Negara (PMN), which carries
the title of ‘Tan Sri’, by His Majesty the Yang Di-Pertuan Agong (the King of Malaysia). He has also received distinguished
medals from foreign governments such as the Ordre National De La Legion D’Honneur from France and the Command of the Legion
of Merit from the U.S. Amongst the varied positions he holds in the corporate sector, Tan Sri Anwar also chairs the board of the
Armed Forces Fund Board (LTAT), a multi-billion dollar fund with investments in banking, plantations, petrol retail and hotels,
and is a Director of South East Asia Advisory

Board to Rolls Royce PLC.



61











Arun Bhatnagar. Mr. Bhatnagar,
who has been a non-executive Director of Mission NewEnergy since 2009. Mr Bhatnagar first joined the Company as Chairman of our
Indian subsidiary, Mission Biofuels India Pvt Ltd in June 2008. He was the Secretary of the National Advisory Council, a body tasked
with the implementation of the National Common Minimum Program and to provide inputs in the formation of policy and support to
the government in its legislative business. During his long tenure with the government since 1966, Mr Bhatnagar has served as head
or in senior positions in various ministries, amongst others the Ministries of Rural Development, Energy, Irrigation and Personnel.
He also served as Minister (Economics) in the Indian High Commission in UK.



Peter Torre. Mr. Torre has
been a non-executive Director of Mission NewEnergy since September 2010. He was previously joint company secretary of Mission NewEnergy
from May 2008 to September 2010. Mr. Torre is the principal of the corporate advisory firm Torre Corporate which provides corporate
secretarial services to a range of listed companies. Prior to establishing Torre Corporate, Mr Torre was a partner and Chairman
of the National Corporate Services Committee of an internationally affiliated firm of Chartered Accountants working within its
corporate services division for over nine years. Mr. Torre is the company secretary of several ASX-listed companies, a director
of Neo Resources Limited and Mineral Commodities Limited and is one of the founding Directors of the charity organisation, “A
Better Life Foundation WA”. Mr Torre was also formerly a Director of Carbine Resources Limited and CI Resources Limited.
Mr Torre holds a Bachelor of Business, is a Chartered Accountant, a Chartered Secretary and is a member of the Institute of Company
Directors.



James Garton. Mr. Garton has
been Head of Corporate Finance and Mergers and Acquisitions since 2008. He has over 10 years experience in corporate finance, working
in investment banking. Mr. Garton joined Mission NewEnergy from the U.S. investment bank, FBR Capital Markets, where he was Vice
President, Investment Banking. Prior to joining FBR Capital Markets, he worked in corporate finance and equity capital markets
with the Australian firm BBY Limited. Before BBY, Mr. Garton worked in private equity with the Australian advisory firm Investment
Capital Limited. Mr. Garton has a Masters of Applied Finance from Macquarie University, Sydney, and a Bachelor of Science in Economics
and a Bachelor of Business Administration in Finance from Texas A&M University.



Kalaiselvan Somasundaram .
Prior to his resignation from Mission NewEnergy in July 2011, Mr. Somasundaram had been Vice President (formerly having the title
of director) of refining since 2009. He has over 30 years manufacturing experience, having worked for the Malaysian operations
of MEMC from March 1981 to November 2001, Philips from November 2007 to April 2009 and Silterra from March 2003 to March 2007.
Mr. Somasundaram commenced his career in process engineering, before moving to manufacturing, project management, facilities, plant
engineering, automation and general management. Mr. Somasundaram has a Bachelor of Chemical Engineering, from the Indian Institute
of Technology, India and a Masters of Business Administration from Oklahoma City University, United States.



Samsudeen Ganny. Mr Ganny
joined as Mission as Vice President of Refining in July 2011.His working career spans over a period of 27 years involving engineering,
project and business in the palm oil industry. He started as an engineer in the oil mill before moving to an oleochemical sector
as a Senior engineer with a Japanese multinational corporation manufacturing fatty alcohols, methylester & glycerine responsible
for the construction, commissioning and operations. He then joined Golden Hope Plantations Berhad (now Sime Darby Berhad) a conglomerate
in the palm oil industry as a manager in its Engineering Division before rising to the position of chief engineer for its downstream
businesses responsible for both the business and technical aspect of refining operations ( Malaysia, Vietnam & Holland), wood/furniture
manufacturing, fruit juice processing, rubber/pvc boots manufacturing ( United Kingdom), vitamin E extraction and Methylester Sulphonates
(MES, China) both locally and overseas. He was heading the technical and business due diligence team working with international
consultants in the acquisition of a carve-out business of an olechemical giant Cognis, Germany. Prior to joining Mission, he was
the general manager for an oleochemical plant manufacturing biodiesel & glycerine responsible for establishing the business
and managing the operations. He designed the first the integrated plant first in the country comprising of biodiesel plant, oil
mill and biogas plant. He holds a Bachelor of Engineering, Hons (Agricultural) from University of Agriculture, Malaysia (UPM),
and is a Professional Engineer registered member of Institute of Engineers, Malaysia (IEM) and Board of Engineers, Malaysia(BEM).



62







Nadason Sinnasami. Mr. Sinnasami
has been Chief Operating Officer of our Feedstock Operations since September 2010. Mr. Sinnasami is an agricultural graduate from
the Tamil Nadu Agriculture University in India and completed a Masters of Science in Soil Chemistry and Plant Nutrition at the
University Of Newcastle Upon Tyne, England. He commenced his career as an Agronomist with the Agriculture Research and Advisory
Bureau in Kuala Lumpur, Malaysia from 1975 to 1980, and was later with the Federal Land with Development Authority (one of the
largest producers of crude palm oil in Malaysia) from 1981 to 2006, where he was an senior agronomist and from 2000 served as Regional
General Manager responsible for managing 40,000 hectares of palm in West Malaysia and Sarawak. He has published articles discussing
oil palm agronomy and carried out environment and soil feasibility studies for Oil palm, Cocoa and Jatropha production in Malaysia,
Indonesia, India, Burma, West Africa and South America. Mr. Sinnasami is a member of The International Society of Oil Palm Agronomists,
the Malaysian Incorporated Society of Planters and the Malaysian Society of Soil Science.



Family Relationships



There are no family relationships between
any directors or executive officers of Mission NewEnergy.



Arrangements



There are no known arrangements or understandings
with any major shareholders, customers, suppliers or others pursuant to which any of our officers or directors was selected as
an officer or director of Mission NewEnergy. However, in connection with the issuance of 1,000,000 units (post consolidation) (each
comprising one ordinary share and one warrant to purchase one ordinary share) to Ir Lee Swee for approximately US$7.2 million in
2009, Ir Lee Swee Eng is entitled to appoint one director. He has not yet appointed a director to Mission NewEnergy. Ir Lee Swee
Eng is the founder and Managing Director of KNM Group Bhd, the parent company of KNM Process Systems Sdn Bhd, which was the EPCC
contractor for our second refinery.



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



In fiscal 2011, the aggregate remuneration
we paid and that accrued to our directors and senior management was A$4.7million.



|                                                             |  | Short Term |       |  | Share Based |  |   | Post employment   |  |  |                                |  |  | Proportion of remuneration performance related |       |  | Value of options and performance shares as a proportion of remuneration | 
|------------------------------------------------------------ |  | ---------- | ----- |  | ----------- |  | - | ----------------- |  |  | ------------------------------ |  |  | ---------------------------------------------- | ----- |  | ----------------------------------------------------------------------- | 
|                                                             |  | Salary     |       |  | Other       |  |   | Non-cash Benefits |  |  | Options and performance shares |  |  | Superannuation
    Contribution  (1)           |       |  | Total                                                                   | 
|                                                             |  | A$’000     |       |  | A$’000      |  |   | A$’000            |  |  | A$’000                         |  |  | A$’000                                         |       |  | A$’000                                                                  | 
|Dario Amara                                                  |  |            | 100   |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|Nathan Mahalingam                                            |  |            | 340   |  |             |  | — |                   |  |  | —                              |  |  |                                                | 1,324 |  |                                                                         | 
|Guy Burnett                                                  |  |            | 257   |  |             |  | — |                   |  |  | —                              |  |  |                                                | 1,347 |  |                                                                         | 
|Datuk Zain Yusuf                                             |  |            | 75    |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|Admiral (Ret) Tan Sri Dato’ Sri Mohd Anwar bin Haji Mohd Nor |  |            | 50    |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|Arun Bhatnagar                                               |  |            | 50    |  |             |  | — |                   |  |  | 15                             |  |  |                                                | —     |  |                                                                         | 
|James Garton                                                 |  |            | 311   |  |             |  | — |                   |  |  | —                              |  |  |                                                | 572   |  |                                                                         | 
|Kalaiselvan Somasundaram                                     |  |            | 76    |  |             |  | — |                   |  |  | —                              |  |  |                                                | 2     |  |                                                                         | 
|Mr. Peter Torre                                              |  |            | 38    |  |             |  |   |                   |  |  |                                |  |  |                                                |       |  |                                                                         | 
|Mr. Sinnasami Nadason (Group Plantation Advisor)             |  |            | 62    |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|                                                             |  |            | 1,359 |  |             |  | — |                   |  |  | 15                             |  |  |                                                | 3,245 |  |                                                                         | 





63











The remuneration and benefits paid to our
directors and executive officers during fiscal 2010, on an individual basis, are set out in the table below.



|                                                             |  | Short Term |       |  | Share Based |  |   | Post employment   |  |  |                                |  |  | Proportion of remuneration performance related |       |  | Value of options and performance shares as a proportion of remuneration | 
|------------------------------------------------------------ |  | ---------- | ----- |  | ----------- |  | - | ----------------- |  |  | ------------------------------ |  |  | ---------------------------------------------- | ----- |  | ----------------------------------------------------------------------- | 
|                                                             |  | Salary     |       |  | Other       |  |   | Non-cash Benefits |  |  | Options and performance shares |  |  | Superannuation Contribution 
    (1)           |       |  | Total                                                                   | 
|                                                             |  | A$’000     |       |  | A$’000      |  |   | A$’000            |  |  | A$’000                         |  |  | A$’000                                         |       |  | A$’000                                                                  | 
|Dario Amara                                                  |  |            | 100   |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|Nathan Mahalingam                                            |  |            | 344   |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|Guy Burnett                                                  |  |            | 240   |  |             |  | — |                   |  |  | —                              |  |  |                                                | 403   |  |                                                                         | 
|Datuk Zain Yusuf                                             |  |            | 75    |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|Admiral (Ret) Tan Sri Dato’ Sri Mohd Anwar bin Haji Mohd Nor |  |            | 50    |  |             |  | — |                   |  |  | —                              |  |  |                                                | —     |  |                                                                         | 
|Arun Bhatnagar                                               |  |            | 50    |  |             |  | — |                   |  |  | 10                             |  |  |                                                | —     |  |                                                                         | 
|James Garton                                                 |  |            | 240   |  |             |  | — |                   |  |  | —                              |  |  |                                                | 803   |  |                                                                         | 
|Kalaiselvan Somasundaram                                     |  |            | 87    |  |             |  | — |                   |  |  | —                              |  |  |                                                | 14    |  |                                                                         | 
|                                                             |  |            | 1,186 |  |             |  | — |                   |  |  | 10                             |  |  |                                                | 1,220 |  |                                                                         | 



|(1) | Superannuation is a mandatory retirement plan for employees in Australia.
|--- | -------------------------------------------------------------------------



Share Based Compensation Plans



We have two employee performance and recognition
plans pursuant to which our senior executives are granted rights and options to receive our ordinary shares. These two plans are
a share option scheme and a performance rights scheme. Our Employee Option Plan allows us to grant options to purchase our ordinary
shares to our executive directors and employees. At our annual general meeting in November 2008, our shareholders approved the
establishment of a new performance rights scheme, the Executive Performance Rights Plan. A performance right is the right to receive
an ordinary share for no issue price, provided certain performance and vesting conditions are satisfied.



In November 2008, shareholders approved
the Executive Performance Rights Plan. Subsequently the Board approved the allotment and issuance of a total of 20.75 million performance
rights and 3.5 million options to our senior executives. The performance rights were issued in three tranches with the details
of the performance criteria discussed below.



In addition to the formal share based compensation
plans for employees, Mission also from time to time engages external parties as consultants or to provide other services, Advisory
board members or others and may use share based awards as a component of the compensation for work provided.



64







Performance Rights



Each performance right gives the holder
the right to subscribe for a free ordinary share. To obtain the ordinary share attached to each performance right, the holder must
convert the performance right. The amount payable upon conversion is nil. A holder may convert some or all of the performance rights
held following satisfaction of the relevant vesting conditions. The ordinary shares allotted to a holder upon conversion will rank
pari passu in all respects with other ordinary shares. The performance rights are non-transferable (except in limited circumstances).



The conversion of performance rights into
ordinary shares is conditional upon the satisfaction of certain time based and performance hurdles.



The time based rights are granted as set
out below:



|Tranche
        Number |  | Date of Issue |  | Number of
        Performance Rights 
        (1) |            | Vesting Date
|---------------------- |  | ------------- |  | ------------------------------------------------- | ---------- | ------------
|1                      |  | June 2009     |  |                                                   | 559,999    |             
|1                      |  | June 2009     |  |                                                   | 559,999    |             
|1                      |  | June 2009     |  |                                                   | 560,002    |             
|2                      |  | March 2010    |  |                                                   | 5,000,00   |             
|2                      |  | March 2010    |  |                                                   | 5,000,00   |             
|2                      |  | March 2010    |  |                                                   | 5,000,00   |             
|3                      |  | October 2010  |  |                                                   | 206,668    |             
|3                      |  | October 2010  |  |                                                   | 206,668    |             
|3                      |  | October 2010  |  |                                                   | 206,668    |             
|Total                  |  |               |  |                                                   | 17,300,004 |             
|                       |  |               |  |                                                   |            |             



| | (1) | Prior to giving effect to the 50-1 share consolidation that was effected on April 4, 2011.
| | --- | ------------------------------------------------------------------------------------------



The time based rights will vest only if
the executive is still employed as an executive on the applicable vesting date, unless there are special reasons for him ceasing
to be employed such as illness, injury, disability, redundancy, retirement and other circumstances that may be approved by our
Board. The time based rights do not expire.



The performance based rights are dependant
on group performance and are granted as set out below:



|Tranche
        Number |  | Number of
        Performance
        Rights (1) |           | Vesting Date |  | Group Performance Criteria
|---------------------- |  | ------------------------------------------------ | --------- | ------------ |  | --------------------------
|1                      |  |                                                  | 840,000   |              |  | June 30, 2010             
|1                      |  |                                                  | 840,000   |              |  | June 30, 2011             
|1                      |  |                                                  | 840,000   |              |  | June 30, 2012             
|3                      |  |                                                  | 310,000   |              |  | June 30, 2011             
|3                      |  |                                                  | 310,000   |              |  | June 30, 2012             
|3                      |  |                                                  | 310,000   |              |  | June 30, 2013             
|Total                  |  |                                                  | 3,450,000 |              |  |                           
|                       |  |                                                  |           |              |  |                           



| | (1) | Prior to giving effect to the 50-1 share consolidation that was effected on April 4, 2011.
| | --- | ------------------------------------------------------------------------------------------



Performance based rights will vest only
upon achievement of the performance targets set by our Board. The June 30, 2010 Tranche 1 performance rights, did not vest because
we did not have positive operating cash flow for fiscal 2010 and accordingly these performance rights have lapsed. Tranche 2 will
vest on June 30, 2011 if our consolidated earnings per share for fiscal 2011 is at least A$0.06 (prior to giving effect to the
50-1 share consolidation that was effected on April 4, 2011) and Tranche 3 will vest on June 30, 2012 if our consolidated earnings
per share for fiscal 2012 is at least A$0.15 (prior to giving effect to the 50-1 share consolidation that was effected on April
4, 2011). Once vested, performance based rights do not expire.



65









Options



Each option gives the holder the right to
subscribe for one ordinary share. The holder may exercise the option prior to its expiration on the second anniversary of the date
on which it was issued. The exercise price for each option is A$0.17 (prior to giving effect to the 50-1 share consolidation that
was effected on April 4, 2011) and the options held by each holder may be exercised in whole or in part. The ordinary shares allotted
to a holder upon exercise of the options will rank pari passu in all respects with other ordinary shares. The options are transferable
at the option of the holder and are not subject to any vesting conditions.



Retirement Benefits



All employees employed by Mission NewEnergy
and its subsidiaries belong to appropriate retirement schemes for each jurisdiction in which it operates. All such employee retirement
schemes are defined contribution schemes and thus no amounts are required to be set aside by us to meet any future retirement benefit
obligations.





66









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



Role of the Board of Directors



The Board of Mission is responsible for
setting the Company’s strategic direction and providing effective governance over Mission’s affairs in conjunction
with the overall supervision of the Company’s business with the view of maximising shareholder value. The Board's key responsibilities
are to:



| | • | chart the direction, strategies and financial objectives for Mission and monitor the implementation of those policies, strategies and financial objectives;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | keep updated about the Group’s business and financial status;
| | - | -------------------------------------------------------------



| | • | provide oversight and monitor compliance with regulatory requirements, ethical standards, risk management, internal compliance and control, code of conduct, legal compliance and external commitments;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | appoint, evaluate the performance of, determine the remuneration of, plan for the succession of and, where appropriate, remove the Managing Director/Group Chief Executive Officer, the Company Secretary and the Finance Director/Chief Financial Officer;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | exercise due care and diligence and sound business judgment in the performance of those functions and responsibilities; and
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | • | ensure that the Board continues to have the mix of skills and experience necessary to conduct Mission's activities, and that appropriate directors are selected and appointed as required.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Group has a formal process to educate
new directors about the nature of the business, current issues, the corporate strategy, the culture and values of the Group, and
the expectations of the Group concerning performance of the directors. In addition directors are also educated regarding meeting
arrangements and director interaction with each other, senior executives and other stakeholders. Directors also have the opportunity
to visit Group facilities and meet with management to gain a better understanding of business operations. Directors are given access
to continuing education opportunities to update and enhance their skill and knowledge.



The Board has adopted a Board Charter, which
sets out in more detail the responsibilities of the Board. The Board Charter sets out the division of responsibility between the
Board and management to assist those affected by decisions to better understand the respective accountabilities and contribution
to Board and management.



In accordance with Mission's Constitution,
the Board delegates responsibility for the day–to–day management of Mission to the Managing Director/Group Chief Executive
Officer (subject to any limits of such delegated authority as determined by the Board from time to time). Management as a whole
is charged with reporting to the Board on the performance of the Company.



Board structure and composition



The Board currently is comprised of seven
directors, of which five are independent non–executive directors. Details of each director’s skills, expertise and
background are contained within the directors’ report included with the company’s annual financial statements. The
Board considers the mix of skills and the diversity of Board members when assessing the composition of the Board. The Board assesses
existing and the potential director’s skill to ensure they have appropriate industry expertise in the Group’s operating
segments.



Independence, in this context, is defined
to mean a non–executive director who is free from any interest and any business or other relationship that could, or could
reasonably be perceived to, materially interfere with the directors ability to act in the best interests of Mission. The definition
of independence in ASX Recommendation 2.1 is taken into account for this purpose. During the year, Mr Peter Torre joined the Board
after resigning as Company Secretary, which he fulfilled as an independent external contractor. Hence he is deemed to meet the
definition of being an Independent Non-Executive Director from his date of appointment to the Board.



A director cannot hold the position of both
Chairman and Managing Director/Group Chief Executive Officer.



Mission's non–executive directors
may not hold office for a continuous period in excess of three years or past the third annual general meeting following their appointment,
whichever is longer, without submitting for re–election. directors are elected or re–elected, as the case may be, by
shareholders in a general meeting. Directors may offer themselves for re–election. A Director appointed by the directors
(e.g., to fill a casual vacancy) will hold office only until the conclusion of the next annual general meeting of Mission but is
eligible for re–election at that meeting.



Under Mission's Constitution, voting requires
a simple majority of the Board. The Chairman does not hold a casting vote.



67









Board Diversity



The Board does not have a formal diversity
policy; however since its incorporation given its cross-jurisdictional operations in Australia, Malaysia and India, a diversity
practice is naturally in place.



Board and management effectiveness



Responsibility for the overall direction
and management of Mission, its corporate governance and the internal workings of Mission rests with the Board, notwithstanding
the delegation of certain functions to the Managing Director/Group Chief Executive Officer and management generally (such delegation
effected at all times in accordance with Mission’s Constitution and its corporate governance policies). The Board has access,
at the company’s expense, to take independent professional advice after consultation with the Chairman.



An evaluation procedure in relation to the
Board, individual directors and Company executives was completed during the year. The evaluation of the Board as a whole was facilitated
through the use of a questionnaire required to be completed by each Board member, the results of which were summarised, discussed
with the Chairman of the Board and tabled for discussion at a Board Meeting. Similarly each individual director was required to
self assess his performance and discuss the results with the Chairman. Individual directors’ performance is evaluated by
reference to the Director’s contribution to monitoring and assessing management performance in achieving strategies and budgets
approved by the Board (among other things). A similar process for review of committees was undertaken during the 2010 and 2011
financial year. To ensure management, as well as Board effectiveness, the Remuneration and Nomination Committee has direct responsibility
for evaluating the performance of the Managing Director/Group Chief Executive Officer and other executives. This process involves
a formal interview and questionnaire format with results disclosed to the Board.



Internal control, risk management and financial reporting



The Board has overall responsibility for
Mission's systems of internal control. These systems are designed to ensure effective and efficient operations, including financial
reporting and compliance with laws and regulations, with a view to managing the risk of failure to achieve business objectives.
It must be recognized, however, that internal control systems can provide only reasonable and not absolute assurance against the
risk of material loss.



The Board reviews the effectiveness of the
internal control systems and risk management on an ongoing basis, and monitors risk through the Audit and Risk Management Committee
(see the Audit and Risk Management Committee). The Board regularly receives information about the financial position and performance
of Mission. For annual and half-yearly accounts released publicly, the Managing Director/Group Chief Executive Officer and the
Finance Director/Chief Financial Officer sign-off to the Board:



| | • | the accuracy of the accounts and that they represent a true and fair view, in all material respects, of Missions financial condition and operational results, and have been prepared in accordance with applicable accounting standards; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | that the representations are based on a system of risk management and internal compliance and control relating to financial reporting which implements the policies adopted by the Board, and that those systems are operating efficiently and effectively in all material respects.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, management has reported to
the Board on the effectiveness of the Company’s management of its material business risks.



Internal audit



During the year, the Board employed a permanent
internal auditor, who reports directly to the Audit and Risk Committee. The Audit and Risk Committee reviews all material internal
audit items and provides guidance where appropriate or required.



Our risk management policy is included in
the Corporate Governance section of the Company’s website.



Committees of the Board of Directors



The Board has established two permanent
Board committees to assist the Board in the performance of its functions:



| | • | the Audit and Risk Management Committee; and
| | - | --------------------------------------------



| | • | the Remuneration and Nomination Committee.
| | - | ------------------------------------------



Each committee has a charter, that sets
out its purpose and responsibilities. The committees are described further below.



68









The names of the members of the two committees
are set out in the directors’ report contained within the Company’s annual financial statements.



Audit and Risk Management Committee



The purpose of the Audit and Risk Management
Committee is to provide assistance to the Board in its review of:



| | • | Mission's financial reporting, internal control structure and risk management systems’;
| | - | ---------------------------------------------------------------------------------------



| | • | the internal and external audit functions; and
| | - | ----------------------------------------------



| | • | Mission's compliance with legal and regulatory requirements in relation to the above.
| | - | -------------------------------------------------------------------------------------



The Audit and Risk Management committee
has specific responsibilities in relation to Missions' financial reporting process; the assessment of accounting, financial and
internal controls; the appointment of the external auditor; the assessment of the external audit; the independence of the external
auditor; and setting the scope of the external audit.



The Audit and Risk Management Committee
comprises five independent non–executive directors that have diverse and complementary backgrounds. The Chairman of the Audit
and Risk Management Committee must be an independent non–executive director.



Messrs. Datuk Zain Yusuf (Chairman), Amara,
Bhatnagar, Torre and Tan Sri Anwar are members of the Audit and Risk Management Committee. All five members of the Audit and Risk
Management Committee satisfy the “independence” requirements of Rule 5605 of the NASDAQ Stock Market Marketplace Rules
and Rule 10A-3 under the Exchange Act.



Remuneration and Nomination Committee



The purpose of the Remuneration and Nomination
Committee is to discharge the Board's responsibilities relating to the nomination and selection of directors and the compensation
of the Company's executives and directors.



The key responsibilities of the Remuneration
and Nomination Committee are to:



| | • | ensure the establishment and maintenance of a formal and transparent procedure for the selection and appointment of new directors to the Board; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | • | establish transparent and coherent remuneration policies and practices, which will enable Mission to attract, retain and motivate executives and Directors who will create value for shareholders and to fairly and responsibly reward executives.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Remuneration and Nomination Committee
comprises five independent non–executive directors. The Chairman of the Remuneration and Nomination Committee must be an
independent non–executive director.



Messrs. Amara (Chairman), Datuk Zain Yusuf,
Torre, Bhatnagar and Tan Sri Anwar are members of the Remuneration and Nomination Committee.



We have a remuneration policy that sets
out the terms and conditions for the Managing Director and other senior executives.



Mission Advisory Board



Mission has established an International
Advisory Board comprising independent consultants to assist the company with public, government, corporate, military and other
relationships. The members are:



Doug Pearson



Major General Doug Pearson is currently
Chairman of Mission New Energy’s Advisory Board. General Pearson has completed a distinguished 34 year Air Force career,
serving as a combat pilot, test pilot, and commander in various important roles. Immediately prior to retiring in 2005, as the
Air Force Flight Test Center Commander at Edwards air force base, his responsibilities included managing an annual operating budget
of $1.1 billion dollars, and leading a highly skilled military, civilian, and contractor work force of approximately 18,000 people
to accomplish the Air Force's most important ground and flight test activities. General Pearson held various positions with Lockheed
Martin Corporation from 2005 until retiring in 2011 when serving as Vice President for the F-35 Test and Verification and was responsible
for integrated government and industry F-35 flight test planning, training, and execution. General Pearson graduated from Texas
A&M with a degree in Aerospace Engineering. He is a graduate of the Industrial College of the Armed Forces, Defense Systems
Management College, Test Pilot School, Fighter Weapons Instructor School (Air Force Top Gun), and completed many other military
and civilian post graduate education and training courses. He has received numerous military decorations during combat and peacetime.





69







Roger Frizzell



Roger Frizzell is currently the Vice President
and Chief Communications Officer for American Airlines (AA) overseeing the Corporate Communications function, community citizenship
and AA’s publishing business. He was recently named as one of the 100 most important inhouse communicators in the world by
the Holmes Report. Mr. Frizzell is also a recipient of the Distinguished Alumni Award at the University of Oklahoma’s Gaylord
College and inducted to the National Wrestling Hall of Fame.



Brian Tippens



Brian Tippens currently leads Hewlett Packard’s
(HP) Procurement Sustainability & Innovation organization. In this role, Mr. Tippens manages and sets the strategic direction
for a global program, which works to ensure that minority-owned and other under-represented businesses have an opportunity to become
HP suppliers or service providers. He also oversees strategic supplier development and sustainability across HP’s multi-billion
dollar global indirect and professional services supply chain. Mr. Tippens holds a Bachelor of Science from the University of San
Francisco, and a Juris Doctor from the University of the Pacific, McGeorge School of Law.



Patrick O’Brien



Patrick O’Brien is a retired senior
US Department of Agriculture Director (USDA) and Presidential Commission economist. At the USDA/ERS, Mr. O'Brien headed up the
work of approximately 800 staff, half of which held advanced degrees. Upon retiring from the USDA as chief economist, Mr. O'Brien
worked for the national office of the American Farm Bureau, where he helped state Farm Bureau offices deal with alternative energy
issues ranging from national policy to funding for local programs. This job also required him to interact with Congressional Staff
in both the House and the Senate. He retired from the Farm Bureau role in June 2010.



Disclosure policy



Mission is committed to promoting investor
confidence and ensuring that shareholders and the market have equal access to information and are provided with timely and balanced
disclosure of all material matters concerning the Company. Additionally, Mission recognises its continuous disclosure obligations
under the ASX Listing Rules and the Corporations Act. To assist with these matters, the Board has adopted a Continuous Disclosure
and Shareholder Communication Policy.



The Continuous Disclosure and Shareholder
Communication Policy allocates roles to the Board and management in respect of identifying material information and coordinating
disclosure of that information where required by the ASX Listing Rules.



The Policy also identifies authorized company
spokespersons and the processes Mission has adopted to communicate effectively with its shareholders. In addition to periodic reporting,
Mission will ensure that all relevant information concerning the Company is placed on its website.



Code of Conduct



The Board has created a framework for managing
the Company including internal controls, business risk management processes and appropriate ethical standards.



The Board has adopted practices for maintaining
confidence in the Company's integrity including promoting integrity, trust, fairness and honesty in the way employees and directors’
conduct themselves and Mission’s business, avoiding conflicts of interest and not misusing company resources. A formal Code
of Conduct has been adopted for all employees and directors of Mission.



Securities Trading Policy



A Securities Trading Policy has been adopted
by the Board to set a standard of conduct, which demonstrates Mission's commitment to ensuring awareness of the insider trading
laws, and that employees and directors’ comply with those laws. The Securities Trading Policy imposes additional share trading
restrictions on Directors, the Company Secretary, executives and employees involved in monthly financial accounting processes ("specified
persons").



Under the Securities Trading Policy, specified
persons are only permitted to buy and sell securities if they do not possess non–public price sensitive information and trading
occurs outside of specified restricted periods. These periods are the periods commencing on the first day of the month before the
end of the half–year or full year period and ending on the next business day after the announcement of the results for that
period. In addition, before a specified person can deal in Mission's securities they must obtain clearance from the appropriate
officer, confirming that there is no reason why they cannot trade.



70









Ownership of Options and Performance rights



The following table sets forth certain information
regarding ownership of the Company’s options and performance rights by the officers and directors as of June 30, 2011.



|               |  | Balance
        1/7/2009 |           |  | Expired |  |   | New issue |  |  | Balance
        1/7/2010 |  |  | Balance after
consolidation at
50:1 1 |           |  | Lapsed |  |        | Balance
        30/6/2011 |  |  | Vested  |  
|-------------- |  | ------------------------ | --------- |  | ------- |  | - | --------- |  |  | ------------------------ |  |  | ------------------------------------- | --------- |  | ------ |  | ------ | ------------------------- |  |  | ------- | -
|Directors      |  |                          |           |  |         |  |   |           |  |  |                          |  |  |                                       |           |  |        |  |        |                           |  |  |         |  
|               |  |                          |           |  |         |  |   |           |  |  |                          |  |  |                                       |           |  |        |  |        |                           |  |  |         |  
|Guy Burnett 2  |  |                          | -         |  |         |  | - |           |  |  | 1,750,000                |  |  |                                       | 1,750,000 |  |        |  | 35,000 |                           |  |  | (35,000 | )
|               |  |                          |           |  |         |  |   |           |  |  |                          |  |  |                                       |           |  |        |  |        |                           |  |  |         |  
|Executive      |  |                          |           |  |         |  |   |           |  |  |                          |  |  |                                       |           |  |        |  |        |                           |  |  |         |  
|               |  |                          |           |  |         |  |   |           |  |  |                          |  |  |                                       |           |  |        |  |        |                           |  |  |         |  
|James Garton 3 |  |                          | 1,750,000 |  |         |  | - |           |  |  | -                        |  |  |                                       | 1,750,000 |  |        |  | 35,000 |                           |  |  | (35,000 | )
|TOTAL          |  |                          | 1,750,000 |  |         |  | - |           |  |  | 1,750,000                |  |  |                                       | 3,500,00  |  |        |  | 70,000 |                           |  |  | (70,000 | )








|1 | Shareholders approved a share consolidation of 50:1 on March 23, 2011.
|- | ----------------------------------------------------------------------



|2 | Grant date was October 19, 2009, share price on grant date was $14.25, exercise price is $8.50, fair value at grant date was $7.97, volatility used was 125.35%, risk free rate used was 4.83%, the options expire on June 30, 2011. Prices adjusted to reflect the impact of the share consolidation.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3 | Grant date was June 25, 2009, share price on grant date was $9.25, exercise price is $8.5, fair value at grant date was $4.84, volatility used was 138.77%, risk free rate used was 4.16%, the options expire on June 30, 2011. Prices adjusted to reflect the impact of the share consolidation.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



71









Performance rights





|                              |  | Balance 30/6/2009 |           |   | New issue |  |           | Exercised |  |  | Lapsed   |   |  | Balance 30/6/2010 |          |   | New Issue |  |           | Exercised |  |  | Lapsed  before consolidation |    |  | Balance before  consolidation of Performance rights |             |   | Balance after consolidation |  |         | Lapsed after  consolidation |  |  | Balance 30/06/2011 |  |  | Vested and unexercised at 30/06/2011 |        
|----------------------------- |  | ----------------- | --------- | - | --------- |  | --------- | --------- |  |  | -------- | - |  | ----------------- | -------- | - | --------- |  | --------- | --------- |  |  | ---------------------------- | -- |  | --------------------------------------------------- | ----------- | - | --------------------------- |  | ------- | --------------------------- |  |  | ------------------ |  |  | ------------------------------------ | -------
|Director                      |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|                              |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|Nathan Mahalingam             |  |                   | -         |   |           |  | -         |           |  |  | -        |   |  |                   | -        |   |           |  | -         |           |  |  | 5,000,000                    | 4  |  |                                                     | (3,333,332  | ) |                             |  | -       |                             |  |  | 1,666,668          |  |  |                                      | 33,334 
|                              |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|Guy Burnett                   |  |                   | -         |   |           |  | 1,500,000 | 5         |  |  | (200,000 | ) |  |                   | (300,000 | ) |           |  | 1,000,000 |           |  |  | 5,000,000                    | 6  |  |                                                     | (3,733,332  | ) |                             |  |         |                             |  |  | 2,266,668          |  |  |                                      | 45,334 
|                              |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|Executives                    |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|                              |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|James Garton                  |  |                   | 1,500,000 | 7 |           |  | 5,000,000 | 8         |  |  | (200,000 | ) |  |                   | (300,000 | ) |           |  | 6,000,000 |           |  |  |                              |    |  |                                                     | (3,733,332  | ) |                             |  | -       |                             |  |  | 2,266,668          |  |  |                                      | 45,334 
|                              |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|Senior employees collectively |  |                   | 1,200,000 | 9 |           |  | -         |           |  |  | (119,999 | ) |  |                   | (293,334 | ) |           |  | 786,667   |           |  |  | 1,550,000                    | 10 |  |                                                     | (546,666    | ) |                             |  | (50,000 | )                           |  |  | 1,740,001          |  |  |                                      | 34,808 
|                              |  |                   |           |   |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                              |    |  |                                                     |             |   |                             |  |         |                             |  |  |                    |  |  |                                      |        
|Total                         |  |                   | 2,700,000 |   |           |  | 6,500,000 |           |  |  | (519,999 | ) |  |                   | (893,334 | ) |           |  | 7,786,667 |           |  |  | 11,550,000                   |    |  |                                                     | (11,346,662 | ) |                             |  | (50,000 | )                           |  |  | 7,940,005          |  |  |                                      | 158,810








|4 | Grant date was July 6, 2010, share price and fair value on grant date was $13.25.  The performance rights vest in equal tranches at July 1, 2010, December 31, 2010 and July 1, 2011 for service.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5 | Grant date was October 19, 2009, share price on grant date was $14.25, fair value at grant date was $10.69.
|- | -----------------------------------------------------------------------------------------------------------



|6 | Grant date was July 6, 2010, share price and fair value on grant date was $13.25.The performance rights vest in equal tranches at July 1, 2010, December 31, 2010 and July 1, 2011for service.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7 | Grant date was June 25, 2009, share price on grant date was $9.25 and fair value at grant date was $6.94. 40% of the performance shares vest in equal tranches at December 31, 2009, June 30, 2010 and December 31, 2010 for service, and 60% of the performance shares vest in equal tranches on Positive Group cash generation from operations by June 30, 2010, EPS of A$3.00 by June 30, 2011, and EPS of A$7.5 by June 30, 2012. The rights associated with the company performance criteria at June 30, 2010 and June 30, 2011 were not met, and hence the rights lapsed.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8 | Grant date was March 30, 2010, share price on grant date was $17.25, fair value at grant date was $12.94.The performance shares vest in equal tranches at July 1, 2010, December 31, 2010 and July 1, 2011 for service.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9 | Grant date was June 25, 2009, share price on grant date was $9.25 and fair value at grant date was $6.94. 40% of the performance shares vest in equal tranches at December 31, 2009, June 30, 2010 and December 31, 2010 for service, and 60% of the performance shares vest in equal tranches on Positive Group cash generation from operations by June 30, 2010, EPS of A$3.00 by June 30, 2011, and EPS of A$7.5 by June 30, 2012. The rights associated with the company performance criteria at June 30, 2010 and June 30, 2011 were not met, and hence the rights lapsed.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10 | Grant date was September 28, 2010, share price and fair value on grant date was $9.75. 40% of the performance shares vest in equal tranches at December 31, 2010, June 30, 2011 and December 31, 2011 for service, and 60% of the performance shares vest in equal tranches on achievement of a Group EPS of A$3.00 by June 30, 2011, EPS of A$7.50 by June 30, 2012 and EPS of A$7.50 by June 30, 2013.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



72









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



As of June 30, 2011, we had approximately
466 employees. The following table provides a breakdown of our employees by main category of activity and geographic location:



|                                                     |  | USA |   |  | Australia |  |   | Malaysia |  |  | India | 
|---------------------------------------------------- |  | --- | - |  | --------- |  | - | -------- |  |  | ----- | 
|Finance, legal and other administrative functions    |  |     | 1 |  |           |  | 2 |          |  |  | 14    | 
|Engineering, operations, R&D and information systems |  |     | 0 |  |           |  | 0 |          |  |  | 51    | 



Historic Employees



|For the fiscal year ended June 30, |  | USA |   |  | Australia |  |   | Malaysia |  |  | India | 
|---------------------------------- |  | --- | - |  | --------- |  | - | -------- |  |  | ----- | 
|2009                               |  |     | - |  |           |  | 3 |          |  |  | 83    | 
|2010                               |  |     | - |  |           |  | 3 |          |  |  | 57    | 
|2011                               |  |     | 1 |  |           |  | 2 |          |  |  | 65    | 



Employee numbers do fluctuate from time
to time due to the use of temporary employees during the planting and harvesting seasons in India. During the planting and harvesting
season in India in fiscal 2011, we   employed an average of approximately 40 temporary employees per month. We believe that
our relations with employees are good and we have not experienced any significant labor stoppages or disputes. Our employees are
not represented by labor unions or covered by a collective bargaining agreement.



In line with the expansion of our operations,
we plan to hire additional employees, including additional accounting, finance and sales, marketing personnel as well as manufacturing
and engineering employees.



We typically enter into a standard confidentiality
and non-competition agreement with our management and research and development personnel. Each of these contracts includes a covenant
that prohibits the relevant personnel from engaging in any activities that compete with our business during his or her employment
with us and for two years after their employment with us.



Insurance



We have insurance policies covering all
normal aspects of our business inline with industry practices.



We believe that our overall insurance coverage
is consistent with the market practice or the jurisdiction of operation. However, significant damage to any of our manufacturing
facilities and buildings, whether as a result of fire or other causes, could have a material adverse effect on our results of operations.
See “Risk Factors — Risks Related to Our Business and Our Industry — We have limited insurance coverage and may
incur losses resulting from product liability claims, business interruption or natural disasters.” We also maintain appropriate
Directors and Officers Liability Insurance.



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



The following table presents certain information
regarding the beneficial ownership of our ordinary shares based on total issued ordinary shares of 8,634,036 as of November 28,
2011 by:



| | • | each person known by us through substantial shareholder notices filed with the Australian Securities Exchange and SEC to be the beneficial owner of more than 5% of our ordinary shares;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | each of our directors;
| | - | ----------------------



| | • | each of our named executive officers; and
| | - | -----------------------------------------



73









| | • | all of our current directors and executive officers as a group.
| | - | ---------------------------------------------------------------



|Principle Shareholders  (1)                                                                                                 |  | Number of
        Shares |           |  | Percentage | 
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- |  | ---------- | 
|McDermott Industries Ltd (2)                                                                                                |  |                          | 2,000,000 |  |            | 
|South Ferry #2 LP, its General Partners Abraham
    Wolfson and Aaron Wolfson, and its Portfolio Manager Morris Wolfson (3) |  |                          | 999,508   |  |            | 
|Steven L. Way International LLC (5)                                                                                         |  |                          | 791,823   |  |            | 
|Houston International Insurance Group (6)                                                                                   |  |                          | 846,410   |  |            | 
|Directors and Executive Officers:                                                                                           |  |                          |           |  |            | 
|Nathan Mahalingam (4)                                                                                                       |  |                          | 612,956   |  |            | 
|James Garton                                                                                                                |  |                          | 112,051   |  |            | 
|Guy Burnett                                                                                                                 |  |                          | 112,001   |  |            | 
|Dario Amara                                                                                                                 |  |                          | 2,000     |  |            | 
|Kalaiselvan Somasundaram                                                                                                    |  |                          | 2,400     |  |            | 
|Datuk Zain Yusuf                                                                                                            |  |                          | —         |  |            | 
|Arun Bhatnagar                                                                                                              |  |                          | —         |  |            | 
|Admiral (Ret) Tan Sri Dato’ Sri Mohd Anwar bin Haji Mohd Nor                                                                |  |                          | —         |  |            | 
|Peter Torre                                                                                                                 |  |                          | —         |  |            | 
|Nadason Sinnasami                                                                                                           |  |                          | —         |  |            | 
|All directors and executive officers as a group (10 persons)                                                                |  |                          | 841,408   |  |            | 



|* | Represents beneficial ownership of less than 1% of the outstanding ordinary shares of Mission NewEnergy.
|- | --------------------------------------------------------------------------------------------------------



|(1) | Unless otherwise indicated in the footnotes to the table below, the address for each of the persons listed in the table below is Mission NewEnergy Limited,  Unit 4, 97 Hector Street West, Osborne Park, Western Australia 6017, Australia.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | McDermott Industries Ltd holds all of their shares as trustee for Lee Swee Eng. Address is Trident Chambers, PO Box 146, Road Town, Tortola, British Virgin Islands. Includes 1,000,000 warrants exercisable within the next 60 days.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Address of c/o One State Street Plaza, 29 th Floor, New York, New York 1004. Includes 503,450 warrants exercisable within the next 60 days.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Address of Unit 725, 7 th Floor Block A, Kelana Centre Point No 3, Jalan Ss 7/19 47301, Pataling Jaya Selangor, Singapore. Includes 492,957 shares held by Mission Equities Sdn Bhd., a company in which Nathan Mahalingam, Mission NewEnergy’s Chief Executive Officer, has a 34% pecuniary interest in and is considered a beneficial owner of the shares held by Mission Equities Sdn Bhd.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Address of 7941 Katy Freeway, #529, Houston, Texas, 77024. Includes (i) 777,021 shares owned of record by Stephen L. Way International, LLC and (ii) 14,802 shares owned by Stephen L. Way, principal of this entity. Information is based on a Schedule 13G filed with the SEC on May 2, 2011.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Address of 800 Gessner, Suite 600, Houston, Texas, 77024. Includes 846,410 shares of common stock. Information is based on a Schedule 13G filed with the SEC on May 2, 2011.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Beneficial ownership is determined according
to the rules of the SEC and generally means that a person has beneficial ownership of a security if he or she possesses sole or
shared voting or investment power of that security, and includes options that are exercisable within 60 days. Information with
respect to beneficial ownership has been furnished to us by each director, executive officer or 5% or more shareholder, as the
case may be.



Unless otherwise indicated, to our knowledge,
each shareholder possesses sole voting and investment power over the ordinary shares listed, subject to community property laws
where applicable. None of our shareholders has different voting rights from other shareholders after the closing of this offer.



The numbers of ordinary shares and options
shown in the above table and discussed below give effect to the 50-1 share consolidation that was effected on April 4, 2011.



74









To the best of our knowledge, there have
not been any significant changes in the ownership of our ordinary shares by major shareholders over the past three years, except
the beneficial ownership of:



| | • | McDermott Industries Ltd became a substantial shareholder in fiscal 2010 and as at November 28, 2011 has a shareholding of 11.6% (excluding dilutive effect of warrants);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | South Ferry #2 LP, its General Partners Abraham Wolfson and Aaron Wolfson, and its Portfolio Manager Morris Wolfson increased from 0% as at June 30, 2007 to 10.94% (excluding dilutive effect of warrants) as at November 28, 2011;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Mission Equities Sdn Bhd decreased from 27.08% at June 30, 2007 to 5.7% as at November 28, 2011.
| | - | ------------------------------------------------------------------------------------------------



As of November 30, 2011, we had fourteen
holders of record in the United States with a combined holding of 2,492,944 shares, representing 28.9% of our total outstanding
shares as of that date.



Item 7. Major Shareholders and Related Party Transactions



| | A. | Major Shareholders and Related Party Transactions.
| | -- | --------------------------------------------------



See “Item 6.E—Directors, Senior
Management and Employees—Share Ownership.”



| | B. | Related Party Transactions.
| | -- | ---------------------------



Other than as disclosed below, from July
1, 2007 through to June 30, 2011, we did not enter into any transactions or loans between us and any (a) enterprises that directly
or indirectly through one or more intermediaries, control or are controlled by, or are under common control with us; (b) associates;
(c) individuals owning, directly or indirectly, an interest in our voting power that gives them significant influence over us,
and close members of any such individual’s family; (d) key management personnel and close members of such individuals’
families; or (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly by any person
described in (c) or (d) or over which such person is able to exercise significant influence.  Refer to note 31 of the
financial statements included at the end of this report for details of any related party transactions.



Loans



From time to time, we have made loans to
or received loans from our wholly owned subsidiaries, including Mission Biotechnologies Sdn Bhd, Mission Biofuels Sdn Bhd and Mission
Agro Energy Limited. Loans are repaid regularly and are given on interest free terms.



Refer to note 31 of the financial statements
included at the end of this report for details of intercompany loans at June 30, 2011 and June 30, 2010 respectively.



Management rights with subsidiaries



During fiscal 2011, Mission NewEnergy received
management fees from both Mission Biotechnologies Sdn Bhd, a 100% owned subsidiary company, in the amount of A$656 ,000, and Mission
Biofuels Sdn Bhd, a 100% owned subsidiary company, in the amount of A$984,000. These transactions were on commercial terms and
conditions no more favourable than those available to other parties.



From time to time, we have been involved
in transactions with wholly owned and controlled subsidiaries. Such transactions between related parties are on commercial terms
and conditions no more favourable than those available to other parties.



Ir Lee Swee Eng



Ir Lee Swee Eng, a Malaysian citizen, is
the founding member and the Group Managing Director of KNM, a public company listed on the Main Board of the Bursa Securities Malaysia
Berhad. KNM is Mission’s equipment, procurement, construction and commissioning contractor in respect of the Company’s
second biodiesel refinery in Malaysia.



75









On November 17, 2009, Mission issued 1,000,000
units comprising ordinary shares and warrants to Ir Lee Swee Eng. Consideration per share was US$7.25 and the warrants have an
exercise price of A$15.00 per share. As part of the placement of units, Ir Lee Swee Eng is able to appoint one executive director
to the Board as well as an alternate director.



The expiration date for the warrants is
April 28, 2014. If all warrants are exercised, an additional A$15 million will be raised. If at any time on or after April 15,
2012 the immediately preceding 20 trading day volume weighted average price of Mission’s shares is at least A$1.00 (prior
to giving effect to the 50-1 share consolidation that was effected on April 4, 2011), Mission may give written notice to Ir Lee
Swee Eng that if he does not exercise his warrants within 15 days from the date of such notice, then the warrants would expire
on that 15 th day.



The rights attaching to the
shares issued to Ir Lee Swee Eng are the same as those attaching to the Company’s currently issued shares.



McDermott  Industries Ltd, which
holds all of their shares as trustee for Ir Lee Swee Eng, could hold up to 30.24% of Mission if all of Ir Lee Swee Eng’s
warrants were exercised.



Ir Lee Swee Eng was not paid any compensation
or granted any benefits in kind (including contingent or deferred compensation accrued for the year) by Mission for the fiscal
year ended June 30, 2011.



During the last 3 years from the date of
this annual report, KNM has been paid a total of 91.5 million Malaysian Ringgit (US$28.2 million) pursuant to its equipment, procurement,
construction and commissioning contractor with Mission in respect of the Company’s second biodiesel refinery in Malaysia.



| | C. | Interests of Experts and Counsel.
| | -- | ---------------------------------



Not applicable.



Item 8. Financial Information



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



Our consolidated financial statements are
set out in Item 18 of this annual report.



Legal Proceedings



Other than disclosed below, we are not involved
in any significant legal proceedings.



The company has called upon a performance
bond placed by the contractor who constructed the 100,000 tpa biodiesel plant, due to non-satisfactory performance. The performance
bond and associated claims offset the final amount not paid. Both parties have agreed to the appointment of an arbitrator to resolve
this matter.



A subsidiary within the Group has been assessed
for income tax with a provisional assessment raised, despite losses incurred within this subsidiary. Management disputes this assessment
and is in discussion with the relevant income tax authorities seeking clarity on the basis of the assessment. The parent entity
is not aware of any other contingent liabilities or contingent assets as at June 30, 2011.



Dividend Distributions



We have never declared or paid any cash
dividends on our ordinary shares and we do not anticipate paying any cash dividends in the foreseeable future. Our Board’s
current intention is to reinvest any income in the continued development and operation of our business.



Except as permitted by the Corporations
Act, under our Constitution dividends may only be paid out of our profits.



Payment of cash dividends, if any, in the
future will be at the discretion of our Board or, if our directors do not exercise their power to issue dividends, our shareholders
in a general meeting may exercise the powers.





76









Even if our Board decides to pay dividends,
the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial
conditions, contractual restrictions and other factors that the Board may deem relevant.



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



Except as disclosed elsewhere and below
in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements
included in this annual report.



As of the date of this report, the Board
has paid A$5 million to fully settle the series one convertible note liability of A$15 million shown in current liabilities.



Item 9. The Offer and Listing



| | A. | Offer and Listing Details.
| | -- | --------------------------



The following tables present, for the periods
indicated, the high and low market prices for our ordinary shares reported on the ASX (symbol: “MBT”) and the NASDAQ
(symbol: MNEL) for the periods indicated. All prices for the ASX values are in Australian dollars and do not give effect to the
50-1 share consolidation that became effective on April 4, 2011. All prices for the NASDAQ are in US Dollars.



|                                          |  | NASDAQ |      |  | ASX  | 
|----------------------------------------- |  | ------ | ---- |  | ---- | 
|                                          |  | High   |      |  | High | 
|                                          |  | US$    |      |  | US$  | 
|Fiscal year ended                         |  |        |      |  |      | 
|June 30, 2012                             |  |        |      |  |      | 
|First Quarter                             |  |        | 6.53 |  |      | 
|Second Quarter (through December 7, 2011) |  |        | 4.16 |  |      | 
|June 30, 2011                             |  |        |      |  |      | 
|First Quarter                             |  |        | -    |  |      | 
|Second Quarter                            |  |        | -    |  |      | 
|Third Quarter                             |  |        | -    |  |      | 
|Fourth Quarter                            |  |        | 8.15 |  |      | 
|June 30, 2010                             |  |        |      |  |      | 
|First Quarter                             |  |        | -    |  |      | 
|Second Quarter                            |  |        | -    |  |      | 
|Third Quarter                             |  |        | -    |  |      | 
|Fourth Quarter                            |  |        | -    |  |      | 
|June 30, 2009                             |  |        |      |  |      | 
|First Quarter                             |  |        | -    |  |      | 
|Second Quarter                            |  |        | -    |  |      | 
|Third Quarter                             |  |        | -    |  |      | 
|Fourth Quarter                            |  |        | -    |  |      | 
|Month ended                               |  |        |      |  |      | 
|June   2011                               |  |        | 6.71 |  |      | 
|July 2011                                 |  |        | 6.53 |  |      | 
|August 2011                               |  |        | 5.71 |  |      | 
|September 2011                            |  |        | 4.45 |  |      | 
|October 2011                              |  |        | 4.16 |  |      | 
|November 2011                             |  |        | 3.95 |  |      | 
|December 2011 (through December 7, 2011)  |  |        | 3.02 |  |      | 
|Fiscal year ended June 30,                |  |        |      |  |      | 
|2011                                      |  |        | 8.15 |  |      | 
|2010                                      |  |        | -    |  |      | 
|2009                                      |  |        | -    |  |      | 
|2008                                      |  |        | -    |  |      | 
|2007                                      |  |        | -    |  |      | 







77







| | B. | Plan of Distribution.
| | -- | ---------------------



Not applicable.



| | C. | Markets.
| | -- | --------



See “Item 9.A—The Offer and Listing—Offer
and Listing Details.”



| | D. | Selling Shareholders.
| | -- | ---------------------



Not applicable.



| | E. | Dilution.
| | -- | ---------



Not applicable.



| | F. | Expenses of the Issue.
| | -- | ----------------------



Not applicable.



Item 10. Additional Information



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



Not applicable.



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



Our Constitution



We are a public company limited by shares
registered under the Corporations Act by the Australian Securities and Investments Commission, or ASIC. Our constituent document
is a Constitution, which is similar in nature to the by-laws of a company incorporated under the laws of a U.S. state. Our Constitution
does not provide for or prescribe any specific objectives or purposes of Mission NewEnergy. Our Constitution is subject to the
terms of the ASX Listing Rules and the Corporations Act. Our Constitution may be amended or repealed and replaced by special resolution
of shareholders, which is a resolution passed by at least 75% of the votes cast by shareholders entitled to vote on the resolution.



Under Australian law, a company has the
legal capacity and powers of an individual both inside and outside Australia. The material provisions of our Constitution are summarized
below. This summary is not intended to be complete, nor to constitute a definitive statement of the rights and liabilities of our
shareholders and is qualified in its entirety by reference to the Constitution, which is available on request.



Directors



Interested Directors



Except where permitted by the Corporations
Act, a director may not vote in respect of any contract or arrangement in which the director has, directly or indirectly, any material
interest according to our Constitution. Such director must not be counted in a quorum, must not vote on the matter and must not
be present at the meeting while the matter is being considered.



Unless a relevant exception applies, the
Corporations Act requires directors of Mission NewEnergy to provide disclosure of certain interests and prohibits directors of
companies listed on the ASX from voting on matters in which they have a material personal interest and from being present at the
meeting while the matter is being considered. In addition, the Corporations Act and the ASX Listing Rules require shareholder approval
of any provision of related party benefits to our directors.





78









Directors’ Compensation



Our directors are paid remuneration for
their services as directors, which is determined in a general meeting of shareholders. The aggregate, fixed sum for directors’
remuneration is to be divided among the directors in such proportion as the directors themselves agree, and in accordance with
our Constitution. The fixed sum remuneration for directors may not be increased except at a general meeting of shareholders and
the particulars of the proposed increase are required to have been provided to shareholders in the notice convening the meeting.
In addition, executive directors may be paid remuneration as employees of Mission NewEnergy.



Pursuant to our Constitution any director
who devotes special attention to our business or who otherwise performs services which in the opinion of our Board are outside
the scope of the ordinary duties of a director may be paid extra remuneration which is determined by the Board.



In addition to other remuneration provided
in our Constitution, all directors are entitled to be paid by us for reasonable travel accommodation and other expenses incurred
by the directors in attending company meetings, board meetings, committee meetings or while engaged on our business.



Additionally in accordance with our Constitution,
a director may be paid a retirement benefit as determined by the Board subject to the limits set out in the Corporations Act and
the ASX Listing Rules.



Borrowing Powers Exercisable by Directors



Pursuant to our Constitution, the management
and control of our business affairs are vested in our Board. The Board has the power to raise or borrow money. The Board may also
charge any of our property or business or any uncalled capital and may issue debentures or give any other security for any of our
debts, liabilities or obligations or of any other person, in each case, in the manner and on terms it deems fit.



Retirement of directors



Pursuant to our Constitution, one third
of directors other than the director who is the Chief Executive Officer, must retire from office at every annual general meeting.
If the number of directors is not a multiple of three then the number nearest to but not less than one third must retire from office.
The directors who retire in this manner are required to be the directors or director longest in office since last being elected.
A director, other than the director who is the Chief Executive Officer, must retire from office at the conclusion of the third
annual general meeting after which the director was elected.



Share Qualifications



Our Constitution provides that we may fix
a share qualification for our directors in general meeting. However, there are currently no requirements for directors to own our
shares in order to qualify as directors.



Rights and Restrictions on Classes of Shares



Subject to the Corporations Act and the
ASX Listing Rules, rights attaching to our shares are detailed in our Constitution. Our Constitution provides that any of our shares
may be issued with preferred, deferred or other special rights, whether in relation to dividends, voting, return of share capital,
payment of calls or otherwise as the Board may determine from time to time. Except as provided by contract or by our Constitution
to the contrary, all unissued shares are under the control of the Board which may grant options on the shares, allot or otherwise
dispose of the shares on the terms and conditions and for the consideration it deems fit. Currently our outstanding share capital
consists of only one class of ordinary shares.



Dividend Rights



The Board may from time to time determine
to pay dividends to shareholders. All unclaimed dividends may be invested or otherwise made use of by the Board for our benefit
until claimed or otherwise disposed of in accordance with our Constitution.





79











Voting Rights



Under our Constitution, each shareholder
has one vote determined by a show of hands at a meeting of the shareholders. On a poll vote each shareholder shall have one vote
for each fully paid share and a fractional vote for each share which is not fully paid, such fraction being equivalent to the proportion
of the amount which has been paid to such date on that share. Under Australian law, shareholders of a public company are not permitted
to approve corporate matters by written consent. Our Constitution does not provide for cumulative voting.



Right to Share in our Profits



Subject to the Corporations Act and pursuant
to our Constitution, our shareholders are entitled to participate in our profits only by payment of dividends. The Board may from
time to time determine to pay dividends to the shareholders, however no dividend is payable except out of our profits. A declaration
by the Board as to the amount of our profits is conclusive.



Rights to Share in the Surplus in the Event of Liquidation



Our Constitution provides for the right
of shareholders to participate in a surplus in the event of our liquidation. In certain circumstances, any division may be otherwise
than in accordance with the legal rights of the contributories, and in particular, any class may be given preferential or special
rights or may be excluded altogether or in part from participation in a surplus in the event of liquidation.



Redemption Provisions



There are no redemption provisions in our
Constitution in relation to ordinary shares. Under our Constitution and subject to the Corporations Act, any preference shares
may be issued on the terms that they are, or may at our option be, liable to be redeemed.



Sinking Fund Provisions



There are no sinking fund provisions in
our Constitution in relation to ordinary shares.



Liability for Further Capital Calls



According to our Constitution, the Board
may make any calls from time to time upon shareholders in respect of all monies unpaid on partly-paid shares, subject to the terms
upon which any of the partly-paid shares have been issued. Each shareholder is liable to pay the amount of each call in the manner,
at the time, and at the place specified by the Board. Calls may be made payable by instalment.



Provisions Discriminating Against Holders of a Substantial
Number of Shares



There are no provisions under our Constitution
discriminating against any existing or prospective holders of a substantial number of our shares.



Variation of Share Rights



Our Constitution provides that, unless otherwise
provided by the terms of issue of the shares of such class, the rights attaching to any class of shares may, subject to the ASX
Listing Rules, be varied with the consent in writing of members with at least 75% of the votes in the class or with the sanction
of a special resolution passed at a separate meeting of the holders of the shares of such class. These conditions are not more
significant than that required by the Corporations Act.





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General Meetings of Shareholders



General meetings of shareholders may be
called by the Board. Except as permitted under the Corporations Act, shareholders may not convene a meeting. Under the Corporations
Act, shareholders with at least 5% of the votes which may be cast at a general meeting may call and arrange to hold a general meeting.
The Corporations Act requires the directors to call and arrange to hold a general meeting on the request of shareholders with at
least 5% of the votes that may be cast at a general meeting or at least 100 shareholders who are entitled to vote at the general
meeting. Twenty-eight days notice of the proposed meeting of our shareholders is required under the Corporations Act.



According to our Constitution, the chairman
of the general meeting may refuse admission to or exclude from the meeting, any person who is in possession of a picture recording
or sound recording device, in possession of a placard or banner, in possession of an object considered by the chairman to be dangerous,
offensive or liable to cause disruption, any person who refuses to produce or permit examination of any object, any person who
behaves or threatens to behave in a dangerous, offensive or destructive manner, or any person who is not a director or one of our
auditors, one of our shareholders or a proxy, attorney or representative of one of our shareholders.



Foreign Ownership Regulation



There are no limitations on the rights to
own securities imposed by our Constitution. However, acquisitions and proposed acquisitions of shares in Australian companies may
be subject to review and approval by the Australian Federal Treasurer under the Foreign Acquisitions and Takeovers Act 1975 (Commonwealth
of Australia). Generally this Act applies to acquisitions or proposed acquisitions:



| | • | by a foreign person, as defined in the Foreign Acquisitions and Takeovers Act, or associated foreign persons which would result in such persons having an interest in 15% or more of the issued shares of, or control of 15% or more of the voting power in, an Australian company; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | by non-associated foreign persons which would result in such foreign person having an interest in 40% or more of the issued shares of, or control of 40% or more of the voting power in, an Australian company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Australian Federal Treasurer may prevent
a proposed acquisition in the above categories or impose conditions on such acquisition if the Treasurer is satisfied that the
acquisition would be contrary to the national interest. If a foreign person acquires shares or an interest in shares in an Australian
company in contravention of the Act, the Australian Federal Treasurer may order the divestiture of such person’s shares or
  interest in shares in the company. The Australian Federal Treasurer may order divestiture pursuant to the Act if he determines
that the acquisition has resulted in that foreign person, either alone or together with other non-associated or associated foreign
persons, controlling the company and that such control is contrary to the national interest.



Ownership Threshold



There are no provisions in our Constitution
that require a shareholder to disclose ownership above a certain threshold. The Corporations Act, however, requires a substantial
shareholder to notify us and the Australian Securities Exchange once a 5% interest in our shares is obtained. Further, once a shareholder
owns a 5% interest in us, such shareholder must notify us and the Australian Securities Exchange of any increase or decrease of
1% or more in its holding of our shares. Such major shareholders are also required to file a notice with the SEC on Schedule 13D
or Schedule 13G.



Issues of shares and Change in Capital



Subject to our Constitution, the Corporations
Act, the ASX Listing Rules and any other applicable law, we may at any time issue shares and grant options or warrants on any terms,
with preferred, deferred or other special rights and restrictions and for the consideration and other terms that the directors
determine. Our power to issue shares includes the power to issue bonus shares (for which no consideration is payable to Mission
NewEnergy), preference shares and partly paid shares.



Subject to the requirements of our Constitution,
the Corporations Act, the ASX Listing Rules and any other applicable law, including relevant shareholder approvals, we may consolidate
or divide our share capital into a larger or smaller number by resolution, reduce our share capital (provided that the reduction
is fair and reasonable to our shareholders as a whole, and does not materially prejudice our ability to pay creditors) or buy-back
our shares whether under an equal access buy-back or on a selective basis.



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Change of Control



Takeovers of listed Australian public companies,
such as Mission NewEnergy, are regulated by, amongst other things, the Corporations Act which prohibits the acquisition of a relevant
interest in issued voting shares in a listed company if the acquisition will lead to that person’s or someone else’s
voting power in the company increasing from 20% or below to more than 20% or increasing from a starting point that is above 20%
and below 90%, subject to a range of exceptions.



Generally, and without limitation, a person
will have a relevant interest in securities if they:



| | • | are the holder of the securities;
| | - | ---------------------------------



| | • | have power to exercise, or control the exercise of, a right to vote attached to the securities; or
| | - | --------------------------------------------------------------------------------------------------



| | • | have the power to dispose of, or control the exercise of a power to dispose of, the securities (including any indirect or direct power or control).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



If at a particular time a person has a relevant
interest in issued securities and the person:



| | • | has entered or enters into an agreement with another person with respect to the securities;
| | - | -------------------------------------------------------------------------------------------



| | • | has given or gives another person an enforceable right, or has been or is given an enforceable right by another person, in relation to the securities; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | has granted or grants an option to, or has been or is granted an option by, another person with respect to the securities, and the other person would have a relevant interest in the securities if the agreement were performed, the right enforced or the option exercised, the other person is taken to already have a relevant interest in the securities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There are a number of exceptions to the
above prohibition on acquiring a relevant interest in issued voting shares above 20%. In general terms, some of the more significant
exceptions include:



| | • | when the acquisition results from the acceptance of an offer under a formal takeover bid;
| | - | -----------------------------------------------------------------------------------------



| | • | when the acquisition is conducted on market by or on behalf of the bidder under a takeover bid and the acquisition occurs during the bid period;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | • | when shareholders of the company approve the takeover by resolution passed at general meeting;
| | - | ----------------------------------------------------------------------------------------------



| | • | an acquisition by a person if, throughout the 6 months before the acquisition, that person, or any other person, has had voting power in the company of at least 19% and as a result of the acquisition, none of the relevant persons would have voting power in the company more than 3 percentage points higher than they had 6 months before the acquisition;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | as a result of a rights issue;
| | - | ------------------------------



| | • | as a result of dividend reinvestment schemes;
| | - | ---------------------------------------------



| | • | as a result of underwriting arrangements;
| | - | -----------------------------------------



| | • | through operation of law;
| | - | -------------------------



| | • | an acquisition which arises through the acquisition of a relevant interest in another listed company;
| | - | -----------------------------------------------------------------------------------------------------



| | • | arising from an auction of forfeited shares; or
| | - | -----------------------------------------------



| | • | arising through a compromise, arrangement, liquidation or buy-back.
| | - | -------------------------------------------------------------------



Breaches of the takeovers provisions of
the Corporations Act are criminal offences. ASIC and the Australian Takeover Panel have a wide range of powers relating to breaches
of takeover provisions including the ability to make orders canceling contracts, freezing transfers of, and rights attached to,
securities, and forcing a party to dispose of securities. There are certain defenses to breaches of the takeovers provisions provided
in the Corporations Act.



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Proportional Takeovers



Our Constitution indicates that where offers
to purchase our shares have been made under a proportional takeover scheme, we are prohibited from registering, other than where
a transfer is effected in accordance with the takeover provisions (if any) under the ASTC Settlement Rules, a transfer which would
give effect to the contract resulting from the acceptance of such an offer unless and until a resolution to approve the proportional
takeover scheme is approved at a meeting by the persons entitled to vote on such resolution. The offeror or an associate of the
offeror is not entitled to vote on such resolution. A person, other than an offeror or associate of the offeror, who, as at the
end of the day in which the first offer under the proportional takeover scheme was made, held shares in that class of shares, is
entitled to one vote for each of the shares held in that class.



Access to and Inspection of Documents



Inspection of our records is governed by
the Corporations Act. Any member of the public has the right to inspect or obtain copies of our registers on the payment of a prescribed
fee. Shareholders are not required to pay a fee for inspection of our registers or minute books of the meetings of shareholders.
Other corporate records including minutes of directors meetings, financial records and other documents are not open for inspection
by shareholders. Where a shareholder is acting in good faith and an inspection is deemed to be made for a proper purpose, a shareholder
may apply to the court to make an order for inspection of our books.



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



We have not entered into any material contracts
other than in the ordinary course of business and other than those described in “Item 4—Information on the Company”
or elsewhere in this annual report on Form 20-F.



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



Under existing Australian legislation, the
Reserve Bank of Australia does not prohibit the import and export of funds, and generally no governmental permission is required
for us to move funds in and out of Australia. However, for the movement of funds to and from “tax havens,” as specified
by current regulations, a tax clearance certificate must be obtained. The United States is not a declared tax haven. Accordingly,
at the present time, remittances of any dividends, interest or other payments by us to non-resident holders of our securities in
the United States are not restricted by exchange controls.



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



The following is a summary of material
U.S. federal and Australian income tax considerations to U.S. holders, as defined below, of the acquisition, ownership and disposition
of ordinary shares. This discussion is based on the laws in force as at the date of this annual report, and is subject to changes
in the relevant income tax law, including changes that could have retroactive effect. The following summary does not take into
account or discuss the tax laws of any country or other taxing jurisdiction other than the United States and Australia. Holders
are advised to consult their tax advisors concerning the overall tax consequences of the acquisition, ownership and disposition
of ordinary shares in their particular circumstances. This discussion is not intended, and should not be construed, as legal or
professional tax advice.



This summary does not describe U.S. federal
estate and gift tax considerations, or any state and local tax considerations within the United States, and is not a comprehensive
description of all U.S. federal or Australian income tax considerations that may be relevant to a decision to acquire or dispose
of ordinary shares. Furthermore, this summary does not address U.S. federal or Australian income tax considerations relevant to
holders subject to taxing jurisdictions other than or in addition to the United States and Australia, and does not address all
possible categories of holders, some of which may be subject to special tax rules.



83







U.S. Federal Income Tax Considerations



In this section, we discuss material U.S.
federal income tax considerations applicable to an investment in ordinary shares by a U.S. holder, as defined below, that will
hold the ordinary shares as capital assets within the meaning of Section 1221 of the Code. We do not discuss the tax consequences
to any particular holder nor any tax considerations that may apply to holders subject to special tax rules, such as banks, insurance
companies, individual retirement and other tax-deferred accounts, regulated investment companies, individuals who are former U.S.
citizens or former long-term U.S. residents, dealers in securities or currencies, tax-exempt entities, persons subject to the alternative
minimum tax, persons that hold ordinary shares as a position in a straddle or as part of a hedging, constructive sale or conversion
transaction for U.S. federal income tax purposes, persons that have a functional currency other than the U.S. dollar, persons that
own (directly, indirectly or constructively) 10% or more of our equity or persons that are not U.S. holders.



In this section, a “U.S. holder”
means a beneficial owner of ordinary shares that is, for U.S. federal income tax purposes:



| | • | an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;
| | - | -----------------------------------------------------------------------------------------------------



| | • | a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
| | - | -----------------------------------------------------------------------------------------------------



| | • | a trust (i) the administration of which is subject to the primary supervision of a court in the United States and for which one or more U.S. persons have the authority to control all substantial decisions or (ii) that has an election in effect under applicable income tax regulations to be treated as a U.S. person.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As used in this section, a “non-U.S.
holder” is a beneficial owner of ordinary shares that is not a U.S. holder or an entity or arrangement treated as a partnership
for U.S. federal income tax purposes.



If an entity or arrangement treated as a
partnership for U.S. federal income tax purposes holds ordinary shares, the U.S. federal income tax treatment of a partner generally
will depend on the status of the partner and the activities of the partnership. Partners of partnerships that will hold ordinary
shares should consult their tax advisors.



You are urged to consult your own
tax advisor with respect to the U.S. federal, as well as state, local and non-U.S., tax consequences to you of acquiring, owning
and disposing of ordinary shares in light of your particular circumstances, including the possible effects of changes in U.S. federal
and other tax laws.



Dividends



Subject to the passive foreign investment
company rules, discussed below, U.S. holders will include as dividend income the U.S. dollar value of the gross amount of any distributions
of cash or property (without deduction for any withholding tax), other than certain pro rata distributions of ordinary shares,
with respect to ordinary shares to the extent the distributions are made from our current or accumulated earnings and profits,
as determined for U.S. federal income tax purposes. A U.S. holder will include the dividend income at the time of receipt. To the
extent, if any, that the amount of any distribution by us exceeds our current and accumulated earnings and profits, as so determined,
the excess will be treated first as a tax-free return of the U.S. holder’s tax basis in the ordinary shares and thereafter
as capital gain. Notwithstanding the foregoing, we do not intend to maintain calculations of earnings and profits, as determined
for U.S. federal income tax purposes. Consequently, any distributions generally will be reported as dividend income for U.S. information
reporting purposes. See “Backup Withholding Tax and Information Reporting” below. Dividends paid by us will not be
eligible for the dividends-received deduction generally allowed to U.S. corporate shareholders.



For taxable years beginning before January
2013, subject to the passive foreign investment company rules, certain dividends received by an individual U.S. holder (as well
as certain trusts and estates) from a “qualified foreign corporation” are eligible for a preferential U.S. federal
income tax rate (15%), subject to certain minimum holding period requirements and other limitations. A foreign corporation may
be a “qualified foreign corporation” if (i) its ordinary shares are readily tradable on an established securities market
in the United States; or (ii) it is eligible for the benefits of a comprehensive income tax treaty with the United States which
the U.S. Secretary of Treasury determines is satisfactory for this purpose and which includes an exchange of information program.
We expect to be considered a qualified foreign corporation with respect to our ordinary shares because we believe we are eligible
for the benefits under the Double Taxation Convention between Australia and the United States and because our ordinary shares are
listed on the NASDAQ. Accordingly, dividends we pay generally should be eligible for the reduced income tax rate. However, the
determination of whether a dividend qualifies for the preferential tax rates must be made at the time the dividend is paid. U.S.
holders should consult their own tax advisers.



84







Includible distributions paid in Australian
dollars, including any Australian withholding taxes, will be included in the gross income of a U.S. holder in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the
Australian dollars are converted into U.S. dollars at that time. If Australian dollars are converted into U.S. dollars on the date
of actual or constructive receipt, the tax basis of the U.S. holder in those Australian dollars will be equal to their U.S dollar
value on that date and, as a result, a U.S. holder generally should not be required to recognize any foreign exchange gain or loss.



If Australian dollars so received are not
converted into U.S. dollars on the date of receipt, the U.S. holder will have a basis in the Australian dollars equal to their
U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the Australian dollars
generally will be treated as ordinary income or loss to such U.S. holder and generally such gain or loss will be income or loss
from sources within the United States for foreign tax credit limitation purposes.



Dividends received by a U.S. holder with
respect to ordinary shares will be treated as foreign source income, which may be relevant in calculating the holder’s foreign
tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes
of income. For these purposes, dividends will be categorized as “passive” or “general” income depending
on a U.S. holder’s circumstance.



Subject to certain complex limitations,
a U.S. holder generally will be entitled, at its option, to claim either a credit against its U.S. federal income tax liability
or a deduction in computing its U.S. federal taxable income in respect of any Australian taxes withheld by us. If a U.S. holder
elects to claim a deduction, rather than a foreign tax credit, for Australian taxes withheld by us for a particular taxable year,
the election will apply to all foreign taxes paid or accrued by or on behalf of the U.S. holder in the particular taxable year.



The availability of the foreign tax credit
and the application of the limitations on its availability are fact specific. You are urged to consult your own tax advisor as
to the consequences of Australian withholding taxes and the availability of a foreign tax credit or deduction. See “Australian
Tax Considerations — Taxation of Dividends.”



Sale or Exchange of Ordinary Shares



Subject to the passive foreign investment
company rules, discussed below, a U.S. holder generally will, for U.S. federal income tax purposes, recognize capital gain or loss
on a sale, exchange or other disposition of ordinary shares equal to the difference between the amount realized on the disposition
and the U.S. holder’s tax basis in the ordinary shares. This gain or loss recognized on a sale, exchange or other disposition
of ordinary shares will generally be long-term capital gain or loss if the U.S. holder has held the ordinary shares for more than
one year. Generally, for U.S. holders who are individuals (as well as certain trusts and estates), long-term capital gains are
subject to U.S. federal income tax at preferential rates. For foreign tax credit limitation purposes, gain or loss recognized upon
a disposition generally will be treated as from sources within the United States. The deductibility of capital losses is subject
to limitations for U.S. federal income tax purposes.



You should consult your own tax advisor
regarding the availability of a foreign tax credit or deduction in respect of any Australian tax imposed on a sale or other disposition
of ordinary shares. See “Australian Tax Considerations — Tax on Sales or other Dispositions of Shares.”



Passive Foreign Investment Company Considerations



The Code provides special, generally adverse,
rules regarding certain distributions received by U.S. holders with respect to, and sales, exchanges and other dispositions, including
pledges, of shares of stock of, a passive foreign investment company, or PFIC. A foreign corporation will be treated as a PFIC
for any taxable year if at least 75% of its gross income for the taxable year is passive income or at least 50% of its gross assets
during the taxable year, based on a quarterly average and generally by value, produce or are held for the production of passive
income. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from
commodities and securities transactions and gains from assets that produce passive income. In determining whether a foreign corporation
is a PFIC, a pro-rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a
25% interest (by value) is taken into account.



85







The determination of whether or not we are
a PFIC is a factual determination that must be determined annually at the close of each taxable year. Based on our business results
for the last fiscal year and composition of our assets, we do not believe that we were a PFIC for U.S. federal income tax purposes
for the taxable year ended June 30, 2011. Similarly, based on our business projections and the anticipated composition of our assets
for the current and future years, we do not expect that we will be a PFIC for the taxable year ended June 30, 2012. If our actual
business results do not match our projections, it is possible that we may become a PFIC in the current or any future taxable year.



If we are a PFIC for any taxable year during
which a U.S. holder holds ordinary shares, any “excess distribution” that the holder receives and any gain realized
from a sale or other disposition (including a pledge) of such ordinary shares will be subject to special tax rules, unless the
holder makes a mark-to-market election or qualified electing fund election as discussed below. Any distribution in a taxable year
that is greater than 125% of the average annual distribution received by a U.S. holder during the shorter of the three preceding
taxable years or such holder’s holding period for the ordinary shares will be treated as an excess distribution. Under these
special tax rules:



| | • | the excess distribution or gain will be allocated ratably over the U.S. holder’s holding period for the ordinary shares;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | • | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the amount allocated to each other year will be subject to income tax at the highest rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The tax liability for amounts allocated
to years prior to the year of disposition or excess distribution cannot be offset by any net operating loss, and gains (but not
losses) realized on the transfer of the ordinary shares cannot be treated as capital gains, even if the ordinary shares are held
as capital assets. In addition, non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends
received from us in taxable years beginning prior to January 1, 2013 if we are a PFIC in the taxable year in which such dividends
are paid or in the preceding taxable year.



If we are a PFIC for any taxable year during
which any of our non-United States subsidiaries is also a PFIC, a U.S. holder of ordinary shares during such year would be treated
as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules
to such subsidiary. You should consult your tax advisors regarding the tax consequences if the PFIC rules apply to any of our subsidiaries.



Under recently enacted legislation, unless
otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual report containing such information
as the U.S. Treasury may require. Prior to such legislation, a U.S. shareholder of a PFIC was required to file U.S. Internal Revenue
Service Form 8621 only for each taxable year in which such shareholder received distributions from the PFIC, recognized gain on
a disposition of the PFIC stock, or made a “reportable election.” If we are or become a PFIC, you should consult your
tax advisors regarding any reporting requirements that may apply to you as a result of our status as a PFIC.



A U.S. holder may avoid some of the adverse
tax consequences of owning shares in a PFIC by making a “qualified electing fund” election. The availability of this
election with respect to our ordinary shares requires that we provide information to shareholders making the election. We do not
intend to provide you with the information you would need to make or maintain a qualified electing fund election and you will,
therefore, not be able to make such an election with respect to your ordinary shares.



86







Alternatively, a U.S. holder owning marketable
stock in a PFIC may make a mark-to-market election to elect out of the tax treatment discussed above. If a valid mark-to-market
election for the ordinary shares is made, the electing U.S. holder will include in income each year an amount equal to the excess,
if any, of the fair market value of the ordinary shares as of the close of the holder’s taxable year over the adjusted basis
in such ordinary shares. The U.S. holder is allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares
over their fair market value as of the close of the holder’s taxable year. Deductions are allowable, however, only to the
extent of any net mark-to-market gains on the ordinary shares included in the U.S. holder’s income for prior taxable years.
Amounts included in the U.S. holder’s income under a mark-to-market election, as well as gain on the actual sale or other
disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion
of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary
shares, to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary
shares. The tax basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. A mark-to-market election
will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares
are no longer regularly traded on an applicable exchange or the Internal Revenue Service (“IRS”) consents to the revocation
of the election.



The mark-to-market election is available
only for stock which is regularly traded on (i) a national securities exchange that is registered with the U.S. Securities and
Exchange Commission, (ii) NASDAQ, or (iii) an exchange or market that the U.S. Secretary of the Treasury determines has rules sufficient
to ensure that the market price represents a legitimate and sound fair market value. Our ordinary shares are listed on the NASDAQ
and, consequently, we expect that, assuming the ordinary shares are so listed and are regularly traded, the mark-to-market election
would be available to you were we to be or become a PFIC.



U.S. holders are urged to contact their
own tax advisors regarding the determination of whether we are a PFIC and the tax consequences of such status.



Recent Legislation



Recently enacted legislation requires certain
U.S. Holders who are individuals, estates, or trusts to pay a 3.8% tax on, among other things, dividends and capital gains from
the sale or other disposition of shares of common stock for taxable years beginning after December 31, 2012. In addition, for taxable
years beginning after March 18, 2010, recent legislation requires certain U.S. Holders who are individuals to report information
relating to an interest in our ordinary shares, subject to certain exceptions. U.S. Holders are urged to consult their tax advisers
regarding the effect, if any, of this tax legislation on their ownership and disposition of our ordinary shares.



Backup Withholding Tax and Information Reporting Requirements



U.S. holders that are “exempt recipients”
(such as corporations) generally will not be subject to U.S. backup withholding tax and related information reporting requirements
on payments of dividends on, and the proceeds from the disposition of, ordinary shares unless, when required, they fail to demonstrate
their exempt status. Other U.S. holders (including individuals) generally will be subject to U.S. backup withholding tax at the
applicable statutory rate, currently 28%, in respect of any payments of dividends on, and the proceeds from the disposition of,
ordinary shares if they fail to furnish their correct taxpayer identification number or otherwise fail to comply with applicable
backup withholding requirements. Information reporting requirements generally will apply to payments of dividends on, and the proceeds
from the disposition of, ordinary shares to a U.S. holder that is not an exempt recipient. U.S. holders who are required to establish
their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification).



Backup withholding is not an additional
tax. Amounts withheld as backup withholding may be credited against a U.S. holder’s U.S. federal income tax liability. A
U.S. holder may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for
refund with the Internal Revenue Service in a timely manner and furnishing any required information.



U.S. holders are urged to contact their
own tax advisors as to their qualification for an exemption from backup withholding tax and the procedure for obtaining this exemption.



The discussion above is not intended to constitute a complete
analysis of all tax considerations applicable to an investment in ordinary shares. You should consult with your own tax advisor
concerning the tax consequences to you in your particular situation.



87







Australian Tax Considerations



In this section, we discuss the material
Australian income tax considerations related to the acquisition, ownership and disposal by the absolute beneficial owners of the
ordinary shares. This discussion does not address all aspects of Australian income tax law which may be important to particular
investors in light of their individual investment circumstances, such as shares held by investors subject to special tax rules
(for example, financial institutions, insurance companies or tax exempt organizations). In addition, this summary does not discuss
any foreign or state tax considerations, other than stamp duty. Prospective investors are urged to consult their tax advisors regarding
the Australian and foreign income and other tax considerations of the purchase, ownership and disposition of the shares. This summary
is based upon the premise that the holder is not an Australian tax resident.



Taxation of Dividends



Australia operates a dividend imputation
system under which dividends may be declared to be ‘franked’ to the extent of tax paid on company profits. Fully franked
dividends are not subject to dividend withholding tax. Dividends payable to non-Australian resident shareholders that are not operating
from an Australian permanent establishment (Foreign Shareholders) will be subject to dividend withholding tax, to the extent the
dividends are not foreign sourced and declared to be conduit foreign income (CFI) and are unfranked. Dividend withholding tax will
be imposed at 30%, unless a shareholder is a resident of a country with which Australia has a double taxation agreement and qualifies
for the benefits of the treaty. Under the provisions of the current Double Taxation Convention between Australia and the United
States, the Australian tax withheld on unfranked dividends that are not CFI paid by us to which a resident of the United States
is beneficially entitled is limited to 15%.



If a company that is a non-Australian resident
shareholder owns a 10% or more interest, the Australian tax withheld on dividends paid by us to which a resident of the United
States is beneficially entitled is limited to 5%. In limited circumstances the rate of withholding can be reduced to nil.



Tax on Sales or other Dispositions of Shares — Capital
gains tax



Foreign Shareholders will not be subject
to Australian capital gains tax on the gain made on a sale or other disposal of our shares, unless they, together with associates,
hold 10% or more of our issued capital, at the time of disposal or for 12 months of the last 2 years.



Foreign Shareholder who, together with associates,
owns a 10% or more interest would be subject to Australian capital gains tax if more than 50% of our direct or indirect assets
determined by reference to market value, consists of Australian land, leasehold interests or Australian mining, quarrying or prospecting
rights. Double Taxation Convention between the United States and Australia is unlikely to limit the amount of this taxable gain.
Australian capital gains tax applies to net capital gains at a taxpayer’s marginal tax rate but for certain shareholders
a discount of the capital gain may apply if the shares have been held for 12 months or more. For individuals, this discount is
50%. Net capital gains are calculated after reduction for capital losses, which may only be offset against capital gains.



Tax on Sales or other Dispositions of Shares — Shareholders
Holding Shares on Revenue Account



Some Foreign shareholders may hold shares
on revenue rather than on capital account, for example, share traders. These shareholders may have the gains made on the sale or
other disposal of the shares included in their assessable income under the ordinary income provisions of the income tax law, if
the gains are sourced in Australia.



Non-Australian resident shareholders assessable
under these ordinary income provisions in respect of gains made on shares held on revenue account would be assessed for such gains
at the Australian tax rates for non-Australian residents, which start at a marginal rate of 29%. Some relief from Australian income
tax may be available to such non-Australian resident shareholders under the Double Taxation Convention between the United States
and Australia.



To the extent an amount would be included
in a non-Australian resident shareholder’s assessable income under both the capital gains tax provisions and the ordinary
income provisions, the capital gain amount would generally be reduced, so that the shareholder would not be subject to double tax
on any part of the income gain or capital gain.



88







Dual Residency



If a shareholder were a resident of both
Australia and the United States under those countries’ domestic taxation laws, that shareholder may be subject to tax as
an Australian resident. If, however, the shareholder is determined to be a U.S. resident for the purposes of the Double Taxation
Convention between the United States and Australia, the Australian tax would be subject to limitation by the Double Taxation Convention.
Shareholders should obtain specialist taxation advice in these circumstances.



Stamp Duty



No stamp duty is payable by Australian residents
or foreign residents on the trading of shares that are quoted on the ASX or NASDAQ.



Australian Death Duty



Australia does not have estate or death
duties. As a general rate, no capital gains tax liability is realized upon the inheritance of a deceased person’s shares.
The disposal of inherited shares by beneficiaries, may, however, give rise to a capital gains tax liability if the gain falls within
the scope of Australia’s jurisdiction to tax (as discussed above).



Goods and Services Tax



The issue or transfer of shares will not
incur Australian goods and services tax.



| | F. | Dividends and Paying Agents.
| | -- | ----------------------------



Not applicable.



| | G. | Statement by Experts.
| | -- | ---------------------



Not applicable.



| | H. | Documents on Display.
| | -- | ---------------------



We are subject to the periodic reporting
and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under the Exchange Act, we are
required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with
the SEC is available through the SEC’s Electronic Data Gathering, Analysis and Retrieval system, which may be accessed through
the SEC’s website at www.sec.gov . Information filed with the SEC may also be inspected and copied at the public reference
room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment
of a duplicating fee, by writing to the SEC. Please visit the SEC’s website at www.sec.gov for further information on the
SEC’s public reference room.



As a foreign private issuer, we are exempt
under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our
executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.



| | I. | Subsidiary Information
| | -- | ----------------------



Not applicable.



Item 11. Quantitative and Qualitative Disclosures About Market
Risk



Our business activities are exposed to a
variety of market risks, including credit risk, foreign currency risk, interest rate risk and commodity risk.



89







Credit Risk



Credit risk arises from the sale of biodiesel,
Jatropha Curcas saplings and cash held at period end.



Cash is only held in accredited banks and
credit risk arising from the sale of biodiesel is managed through the use of Letter of credit.



Credit risk arising from sales of Jatropha
Curcas saplings is managed through the following approach:



Sales of Jatropha Curcas saplings to contract
farmers are concluded after a detailed review of the suitability of the contract farmer and the proposed land to be used for contract
farming. The sale is concluded via a Demand Cum Delivery Note, which states that the balance owing is at call by Mission Biofuels
India Pvt Limited, A portfolio approach, where a large number of relatively low value sales (around AU$250 per contract farmer,
depending on the contract farming acreage) are made to a geographically disbursed series of contract farmers, Contract farmers
are required to incur considerable expense to prepare the land, prior to delivery of saplings by Mission Biofuels India Pvt Limited,
and thus have significant incentive to ensure the crop is viable.



Mission Biofuels India Pvt Limited has entered
into contract farming agreements with each farmer to purchase back the oil seeds produced by the Jatropha Curcas saplings sold
to the farmers. The Jatropha Curcas saplings have an estimated production life in excess of 30 years. Receivables are secured against
these future contracted purchases of Jatropha Curcas seeds.



Mission Biofuels India Pvt Limited has in
place memoranda of understanding with a number of leading financial institutions in India who have expressed a desire to loan monies
directly to the contract farmers to fund their working capital requirements. Disbursement of these loans will assist the farmers
in repaying monies owed to Mission Biofuels India Pvt Limited.



These financial institutions have formulated
specific schemes of financing for Jatropha farming.



In addition, the National Bank for Agriculture
and Rural Development (NABARD) of India (apex body for agricultural financing) has in place a standardised scheme of financing
to farmers of Jatropha Curcas.



Several financial institutions, who do not
have memoranda of understanding with the Company, have also disbursed loans to the contract farmers of the Company based on the
standardised scheme stipulated by NABARD.



Disbursement of these loans to the farmers
will enable them to repay the amounts owed to the Company.



We believe there is significant risk of
loss in the event of non-performance of contract by the farmers we have contracted with for the sale of Jatropha saplings and this
is reflected in the valuation allowances applied to our contract-farmer receivables and reflected in our financial statements.



Credit risk also arises from the corporate
guarantee we have provided to the contractor of our second refinery in place of the standard letter of credit originally placed
at construction commencement. Credit risk on sapling sales at June 30, 2011, is A$0.7 million (A$2.1 million in fiscal 2010) after
providing for impairment and discounting charge.



Foreign Exchange Risk



The Group operates internationally through
a number of subsidiaries and is thus exposed to fluctuations in foreign currencies, arising from the foreign currencies held in
its bank accounts, the sale of goods in currencies other than the Group’s measurement currency, and the translation of results
from investments in foreign operations. The foreign exchange exposures are primarily to the Indian Rupee, Malaysian Ringgit and
the US dollar.



Foreign exchange risks arising from the
sale of products are hedged using forward exchange contracts.



Foreign currency risks arising from commitments
in foreign currencies are managed by holding cash in that currency. Foreign currency translation risk is not hedged, with translation
differences being reflected in the foreign currency translation reserve.



Group sensitivity



At June 30, 2011, if foreign currencies
had changed by -/+ 10%, with all other variables held constant, the following financial impacts would have been recorded by the
Group;



Effect on cash and cash equivalent –
A$ 0.941 million lower/ A$1.15 million  higher (2010: A$ 1.0 million lower/ A$1.0 higher)



Profit and Loss would have been –
A$ 0.941 million lower/ A$1.150 million higher (2010: A$ 1.0 million lower/ A$1.0 higher)



90







Interest Rate Risk



Interest rate risk is managed with a mixture
of fixed and floating rate deposits, fixed rate convertible note debt and floating rate debt.  For further details on
interest rate risk refer to the table below under liquidity risk. The Group’s main interest rate risk, being fair value interest
rate risk, arises from the long term convertible note debt held by the parent.



Group sensitivity



At June 30, 2011, if interest rates had
changed by -/+ 25 basis points, with all other variables held constant, the following financial impacts would have been recorded
by the Group;



Effect on post tax profit – A$ Nil
million lower/higher (2010: A$ Nil million lower/higher)



Equity would have been – A$ Nil lower/higher
(2010: A$ Nil million lower/higher)



The fair value of convertible notes –
A$ 344 thousand  higher/A$ 341 thousand  lower (2010: A$ 0.28 million lower/higher



Commodity Risk



The Group is exposed to market prices of
input costs into the production of biodiesel. The key raw material currently being used to manufacture biodiesel is crude palm
oil. This risk is managed by negotiating ‘cost plus a margin’ sales contracts which minimises the Group’s exposure
to variations in this key input cost.



Group sensitivity



At June 30, 2011, if the price of crude
palm oil had changed by -/+ 10%, with all other variables held constant, the following financial impacts would have been recorded
by the Group;



Effect on post tax profit – A$ Nil
lower/higher



Equity would have been – A$ Nil lower/higher



Item 12. Description of Securities Other than Equity Securities



| | A. | Debt Securities.
| | -- | ----------------



Not applicable.



| | B. | Warrants and Rights.
| | -- | --------------------



Not applicable.



| | C. | Other Securities.
| | -- | -----------------



Not applicable.



| | D. | American Depositary Shares.
| | -- | ---------------------------



Not applicable.



PART II



Item 13. Defaults, Dividend Arrearages and Delinquencies



None.



Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds



A.-D. Material Modifications to the Rights
of Security Holders.



None.



91







| | E. | Use of Proceeds.
| | -- | ----------------



The following “Use of Proceeds”
information relates to our initial U.S. public offering of 2,785,000 ordinary shares at a public offering price of US$9.00 per
share, thereby raising gross proceeds of approximately US$25.1 million.  The registration statement on Form F-1 (File
No. 333-170471) for our initial public offering was declared effective by the SEC on April 19, 2011.  On April 26, 2011,
we completed our public offering after 2,785,000 ordinary shares were sold.  Chardan Capital Markets, LLC, Rodman &
Renshaw, LLC, Maxim Group LLC and Northland Capital Markets were the underwriters for our initial public offering.  We
received net proceeds (after deducting underwriting discounts and commissions and other expenses related to the offering) of approximately
$US22,228,504.  None of the above expenses included direct or indirect payments to directors or officers of our company
or their associates, persons owning 10% or more of our equity securities or our affiliates. The underwriters did not exercise their
overallotment option.



From April 19, 2011, effective date of our
registration statement on Form F-1 for the offering, to June 30, 2011, we used approximately US$0.8 million proceeds for the expansion
of our feedstock operations, including but not limited to Jatropha acreage expansion, approximately US$2.1 million for general
corporate and convertible note coupon purposes, and as of June 30, 2011, we had approximately $16.7 million left from the net proceeds
of the offering. Approximately US$8.8 million of the cash at June 30, 2011 was held in the refining segment to meet working capital
needs.



None of the net proceeds from our initial
public offering were paid directly or indirectly to directors or officers of our company or their associates, persons owning 10%
or more of our equity securities or our affiliates.



Item 15. Controls and Procedures



| | A. | Disclosure Controls and Procedures.
| | -- | -----------------------------------



Under the supervision and with the participation
of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) under the Exchange Act), as of June 30, 2011.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed
by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding required disclosure.



| | B. | Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------



This annual report does not include a report
of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s
registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for
newly public companies.



| | C. | Changes in Internal Control over Financial Reporting.
| | -- | -----------------------------------------------------



There was no change in internal control
over financial reporting during the year ended June 30, 2011 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.



Item 16. [Reserved]



Item 16A. Audit Committee Financial Expert



The Board determined that Mr. Peter Torre
is qualified as an Audit Committee Financial Expert and all members are independent as determined by the NASDAQ listing rules.



92







Item 16B. Code of Ethics



Our board of directors adopted a Code of
Conduct for Directors and Key Officers that applies to our directors, officers and employees.  We have posted a copy
of our code of business conduct and ethics on our investor relations website at http://missionnewenergy.com.



Item 16C. Principal Accountant Fees and Services



Audit Fees .   The
aggregate fees billed for professional services rendered by the Company’s principal accountant for the audit of the Company’s
annual financial statements for the fiscal years ended June 30, 2011 and 2010 were $258,000 and $137,000, respectively.



Non Audit Fees . A$0 and for the
fiscal years ending 2011 and 2010.



Tax Fees .  The Company
incurred fees totaling $ 6,000 during the fiscal year ended June 30, 2011. The Company incurred fees totaling $1,000 during the
fiscal year ended June 30, 2010.



Audit-Related Fees .  A$0
and for the fiscal years ending 2011 and 2010.



All fees incurred by the Company in relation
to audit and permissible non–audit services are approved by the Audit and Risk Management Committee prior to the expenditure
being incurred.



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



Not applicable.



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



Not applicable.



Item 16F. Change in Registrant’s Certifying Accountant



Not applicable.



Item 16G. Corporate Governance



Subject to certain exceptions, The NASDAQ
Stock Market Inc., or NASDAQ, permits foreign private issuers to follow home country governance practices in lieu of the practices
mandated by NASDAQ rules, provided that the foreign private issuer furnishes NASDAQ with a letter from home country counsel confirming
that the practices that will be followed are not prohibited by home country law. Set forth below is a brief description of certain
NASDAQ requirements and the Australian corporate practice or the Australian Securities Exchange requirement that we follow in lieu
of the NASDAQ rule.



| | • | We are exempt from NASDAQ’s independence requirements for a majority of the Board. The ASX Listing Rules does not require us to have a majority of independent directors although ASX Corporate Governance Principles do recommend a majority of independent directors. During fiscal 2011, we did, however, have a majority of directors who were “independent” as defined in the Australian Securities Exchange Corporate Governance Principles, which definition differs from NASDAQ’s definition. Accordingly, because Australian law and generally accepted business practices in Australia regarding director independence differ to NASDAQ’s independence requirements, we claim this exemption.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | We are exempt from the NASDAQ requirement that independent directors have regularly scheduled meetings at which only independent directors are present. Neither Australian law nor the ASX Listing Rules require executive sessions of the independent directors. Accordingly, we claim this exemption.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | We are exempt from NASDAQ’s quorum requirements applicable to meetings of shareholders. Consistent with Australian law, our Constitution provides that five shareholders present shall constitute a quorum for a general meeting. NASDAQ requires that an issuer provide for a quorum as specified in its by-laws for any meeting of the holders of common stock, which quorum may not be less than 33 1/3% of the outstanding shares of an issuer’s voting common stock. Accordingly, because applicable Australian law and rules governing quorums at shareholder meetings differ to NASDAQ’s quorum requirements, we claim this exemption.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



93







| | • | We are exempt from the NASDAQ requirement that issuers obtain shareholder approval prior to the issuance of securities in connection with certain acquisitions, private placements of securities the establishment or amendment of certain stock option, purchase or other compensation plans. Applicable Australian law and rules differ to the NASDAQ requirements, with the ASX Listing Rules providing generally for prior shareholder approval in numerous circumstances, including (i) issuance of equity securities exceeding 15% of our issued share capital in any 12 month period (but in determining the 15% limit, securities issued under an exception to the rule or with shareholder approval are not counted), (ii) issuance of equity securities to related parties (as defined in the ASX Listing Rules), and (iii) directors or their associates acquiring securities under an employee incentive plan. Generally accepted business practices in Australia also provide for plans involving the issue of shares to directors and employees being capped at no more than 5% of the total number of shares on issue. Our discretionary share option scheme applies this 5% cap. Due to differences between Australian law and rules and the NASDAQ shareholder approval requirements, we claim this exemption.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART III



Item 17. Financial Statements



See Item 18.



Item 18. Financial Statements



The consolidated financial statements for
Mission NewEnergy Limited and its subsidiaries are included at the end of this annual report.



Item 19. Exhibits



|EXHIBIT NUMBER |   | Description of Exhibit                                                                                                                                                                                                                                
|-------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |   |                                                                                                                                                                                                                                                       
|1.1            |   | Constitution of Mission NewEnergy (incorporated by reference to Exhibit 3.1 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                           
|               |   |                                                                                                                                                                                                                                                       
|4.1            |   | Convertible Note Deed Poll (incorporated by reference to Exhibit 10.1 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                                 
|               |   |                                                                                                                                                                                                                                                       
|4.2            |   | Employee Option Plan Rules (incorporated by reference to Exhibit 10.2 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                                 
|               |   |                                                                                                                                                                                                                                                       
|4.3            |   | Executive Performance Rights Plan (incorporated by reference to Exhibit 10.3 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                          
|               |   |                                                                                                                                                                                                                                                       
|4.4            |   | EPCC contract with KNM Process Systems Sdn Bhd (incorporated by reference to Exhibit 10.4 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                             
|               |   |                                                                                                                                                                                                                                                       
|4.5            | # | Product Supply Agreement with Valero Marketing and Supply Company (incorporated by reference to Exhibit 10.5 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).          
|               |   |                                                                                                                                                                                                                                                       
|4.6            |   | Form of Access, Indemnity and Insurance Deed for Directors and Ex-Directors (incorporated by reference to Exhibit 10.6 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).
|               |   |                                                                                                                                                                                                                                                       
|4.7            |   | Employment agreement (as renewed) with Nathan Mahalingam (incorporated by reference to Exhibit 10.7 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                   
|               |   |                                                                                                                                                                                                                                                       
|4.8            |   | Employment agreement with Guy Burnett (incorporated by reference to Exhibit 10.8 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                      
|               |   |                                                                                                                                                                                                                                                       
|4.9            |   | Employment agreement with James Garton (incorporated by reference to Exhibit 10.9 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                     





94









|4.10 |    | Employment agreement of Kalaiselvan Somasundaram (incorporated by reference to Exhibit 10.10 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                        
|---- | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |    |                                                                                                                                                                                                                                                                     
|4.11 |    | Employment agreement of Nadason Sinnasami (incorporated by reference to Exhibit 10.11 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                               
|     |    |                                                                                                                                                                                                                                                                     
|4.12 |    | Technology License Agreement with Crown Iron Works Company (incorporated by reference to Exhibit 10.12 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                              
|     |    |                                                                                                                                                                                                                                                                     
|4.13 |    | Technology Transfer Agreement with Axens (incorporated by reference to Exhibit 10.13 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                                                
|     |    |                                                                                                                                                                                                                                                                     
|4.14 |    | Long Term Supply Contract with Cargill Palm Products Sdn Bhd (incorporated by reference to Exhibit 10.14 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                            
|     |    |                                                                                                                                                                                                                                                                     
|4.15 |    | Agreement (as amended) with Trafigura Beheer B.V. Amsterdam (incorporated by reference to Exhibit 10.15 of our registration statement on Form F-1 (File No. 333-170471), as amended, initially filed with the SEC on November 8, 2010).                             
|     |    |                                                                                                                                                                                                                                                                     
|4.16 | *# | Long Term Supply contract, dated as of April 1, 2011, by and between Felda Marketing Services Sdn. Bhd. And Mission Biotechnologies Sdn. Bhd.                                                                                                                       
|     |    |                                                                                                                                                                                                                                                                     
|4.17 | *  | Employment Agreement of Samsudeen Ganny, dated as of June 21, 2011.                                                                                                                                                                                                 
|     |    |                                                                                                                                                                                                                                                                     
|8.1  | *  | List of Subsidiaries.                                                                                                                                                                                                                                               
|     |    |                                                                                                                                                                                                                                                                     
|12.1 | ** | Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                           
|     |    |                                                                                                                                                                                                                                                                     
|12.2 | ** | Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                           
|     |    |                                                                                                                                                                                                                                                                     
|13.1 | ** | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13(a)-14 (b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.










|*  | Previously filed.                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Filed herewith.                                                                                                                                                             
|#  | Orders for confidential treatment of portions of these documents have been granted by the SEC pursuant to Rule 406 of the Securities Act and Rule 24b-2 of the Exchange Act.



95







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 its behalf.



|                          |     |                 |  | Mission NewEnergy Limited                            
|------------------------- | --- | --------------- |  | -----------------------------------------------------
|                          |     |                 |  |                                                      
|Date:  September 27, 2012 | By: | /s/ Guy Burnett |  |                                                      
|                          |     |                 |  | Name:Guy Burnett                                     
|                          |     |                 |  | Title:  Chief Financial Officer and Company Secretary



96







AUDIT REPORT







| | 10 Kings Park Road        
| | --------------------------
| | West Perth WA 6005        
| | PO Box 570                
| | West Perth WA 6872        
| | T +61 8 9480 2000         
| | F +61 8 9322 7787         
| | E info.wa@au.gt.com       
| | W www.grantthornton.com.au





Independent Auditor’s Report

To the Members of Mission NewEnergy Limited



We have audited the accompanying consolidated statements of
financial position of Mission NewEnergy Limited and controlled entities (the “Company”) as of 30 June 2010 and 2011,
and the related consolidated income statements and statements of comprehensive income, statements of changes in equity, and statements
of cash flows for each of the three years in the period ended 30 June 2011. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have,
nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Mission NewEnergy Limited and controlled entities
as of 30 June 2010 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended
30 June 2011, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards
Board.









Grant Thornton Audit Pty Ltd ABN
94 269 609 023

a subsidiary or related entity
of Grant Thornton Australia Ltd ABN 41 127 556 389



Grant Thornton Australia Limited
is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide
partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently
in Australia.





Liability limited by a
scheme approved under Professional Standards Legislation



|Our Ref: 131211 Cab Audit Report Form 20-F-Final UPDATED 060912.Docx
|--------------------------------------------------------------------



F-1













Material
uncertainty regarding continuation as a going concern



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 5(b) to the financial statements, the Company incurred a net loss of $21.7million during the year ended 30 June 2011,
and as of that date, the Company’s total liabilities exceeded its total assets by $29.7million and its net cash used in
operating activities was $15.1million. These conditions, along with other matters as set forth in Note 5(b), raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 5(b). The financial statements do not include any adjustments that might result from the outcome of this
uncertainty



GRANT THORNTON AUDIT PTY LTD

Chartered Accountants









M J Hillgrove

Director - Audit & Assurance



Perth, 28 December 2011





F-2







CONSOLIDATED GROUP INCOME STATEMENT



FOR THE YEAR ENDED 30 JUNE 2011



|                                                               |  | Note |    |   | 2011  |  |         | 2010  |  |  | 2009    |  
|-------------------------------------------------------------- |  | ---- | -- | - | ----- |  | ------- | ----- |  |  | ------- | -
|                                                               |  |      |    |   | $'000 |  |         | $'000 |  |  | $'000   |  
|Sales revenue                                                  |  |      | 7  |   |       |  | 14,080  |       |  |  | 14,394  |  
|Other income                                                   |  |      | 7  |   |       |  | 2,869   |       |  |  | 2,066   |  
|Total revenue                                                  |  |      |    |   |       |  | 16,949  |       |  |  | 16,460  |  
|Cost of sales                                                  |  |      | 8  | a |       |  | (13,987 | )     |  |  | (15,021 | )
|Employee benefits expense                                      |  |      | 8  | b |       |  | (7,527  | )     |  |  | (5,307  | )
|Net foreign exchange gains/(losses)                            |  |      |    |   |       |  | (1,769  | )     |  |  | 568     |  
|Consultants’ expenses                                          |  |      |    |   |       |  | (328    | )     |  |  | (594    | )
|Hedging cost                                                   |  |      |    |   |       |  | (3      | )     |  |  | (95     | )
|Impairment of trade receivables                                |  |      | 13 |   |       |  | (1,930  | )     |  |  | (9,160  | )
|Impairment of inventories and biological assets                |  |      |    |   |       |  | -       |       |  |  | (740    | )
|Impairment of assets                                           |  |      | 5  | a |       |  | (3,501  | )     |  |  | (73,089 | )
|Shareholder expenses                                           |  |      |    |   |       |  | (125    | )     |  |  | (121    | )
|Travel expenses                                                |  |      | 8  | e |       |  | (766    | )     |  |  | (886    | )
|Research and development                                       |  |      |    |   |       |  | (168    | )     |  |  | (154    | )
|Rental expenses                                                |  |      |    |   |       |  | (176    | )     |  |  | (271    | )
|Other expenses from ordinary activities                        |  |      | 8  | c |       |  | (2,490  | )     |  |  | (2,091  | )
|Earnings before interest, tax, depreciation and amortisation   |  |      |    |   |       |  | (15,821 | )     |  |  | (90,501 | )
|Depreciation and amortisation expenses                         |  |      |    |   |       |  | (562    | )     |  |  | (2,118  | )
|Finance Cost - amortisation                                    |  |      | 8  | d |       |  | (2,382  | )     |  |  | (2,293  | )
|Finance costs                                                  |  |      |    |   |       |  | (2,906  | )     |  |  | (2,859  | )
|Profit/(loss) before income tax                                |  |      |    |   |       |  | (21,671 | )     |  |  | (97,771 | )
|Income tax (expense)/benefit                                   |  |      | 9  |   |       |  | 1       |       |  |  | (29     | )
|Net (loss)/profit for the year                                 |  |      |    |   |       |  | (21,670 | )     |  |  | (97,800 | )
|Profit/(Loss) attributable to minority equity interest         |  |      |    |   |       |  | -       |       |  |  | -       |  
|Net (loss)/profit attributable to members of the parent entity |  |      |    |   |       |  | (21,670 | )     |  |  | (97,800 | )
|Basic earnings/(loss) per share                                |  |      | 11 |   |       |  | (3.50   | )     |  |  | (20.76  | )
|Diluted earnings/(loss) per share                              |  |      | 11 |   |       |  | (3.50   | )     |  |  | (20.76  | )



The accompanying notes form part of this
financial report



F-3







CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE
INCOME



FOR THE YEAR ENDED 30 JUNE 2011



|                                                             |  | 2011   |         |   | 2010   |  |         | 2009   | 
|------------------------------------------------------------ |  | ------ | ------- | - | ------ |  | ------- | ------ | 
|                                                             |  | $ ’000 |         |   | $ ’000 |  |         | $ ’000 | 
|(Loss)/Profit for the period                                 |  |        | (21,670 | ) |        |  | (97,800 | )      | 
|Other comprehensive income                                   |  |        |         |   |        |  |         |        | 
|Exchange differences on translating foreign operations       |  |        | (1,917  | ) |        |  | 286     |        | 
|Gain on convertible note restructure                         |  |        | 3,207   |   |        |  | -       |        | 
|Effective portion of change in fair value of cash flow hedge |  |        | 39      |   |        |  | -       |        | 
|Other comprehensive income/(loss) for the period net of tax  |  |        | 1,329   |   |        |  | 286     |        | 
|Total comprehensive (loss) for the period                    |  |        | (20,341 | ) |        |  | (97,514 | )      | 
|Attributable to owners of the parent                         |  |        | (20,341 | ) |        |  | (97,514 | )      | 



The accompanying notes form part of this
financial report



F-4







CONSOLIDATED GROUP STATEMENT OF FINANCIAL
POSITION



AS AT 30 JUNE 2011



|                                       |  |  | Note |  |       | 2011 |          |       | 2010 | 
|-------------------------------------- |  |  | ---- |  | ----- | ---- | -------- | ----- | ---- | 
|                                       |  |  |      |  | $'000 |      |          | $'000 |     
|CURRENT ASSETS                         |  |  |      |  |       |      |          |       |      | 
|Cash and cash equivalents              |  |  | 12   |  |       |      | 15,761   |       |      | 
|Trade and other receivables            |  |  | 13   |  |       |      | 6,583    |       |      | 
|Biological assets                      |  |  | 14   |  |       |      | 88       |       |      | 
|Inventories                            |  |  | 15   |  |       |      | 6,242    |       |      | 
|Other financial assets                 |  |  | 16   |  |       |      | 178      |       |      | 
|Other assets                           |  |  | 20   |  |       |      | 354      |       |      | 
|Current tax assets                     |  |  | 23   |  |       |      | 30       |       |      | 
|Total current assets                   |  |  |      |  |       |      | 29,236   |       |      | 
|NON-CURRENT ASSETS                     |  |  |      |  |       |      |          |       |      | 
|Trade and other receivables            |  |  | 13   |  |       |      | -        |       |      | 
|Other financial assets                 |  |  | 16   |  |       |      | -        |       |      | 
|Property, plant and equipment          |  |  | 18   |  |       |      | 6,660    |       |      | 
|Intangible assets                      |  |  | 19   |  |       |      | -        |       |      | 
|Deferred tax assets                    |  |  | 23   |  |       |      | -        |       |      | 
|Other Assets                           |  |  | 20   |  |       |      | 702      |       |      | 
|Total non-current assets               |  |  |      |  |       |      | 7,362    |       |      | 
|TOTAL ASSETS                           |  |  |      |  |       |      | 36,598   |       |      | 
|CURRENT LIABILITIES                    |  |  |      |  |       |      |          |       |      | 
|Trade and other payables               |  |  | 21   |  |       |      | 7,059    |       |      | 
|Financial liabilities                  |  |  | 22   |  |       |      | 14,907   |       |      | 
|Short-term provisions                  |  |  |      |  |       |      | 93       |       |      | 
|Total current liabilities              |  |  |      |  |       |      | 22,059   |       |      | 
|NON-CURRENT LIABILITIES                |  |  |      |  |       |      |          |       |      | 
|Other payables                         |  |  |      |  |       |      | -        |       |      | 
|Financial liabilities                  |  |  | 22   |  |       |      | 44,287   |       |      | 
|Deferred tax liabilities               |  |  | 23   |  |       |      | -        |       |      | 
|Total non-current liabilities          |  |  |      |  |       |      | 44,287   |       |      | 
|TOTAL LIABILITIES                      |  |  |      |  |       |      | 66,346   |       |      | 
|NET ASSETS (DEFICIT)/SURPLUS           |  |  |      |  |       |      | (29,748  | )     |      | 
|                                       |  |  |      |  |       |      |          |       |      | 
|EQUITY                                 |  |  |      |  |       |      |          |       |      | 
|Issued capital                         |  |  | 24   |  |       |      | 96,801   |       |      | 
|Reserves                               |  |  |      |  |       |      | 9,171    |       |      | 
|Retained earnings (Accumulated losses) |  |  |      |  |       |      | (135,720 | )     |      | 
|Minority Interests                     |  |  |      |  |       |      | -        |       |      | 
|Total Equity (Deficiency)              |  |  |      |  |       |      | (29,748  | )     |      | 



The accompanying notes form part of these financial statements.



F-5







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)



CONSOLIDATED GROUP STATEMENT OF CHANGES
IN EQUITY



FOR THE YEAR ENDED 30 JUNE 2011



|                                                              |  | Ordinary Share Capital |        |  | Retained Earnings (Accumulated
    Losses) |  |          | Share Based Payments
    Reserve |  |  | Foreign Currency Translation
    Reserve |   |  | Convertible Notes Reserve |     |   | Cash flow hedge reserve |  |        | Minority Interests |  |  | Total | 
|------------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------------------------------ |  | -------- | -------------------------------- |  |  | ---------------------------------------- | - |  | ------------------------- | --- | - | ----------------------- |  | ------ | ------------------ |  |  | ----- | 
|                                                              |  | $'000                  |        |  | $'000                                      |  |          | $'000                            |  |  | $'000                                    |   |  | $'000                     |     |   | $'000                   |  |        | $'000              |  |  | $'000 | 
|Balance as at 30 June  2009                                   |  |                        | 61,123 |  |                                            |  | (19,475  | )                                |  |  | 281                                      |   |  |                           | (42 | ) |                         |  | 9,146  |                    |  |  | -     | 
|Profit/(Loss) attributable to members of parent entity        |  |                        | -      |  |                                            |  | (97,800  | )                                |  |  | -                                        |   |  |                           | -   |   |                         |  | -      |                    |  |  | -     | 
|Other comprehensive income                                    |  |                        | -      |  |                                            |  | -        |                                  |  |  | -                                        |   |  |                           | 286 |   |                         |  | -      |                    |  |  | -     | 
|Pro-rata expenses of 2009 options that lapsed during the year |  |                        | -      |  |                                            |  | 16       |                                  |  |  | (16                                      | ) |  |                           | -   |   |                         |  | -      |                    |  |  | -     | 
|Pro-rata expenses for options and performance rights          |  |                        | -      |  |                                            |  | -        |                                  |  |  | 1,276                                    |   |  |                           | -   |   |                         |  | -      |                    |  |  | -     | 
|Issue of New Shares                                           |  |                        | 15,511 |  |                                            |  | -        |                                  |  |  | -                                        |   |  |                           | -   |   |                         |  | -      |                    |  |  | -     | 
|Balance as at 30 June 2010                                    |  |                        | 76,634 |  |                                            |  | (117,259 | )                                |  |  | 1,541                                    |   |  |                           | 244 |   |                         |  | 9,146  |                    |  |  | -     | 
|                                                              |  |                        |        |  |                                            |  |          |                                  |  |  |                                          |   |  |                           |     |   |                         |  |        |                    |  |  |       | 
|Changes in Convertible note reserve due to restructure        |  |                        | -      |  |                                            |  | 3,209    |                                  |  |  | -                                        |   |  |                           | -   |   |                         |  | (3,209 | )                  |  |  | -     | 
|Profit/(Loss) attributable to members of parent entity        |  |                        | -      |  |                                            |  | (21,670  | )                                |  |  | -                                        |   |  |                           | -   |   |                         |  | -      |                    |  |  | -     | 



F-6







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)



|                                                              |  | Ordinary Share Capital |        |  | Retained Earnings (Accumulated
    Losses) |  |          | Share Based Payments
    Reserve |  |  | Foreign Currency Translation
    Reserve |  |  | Convertible Notes Reserve |        |   | Cash flow hedge reserve |  |       | Minority Interests |  |  | Total | 
|------------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------------------------------ |  | -------- | -------------------------------- |  |  | ---------------------------------------- |  |  | ------------------------- | ------ | - | ----------------------- |  | ----- | ------------------ |  |  | ----- | 
|                                                              |  | $'000                  |        |  | $'000                                      |  |          | $'000                            |  |  | $'000                                    |  |  | $'000                     |        |   | $'000                   |  |       | $'000              |  |  | $'000 | 
|Other comprehensive income                                    |  |                        | -      |  |                                            |  | -        |                                  |  |  | -                                        |  |  |                           | (1,917 | ) |                         |  | -     |                    |  |  | 39    | 
|Pro-rata expenses for options and performance rights          |  |                        | -      |  |                                            |  | -        |                                  |  |  | 3,327                                    |  |  |                           | -      |   |                         |  | -     |                    |  |  | -     | 
|Issue of New Shares                                           |  |                        | 20,167 |  |                                            |  | -        |                                  |  |  | -                                        |  |  |                           | -      |   |                         |  | -     |                    |  |  | -     | 
|Elimination of minority interest after purchase
    of shares |  |                        | -      |  |                                            |  | -        |                                  |  |  | -                                        |  |  |                           | -      |   |                         |  | -     |                    |  |  | -     | 
|Balance as at 30 June
    2011                                |  |                        | 96,801 |  |                                            |  | (135,720 | )                                |  |  | 4,868                                    |  |  |                           | (1,673 | ) |                         |  | 5,937 |                    |  |  | 39    | 



F-7







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)



NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



CONSOLIDATED GROUP STATEMENT OF CASH
FLOWS



FOR THE YEAR ENDED 30 JUNE 2011



|                                                                         |  |  | Note |  |        | 2011 |         |        | 2010 |  |         | 2009 | 
|------------------------------------------------------------------------ |  |  | ---- |  | ------ | ---- | ------- | ------ | ---- |  | ------- | ---- | 
|                                                                         |  |  |      |  | $ ’000 |      |         | $ ’000 |      |  | $ ’000  |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                     |  |  |      |  |        |      |         |        |      |  |         |      | 
|Receipts from customers                                                  |  |  |      |  |        |      | 10,128  |        |      |  | 17,126  |      | 
|Payments to suppliers and employees                                      |  |  |      |  |        |      | (22,494 | )      |      |  | (21,331 | )    | 
|Interest received                                                        |  |  |      |  |        |      | 161     |        |      |  | 167     |      | 
|Finance costs                                                            |  |  |      |  |        |      | (2,909  | )      |      |  | (2,859  | )    | 
|Income tax paid                                                          |  |  |      |  |        |      | 25      |        |      |  | (5      | )    | 
|Net cash (used in) operating activities                                  |  |  | 29   |  |        |      | (15,089 | )      |      |  | (6,902  | )    | 
|                                                                         |  |  |      |  |        |      |         |        |      |  |         |      | 
|CASH FLOWS FROM INVESTING ACTIVITIES                                     |  |  |      |  |        |      |         |        |      |  |         |      | 
|Purchase of property, plant and equipment                                |  |  |      |  |        |      | (3,957  | )      |      |  | (7,540  | )    | 
|Purchase of performance bond investments                                 |  |  |      |  |        |      | -       |        |      |  | 1,112   |      | 
|Receipt from investment in held to maturity investment and deposits      |  |  |      |  |        |      | (137    | )      |      |  | 23      |      | 
|Net cash (used in) investing activities                                  |  |  |      |  |        |      | (4,094  | )      |      |  | (6,405  | )    | 
|                                                                         |  |  |      |  |        |      |         |        |      |  |         |      | 
|CASH FLOWS FROM FINANCING ACTIVITIES                                     |  |  |      |  |        |      |         |        |      |  |         |      | 
|Proceeds from share issue (net of costs)                                 |  |  |      |  |        |      | 20,167  |        |      |  | 15,511  |      | 
|(Repayments)/proceeds from borrowings                                    |  |  |      |  |        |      | (527    | )      |      |  | (574    | )    | 
|Net cash provided by financing activities                                |  |  |      |  |        |      | 19,640  |        |      |  | 14,937  |      | 
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     |  |  |      |  |        |      | 457     |        |      |  | 1,630   |      | 
|Cash and cash equivalents at beginning of the financial year             |  |  |      |  |        |      | 17,155  |        |      |  | 16,247  |      | 
|Effects of exchange rate fluctuations of cash held in foreign currencies |  |  |      |  |        |      | (1,851  | )      |      |  | (722    | )    | 
|CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR                       |  |  | 12   |  |        |      | 15,761  |        |      |  | 17,155  |      | 



The accompanying notes form part of these
financial statements.



F-8







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|1. | Nature of operations and general information
|-- | --------------------------------------------



Mission NewEnergy Limited is a company
domiciled in Australia (ACN: 117 065 719) and:



| | · | listed on the ASX (MBT) and Nasdaq (MNEL) with its operations in Malaysia and India;                                                                                                                                                                                                         
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | that owns and operates a 100,000 tpa (approx. 30 million gallons p.a.) biodiesel plant at Kuantan in Malaysia producing biodiesel;                                                                                                                                                           
| | · | that is the only non-German biodiesel producer to be certified by AGQM, the German Biodiesel production process certification body;                                                                                                                                                          
| | · | that has recently commissioned a 250,000 tpa (approx. 75 million gallons p.a.) transesterification plant with KNM Process Systems Sdn Bhd as a turnkey contractor which is adjacent to the 100,000 tpa plant, and is in the process of finalising the transfer of the plant to Mission;      
| | · | that will initially use Crude Palm Oil (CPO) as the feedstock for its biodiesel plants in Malaysia;                                                                                                                                                                                          
| | · | that is rapidly developing its upstream feedstock business in India, which is focusing on a drought-resistant perennial plant (Jatropha Curcas) that grows in marginal/poor soil. Jatropha is easy to establish, grows quickly, produces seeds for over 30 years and importantly is inedible;
| | · | that will ultimately replace CPO with Jatropha Oil as its feedstock for its biodiesel plants;                                                                                                                                                                                                
| | · | that owns and operates two wind energy turbines of 1.65 MW each in India which sell electricity to a Western Indian utility under a 13 year power purchase agreement.                                                                                                                        



|2. | Basis of preparation
|-- | --------------------



Statement of compliance



The financial statements are general purpose
financial statements which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board.



Basis of measurement



The financial report has been prepared
on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets
and financial liabilities for which the fair value basis of accounting has been applied. All amounts shown are in Australian dollars
($A) unless otherwise stated.



The financial statements have been prepared
on a going concern basis. The ability of the Group to continue as a going concern and pay its debts as and when they fall due is
dependent on the continued support of its bankers, suppliers and its customer base (refer note 5(b)).



The Company is of a kind referred to in
ASIC Class Order 98/100 dated 10 July 1998 and in accordance with the Class Order, amounts in the financial report have been rounded
off to the nearest thousand dollars, unless otherwise stated.



F-9







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



The Group has applied amendments to the
Corporation Act (2001) that remove the requirement for the Group to lodge parent entity financial statements. Parent entity financial
statements have been replaced by the specific parent entity disclosures in Note 33.



Functional and Presentation currency



The consolidated financial statements are
presented in Australian Dollars. The functional currencies of the operating units are as follows:



| | · | Refining operations - Malaysian Ringgit
| | - | ---------------------------------------
| | · | Feedstock operations – Indian Rupee    
| | · | USA operations - United States Dollar  
| | · | Other – Australian Dollar.             



The Board of Directors approved this financial
report on 29 September 2011.



|3. | Statement of Significant Accounting Policies
|-- | --------------------------------------------



Except where stated, these accounting policies
have been consistently applied by each entity in the Group and are consistent with those of the previous year.



|a. | Principles of Consolidation
|-- | ---------------------------



The consolidated financial statements comprise
the financial statements of Mission NewEnergy Limited and its subsidiaries, as defined in Accounting Standard IAS 27 ‘Consolidated
and Separate Financial Statements’. These include Mission Biotechnologies Sdn Bhd (MBTSB), Mission Biofuels Sdn Bhd, Enviro
Mission Sdn Bhd, Mission Agro Energy Limited Mission, Biofuels (India) Pvt Limited, Scarborough Beach Holdings, Inc., PJ Trading,
LLC, and PJ Trading Pennsylvania, LLC.



On 13 December 2005, Mission NewEnergy
Limited acquired all of the issued capital of MBTSB.  In accordance with the requirements of IFRS 3 Business Combinations,
MBTSB was identified as the acquirer in relation to the combination.  Accordingly, the combination has been accounted
for as a reverse acquisition.  This has resulted in the consolidated statement of financial position reflecting the assets,
liabilities and equity of MBTSB, and the cost of the combination being recognised at the fair value of the equity instruments on
issue in Mission NewEnergy Limited at the date of acquisition.  The application of IFRS 3 Business Combinations does
not change the status of Mission NewEnergy as the legal parent entity of the Group.



Mission Agro Energy Limited (MAEL), a wholly
owned subsidiary of Mission NewEnergy Limited, was incorporated on 8 September 2006.  On 28 March 2007, MAEL initially
acquired 70% of the issued capital of Mission Biofuels (India) Private Limited (MBIPL) and has incrementally increased the shareholding
over a period of time to the current shareholding of 100% at 30 June 2011.



MBIPL had acquired 51.01% of the issued
capital of Mission Agro Diesel (India) Private Limited on 8 March 2007 with the corporate decision making process resulting in
joint control. On 2 May 2008 the Board resolved to sell Mission Agro Diesel (India) Pvt Limited, and accordingly IFRS5 “Non
Current Assets held for sale discontinued operations” is applied in accounting for this transaction. The full value of the
investment in Mission Agro Diesel (India) Private Limited has been provided for. As at reporting date this company had not been
sold.



A list of controlled entities is contained
in Note 17 to the financial statements.  All controlled entities have a 30 June financial year-end.



F-10













Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



All inter-company balances and transactions
between entities in the Consolidated Group, including any unrealised profits or losses, have been eliminated on consolidation.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies applied by the parent
entity.



Where controlled entities have entered
or left the Consolidated Group during the year, their operating results have been included/excluded from the date control was obtained
or until the date control ceased.



Minority equity interests in the equity
and results of the entities that are controlled are shown as a separate item in the consolidated financial report.



| | b. | Income Tax
| | -- | ----------



The charge for current income tax expense
is based on the profit/(loss) for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax
rates that have been enacted or are substantially enacted by the reporting date.



Deferred tax is accounted for using the
balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an
asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.



Deferred tax is calculated at the tax rates
that are expected to apply to the period when the asset is realised or liability is settled.  Deferred tax is credited
in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax
is adjusted directly against equity.



Deferred income tax assets are recognised
to the extent that it is probable that future tax profits will be available against which deductible temporary differences can
be utilised.



The amount of benefits brought to account
or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation
and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply
with the conditions of deductibility imposed by the law.



| | c. | Inventories
| | -- | -----------



Inventories are measured at the lower of
cost and net realisable value.



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



Each class of property, plant and equipment
is carried at cost less, where applicable, any accumulated depreciation and impairment losses.



The cost of fixed assets constructed within
the Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.



Subsequent costs are included in the asset’s
carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged
to the income statement during the financial period in which they are incurred.



F-11







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | e. | Depreciation
| | -- | ------------



The depreciable amount of all fixed assets
including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line basis over their
useful lives commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter
of either the unexpired period of the lease or the estimated useful lives of the improvements.





|Class of Fixed Asset       |  | Depreciation Rate |         
|-------------------------- |  | ----------------- | --------
|Buildings                  |  |                   | 5       
|Leasehold improvements     |  |                   | 10      
|Machinery and equipment    |  |                   | 10      
|Biodiesel Plant            |  |                   | 5       
|Computer equipment         |  |                   | 20% - 33
|Motor Vehicles             |  |                   | 20      
|Office equipment           |  |                   | 10      
|Leased plant and equipment |  |                   | 10      
|Windmills                  |  |                   | 4.75    



The assets’ residual values and useful
lives are reviewed, and adjusted if appropriate, at each reporting date.



An asset’s carrying amount is written
down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.



Gains and losses on disposals are determined
by comparing proceeds with the carrying amount. These gains and losses are included in the income statement.



| | f. | Leases
| | -- | ------



Leases of fixed assets, where substantially
all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities
in the Group, are classified as finance leases.



Finance leases are capitalised by recording
an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the
minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease
liability and the lease interest expense for the period.



Leased assets are depreciated on a straight-line
basis over the shorter of their estimated useful lives or the lease term.



Lease payments for operating leases, where
substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.



Lease incentives under operating leases
are recognised as a liability and amortised on a straight-line basis over the life of the lease term.



F-12







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | g. | Financial Instruments
| | -- | ---------------------



Recognition



Financial instruments are initially measured
at fair value on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent
to initial recognition these instruments are measured as set out below.



Financial assets at fair value through
profit and loss



A financial asset is classified in this
category if acquired principally for the purpose of selling in the short term or if so designated by management and within the
requirements of IFRS 139: Recognition and Measurement of Financial Instruments. Realised and unrealised gains and losses arising
from changes in the fair value of these assets are included in the income statement in the period in which they arise.



Loans and receivables



Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using
the effective interest rate method.



Hedge accounting



The Group holds derivative financial instruments
to hedge its foreign currency exposures. On initial designation of the derivative as the hedging instrument, the Group formally
documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy
in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness
of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing
basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair
value or cash flows of the respective hedged items attributable to hedged risk, and whether the actual results of each hedge are
within a range of 80 - 125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable
to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives
are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred.  Subsequent
to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described below.



Cash flow hedges



When a derivative is designated as the
hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset
or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the
fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective
portion of changes in the fair value of the derivative is recognised immediately in profit or loss. When the hedged item is a non-financial
asset, the amount recognised in equity is included in the carrying amount of the asset when the asset is recognised. In other cases
the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the
designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected
to occur, then the balance in equity is reclassified in profit or loss.



F-13







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Compound financial instruments (Convertible
Notes)



Compound financial instruments issued by
the Group 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 recognised
initially at the fair value of a similar liability that does not have an equity conversion option.  The equity component
is recognised initially at 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 amortised cost using the effective interest 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 recognised in profit or loss.  On conversion, the financial liability is reclassified
to equity; no gain or loss is recognised on conversion.



Held-to-maturity investments



These investments have fixed maturities,
and it is the Group’s intention to hold these investments to maturity. Any held-to-maturity investments held by the Group
are stated at amortised cost using the effective interest rate method.



Available-for-sale financial assets



Available-for-sale financial assets include
any financial assets not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised
gains and losses arising from changes in fair value are taken directly to equity.



Financial liabilities



Non-derivative financial liabilities are
recognised at amortised cost.



Fair value



Fair value is determined based on current
bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities,
including recent arm’s length transactions, reference to similar instruments and option pricing models.



Impairment of financial assets



At each reporting date, the Group assesses
whether there is objective evidence that a financial instrument has been impaired.  Impairment losses are recognised
in the income statement.



| | h. | Impairment of non-financial Tangible and Intangible Assets
| | -- | ----------------------------------------------------------



At each reporting date, the Group reviews
the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been
impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less
costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value
over its recoverable amount is expensed to the income statement.



F-14







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Impairment testing is performed at each
reporting date for goodwill and intangible assets with indefinite lives.



Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the
asset belongs.



| | i. | Intangibles
| | -- | -----------



Goodwill



Goodwill on consolidation is initially
recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the
fair value attributed to its net assets at date of acquisition.  Goodwill is tested annually for impairment and carried
at cost less accumulated impairment losses.  Gains and losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.



| | j. | Research and development
| | -- | ------------------------



Expenditure during the research phase of
a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies
identify that the project will deliver future economic benefits and these benefits can be measured reliably.



Development costs have a finite life and
will be amortised on a systematic basis matched to the future economic benefits over the useful life of the project. As the development
phase is still in progress, amortisation has not commenced. The estimated useful life of this asset will be determined when the
development stage is complete.



| | k. | Foreign Currency Transactions and Balances
| | -- | ------------------------------------------



Functional and presentation currency



The functional currency of each of the
Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated
financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.



Transaction and balances



Foreign currency transactions are translated
into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are
translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange
rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when
fair values were determined.



Exchange differences arising on the translation
of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment
hedge.



Exchange differences arising on the translation
of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise
the exchange difference is recognised in the income statement.



F-15







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Group companies



The financial results and position of foreign
operations whose functional currency is different from the Group’s presentation currency are translated as follows:



| | · | assets and liabilities are translated
at year-end exchange rates prevailing at that reporting date;
| | - | ---------------------------------------------------------------------------------------------------



| | · | income and expenses are translated at
average exchange rates for the period where this is not materially different from the rate at the date of the transaction; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | retained earnings are translated at the
exchange rates prevailing at the date of the transaction.
| | - | -------------------------------------------------------------------------------------------------



Exchange differences arising on translation
of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the statement of financial
position. These differences are recognised in the income statement in the period in which the operation is disposed.



| | l. | Employee Benefits
| | -- | -----------------



Provision is made for the company’s
liability for employee benefits arising from services rendered by employees to reporting date.  Employee benefits that
are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled,
plus related on-costs.  Employee benefits payable later than one year have been measured at the present value of the
estimated future cash outflows to be made for those benefits.



Equity-settled compensation



Equity settled share-based payments are
measured at fair value at the date of grant.  Fair values of options are measured using the Binomial model. Fair value
of performance rights are based on the closing share price on the date of grant. The expected life used in the model has been adjusted,
based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.  The
fair value determined at the grant date of the equity settled share share-based payments is expensed on a straight-line basis over
the vesting period, based on the Group's estimate of shares that will eventually vest.



| | m. | Payables
| | -- | --------



Trade payables and other accounts payable
are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services.



| | n. | Provisions
| | -- | ----------



Provisions are recognised when the Group
has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits
will result and that outflow can be reliably measured.



| | o. | Cash and Cash Equivalents
| | -- | -------------------------



Cash and cash equivalents include cash
on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 3 months or less,
and bank overdrafts.  Bank overdrafts are shown within short-term borrowings in current liabilities on the statement
of financial position.



| | p. | Revenue
| | -- | -------



Revenue from the sale of goods is recognised
upon the delivery of goods to customers, when reasonable certainty exists that such revenues will be realised and the risks and
rewards of ownership have been transferred.



The change in the fair value of biological
assets (refer accounting policy 3v) is recognised in revenue in the period in which the change in fair value occurs.



F-16







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Interest revenue is recognised on a proportional
basis taking into account the interest rates applicable to the financial assets.



Dividend revenue is recognised when the
right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for
in accordance with the equity method of accounting



Revenue from the rendering of a service
is recognised upon the delivery of the service to the customers



All revenue is stated net of the amount
of goods and services tax (GST).



| | q. | Borrowing Costs
| | -- | ---------------



Borrowing costs directly attributable to
the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is necessary to
complete and prepare the asset for its intended use. Other borrowing costs are expensed in the period in which they are incurred.



| | r. | Goods and Services Tax (GST)
| | -- | ----------------------------



Revenues, expenses and assets are recognised
net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances
the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables
in the statement of financial position are shown inclusive of GST



Cash flows are presented in the statement
of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating
cash flows



| | s. | Government Grants
| | -- | -----------------



Government grants are recognised at fair
value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating
to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants
relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the
asset on a straight-line basis.



| | t. | Rounding of Amounts
| | -- | -------------------



The parent entity has applied the relief
available to it under ASIC Class Order 98/100 and accordingly, unless otherwise stated, amounts in the financial report and directors’
report have been rounded off to the nearest $1,000



| | u. | Non-current assets held for sale
| | -- | --------------------------------



Non-current assets held for sale are measured
at the lower of cost or fair value when the assets is available for immediate sale and expected to be sold within 12 months. No
depreciation is recorded over the assets held for sale.



| | v. | Biological assets
| | -- | -----------------



Biological assets, in the form of Jatropha
Curcas saplings, are measured at fair value less estimated point of sale costs, with the changes in fair value during the period
recognised in the Income Statement. Points of sale costs include all costs that would be necessary to sell the asset.



F-17







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 4. | Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early
by the Group
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------



At the date of authorisation of these financial statements,
certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective,
and have not been adopted early by the Group.



Management anticipates that all of the relevant pronouncements
will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements
is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact
on the Group’s financial statements.



IFRS 9 Financial Instruments (IFRS 9)

The IASB aims to replace IAS 39 Financial Instruments: Recognition
and Measurement in its entirety. IFRS 9 is being issued in phases. To date, the chapters dealing with recognition, classification,
measurement and derecognition of financial assets and liabilities have been issued. These chapters are effective for annual periods
beginning 1 January 2013. Further chapters dealing with impairment methodology and hedge accounting are still being developed.
The Group’s management have yet to assess the impact of this new standard on the Group’s consolidated financial statements.
However, they do not expect to implement IFRS 9 until all of its chapters have been published and they can comprehensively assess
the impact of all changes.



Consolidation Standards

A package of consolidation standards are effective for annual
periods beginning or after 1 January 2013.  Information on these new standards is presented below. The Group’s
management have yet to assess the impact of these new and revised standards on the Group’s consolidated financial statements.



IFRS 10 Consolidated Financial Statements (IFRS 10)

IFRS 10 supersedes IAS 27 Consolidated and Separate Financial
Statements (IAS 27) and SIC 12 Consolidation – Special Purpose Entities. It revised the definition of control together with
accompanying guidance to identify an interest in a subsidiary. However, the requirements and mechanics of consolidation and the
accounting for any non-controlling interests and changes in control remain the same.



IFRS 11 Joint Arrangements (IFRS 11)

IFRS 11 supersedes IAS 31 Interests in Joint Ventures (IAS 31).
It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. In
addition, IAS 31’s option of using proportionate consolidation for joint ventures has been eliminated. IFRS 11 now requires
the use of the equity accounting method, which is currently used for investments in associates.



IFRS 12 Disclosure of Interests in Other Entities (IFRS 12)

IFRS 12 integrates and makes consistent the disclosure requirements
for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about
the risks to which an entity is exposed from its involvement with structured entities.



Consequential amendments to IAS 27 and IAS 28 Investments in
Associates and Joint Ventures (IAS 28)

IAS 27 now only deals with separate financial statements. IAS
28 brings investments in joint ventures into its scope. However, IAS 28’s equity accounting methodology remains unchanged.



IFRS 13 Fair Value Measurement (IFRS 13)

IFRS 13 does not affect which items are required to be fair-valued,
but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements.
It is applicable for annual periods beginning on or after 1 January 2013. The Group’s management have yet to assess the impact
of this new standard.



Amendments to IAS 1 Presentation of Financial Statements
(IAS 1 Amendments)

The IAS 1 Amendments require an entity to group items presented
in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassified subsequently to profit
or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. It is applicable for annual
periods beginning on or after 1 July 2012. The Group’s management expects this will change the current presentation of items
in other comprehensive income; however, it will not affect the measurement or recognition of such items.



Amendments to IAS 19 Employee Benefits (IAS 19 Amendments)

The IAS 19 Amendments include a number of targeted improvements
throughout the Standard. The main changes relate to defined benefit plans. They:

| | - | eliminate the ‘corridor method’, requiring entities to recognise all gains and losses
arising in the reporting period
| | - | ---------------------------------------------------------------------------------------------------------------------

| | - | streamline the presentation of changes in plan assets and liabilities
| | - | ---------------------------------------------------------------------

| | - | enhance the disclosure requirements, including information about the characteristics of defined
benefit plans and the risks that entities are exposed to through participation in them.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The amended version of IAS 19 is effective for financial years
beginning on or after 1 January 2013. The Group’s management have yet to assess the impact of this revised standard on the
Group’s consolidated financial statements.



F-18







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 5. | Critical Accounting Estimates and Judgments
| | -- | -------------------------------------------



The preparation of annual financial reports
requires the Board to make judgements, estimates and assumptions that affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expenses. The Board evaluates estimates and judgments incorporated into the financial
report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future
events and are based on current trends and economic data, obtained both externally and within the Group. Actual results may differ
from these estimates



Except as described below, in preparing
this consolidated financial report, the significant judgements made by management in applying the Group’s accounting policies
and the key sources of estimation uncertainty were the same as those that were applied to the consolidated financial report as
at and for the year ended 30 June 2010. During the twelve months ended 30 June 2011 management reassessed its estimates in respect
of:



| | a. | Impairment of assets
| | -- | --------------------



The Group assesses impairment of assets
at each reporting date by evaluating conditions specific to the Group that may lead to impairment. Where an impairment trigger
exists, the recoverable amount of the asset is determined.



Goodwill



The Group tests annually whether goodwill
has suffered any impairment, in accordance with the accounting policy stated in note 3(i). Goodwill has arisen as a result of the
purchase of equity in Mission Biofuels India Pvt Limited.



At 30 June 2011 the Board has reviewed
the carrying value of goodwill relating to the Group’s Feedstock operations. The Board reviews the significant assumptions
applied in assessing the carrying value, which include a forecast of cash inflows from sale of Jatropha Curcas saplings, forecast
of expenditure to meet operational requirements, a forecast of seed and oil yields and an estimate of commodity sales prices for
Jatropha crude oil and Jatropha seedcake. In addition, with the move to undertake a second public listing in the United States
of America (USA), the Board has taken steps to ensure that the financial statements meet the USA regulatory requirements as well
as Australian requirements, Mission is unable to provide sufficient audit evidence to support the significant assumptions applied. 
In order to address the difference in these regulatory requirements, Mission is required to impair goodwill. This has had the effect
of impairing the carrying value of goodwill by A$1.2 mil with a corresponding impact on profit and loss. This accounting adjustment
has no impact on the cash flows of the Group.



F-19







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Credit risk of receivables



Malaysian operations



Credit risk for sales in the refining operations
are managed with the use of “Letters of Credit” for most of the sales, thus the risk of receivable default is negligible.



Indian Operations



Credit risk, to a carrying value of A$0.7
million (A$2.1 million at 30 June 2010) after providing for impairment and discounting charge, arising from sales of Jatropha Curcas
saplings to contract farmers is managed through the following approach:



| | · | The Company sells Jatropha Curcas saplings
to various contract farmers in India. The contracts are concluded after a detailed review of the suitability of the contract farmer
and the proposed land to be used for contract farming,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The sales contract states that the balance
owing is at call by the Company and that the Company has a 30 year agreement to buy back from the Contract Farmer the future harvest
of oil seeds produced by the Jatropha trees. The Jatropha Curcas saplings have an estimated production life in excess of 30 years.
Receivables are secured against these future contracted purchases of Jatropha Curcas seeds,
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sales are made to a large number of geographically
disbursed contract farmers, with each receivable being for a relatively low value (around A$250 per contract farmer, depending
on the contract farming acreage),
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The Company has in place memoranda of
understanding with a number of leading financial institutions in India who have agreed to finance the contract farmers to fund
their upfront investment into the Jatropha saplings.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | These financial institutions have formulated
specific schemes of financing for Jatropha farming,
| | - | ------------------------------------------------------------------------------------------------



| | · | In addition, the National Bank for Agriculture
and Rural Development (NABARD) of India (apex body for agricultural financing) has in place a standardised scheme of financing
to farmers of Jatropha Curcas,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Disbursement of these loans to the farmers
will enable them to repay the amounts owed to the Company,
| | - | -----------------------------------------------------------------------------------------------------



| | · | The Company assists the farmers in their
interaction with the financial institutions for availing of loan facilities.
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | In assessing the recoverability of sapling
sales receivables, the following factors are taken into account;
| | - | -----------------------------------------------------------------------------------------------------------



| | o | actual recovery of receivables to date,
| | - | ---------------------------------------



| | o | anticipated timing of future receipts, based on;
| | - | ------------------------------------------------



| | o | anticipated loan disbursal rates from the banks to the farmers, to enable the farmer to repay the
receivable to Mission,
| | - | ------------------------------------------------------------------------------------------------------------------------



| | o | estimates of expected yields of oil seeds from the Jatropha Curcas saplings, and estimated mortality
of Jatropha Curcas saplings.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



With the move to a second public listing
in the United States of America (USA), the Board took steps to ensure that the financial statements meet the USA regulatory requirements,
as well as Australian requirements. In order to address a difference in these regulatory requirements, Mission was required to
make a further provision for certain receivables in the feedstock business unit so that it could comply with the US regulatory
requirements. This has had the effect of increasing the provision for doubtful debts by A$4.3 mil with a corresponding impact on
profit and loss. The impact of this adjustment was reflected in the 30 June 2010 financial results and shown as a prior year adjustment
(refer to note 37). In addition, during the year to 30 June 2011, the Directors have re-assessed the estimate of when the Group’s
receivables will be settled by the farmers. Accordingly, at 30 June 2011, the Directors have classified A$0.7 million as current
receivables, being based on the success of cash collections in the prior twelve months, and have continued to fully provide for
impairment of non-current sapling sale receivables.



F-20







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Property, Plant and Equipment



Property, plant and equipment are reviewed
for impairment if there is any indication that the carrying amount may not be recoverable. Where a review for impairment is conducted,
the recoverable amount is assessed by reference to the higher of ‘value in use’ (being the net present value of expected
future cash flows of the relevant cash generating unit) and ‘fair value less costs to sell’.



Impairment of refineries



During the previous financial year, the
Board was pleased to announce the commissioning of Missions new 250,000 tpa biodiesel transesterification plant, adjacent to the
100,000 tpa plant in Kuantan Port, Malaysia. Both plants are in excellent condition and on full operational standby to produce
biodiesel as and when required. In addition, the construction of a distillation column within the plant property is in its final
stages, which will allow the refineries to meet different specifications of biodiesel, as required by various customers.



The Board reviews the carrying value of
its refinery assets at each reporting date. During the second half of the 2010 financial year, the USA introduced its revised Renewable
Fuels Standard 2, which legislated, amongst other items, a significant mandate for the use of biodiesel in the USA. This in itself
is especially promising for the biofuels industry. However the revised legislation also introduced a requirement for vegetable
oil feedstock, such as soy, rape-seed, palm oil and Jatropha oil to meet certain environmental and green house gas requirements.
At this point in time, the detailed analysis required to demonstrate that palm and Jatropha will meet these requirements is in
progress. In addition, the European Union has introduced legislation that requires palm based biodiesel to be based on new sustainability
criteria (named the Renewable Energy Directive). There are limited supplies of certified palm oil at this present stage. Numerous
producers of palm oil are in the process of registering their production facilities to be in compliance with the European requirements.



Despite the significant efforts internationally
to address these legal requirements, the Board is required, under the accounting standards, to assess the refining cash generating
unit’s ability to generate revenue based on existing conditions.



The combination of these factors forced
the Board to provide for an impairment of the refining assets at 30 June 2010 until the legislative hurdles are cleared and it
can be adequately demonstrated that the carrying value of the refineries can be met.



This accounting write-off is in no way
an indication that the plant cannot produce biodiesel under the required specifications.



In addition to the impairment at 30 June
2010, further impairment has been provided during the year ended 30 June 2011 for capital additions to a value of $2 million.



Windmill impairment



In determining value in use of the windmills,
future cash flows are based on forecast future revenue levels which are based on forecast electricity generation and contracted
rates per Kwh, and forecast future maintenance expenses. Value in use is calculated based on the present value of cash flow projections
over the anticipated lives of the assets, with the assets having an anticipated life of 20 years, with a discount rate based on
the Companies weighted average cost of capital, adapted for the regions in which the windmills operate. Revenues generated from
these assets were found to be less than expected, thus the carrying value of the windmill assets was written down to their value
in use. This includes a further impairment in the 2011 financial year of $0.1 million of the windmills to reflect a change in the
discount rate.



F-21







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|                           |  | June 2011 |       |  | June 2010 |  |        | June 2009 | 
|-------------------------- |  | --------- | ----- |  | --------- |  | ------ | --------- | 
|                           |  | $000      |       |  | $000      |  |        | $000      | 
|Impairment of refineries   |  |           | 2,046 |  |           |  | 71,252 |           | 
|Impairment of windmills    |  |           | 262   |  |           |  | 1,837  |           | 
|Impairment of other assets |  |           | 36    |  |           |  | -      |           | 
|Impairment of Goodwill     |  |           | 1,157 |  |           |  | -      |           | 
|Total                      |  |           | 3,501 |  |           |  | 73,089 |           | 



Investments in subsidiaries



Investments held by the parent entity,
Mission NewEnergy Limited, are reviewed for impairment if there is any indication that the carrying amount may not be recoverable.
The recoverable amount is assessed by reference to the higher of ‘value in use’ (being the net present value of expected
future cash flows of the relevant cash generating unit) and ‘fair value less costs to sell’.



At 30 June 2010, the investments in the
refining subsidiaries had been impaired in the parent entity’s financial statements (refer to note 33). In line with this
approach, a further impairment in the year ended 30 June 2011 of $3.3 million has been made to impair the additional cash invested
into the refining subsidiaries during the financial year. In addition, at 30 June 2011 the Board has reviewed the carrying value
of the investment in the Feedstock operations. The Board reviews the significant assumptions applied in assessing the carrying
value, which include a forecast of cash inflows from sale of Jatropha Curcas saplings, forecast of expenditure to meet operational
requirements, a forecast of seed and oil yields and an estimate of commodity sales prices for Jatropha crude oil and Jatropha seedcake.
In addition, with the move to undertake a second public listing in the United States of America (USA), the Board has taken steps
to ensure that the financial statements meet the USA regulatory requirements, as well as Australian requirements. At this point
in time, Mission is unable to provide sufficient audit evidence to support the significant assumptions applied. In order to
address the difference in these regulatory requirements, Mission is required impair the carrying value of the Feedstock business.
This has had the effect of impairing the carrying value of the investment in the feedstock business by A$23.2 million with a corresponding
impact on profit and loss. This accounting adjustment has no impact on the cash flows or the Consolidated Financial Statements
of the Group.



| | b. | Going Concern
| | -- | -------------



The Group had a loss for the year ended
30 June 2011 of $21.7 million (2010: $97.8 million), current assets less current liability surplus of $7.2 million (2010: $20.7
million), net cash used in operating activities of $15.1 million (2010: 6.9 million) and a net asset deficiency of $29.7 million
(2010: $29.7 million deficiency) at balance date. The net asset deficiency is as a result of the impairment of the majority of
the refinery assets during the 2010 financial year (refer to note 5a).  These factors indicate substantial doubt exists
about the group’s ability to continue as a going concern basis.  Management’s plans with regard to this uncertainty
are outlined below.



F-22







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Management evaluated this uncertainty using
detailed cash flow forecasts extending out twelve months from the date of this financial report.  The cash flow forecasts
from operations are based on the forecast cash flows required to sustain the business, cash on hand at 30 June 2011 and the ongoing
receivable collection associated with historic sapling sales.  At the date of this report, the Board is exploring an
opportunity to defer the payment of capital commitments (refer to note 26) of around A$5.6 million.



During the financial year, Mission undertook
a Convertible Note exchange offer to extend the maturity date of the Convertible Note from May 2012 to May 2014. Mission received
acceptance from six of the seven Series One Convertible Note holders, representing 75.33% of all the original Series One Convertible
Notes. Mission now has 230,770 Series One Convertible Notes on issue and 704,789 Series Two Convertible Notes. The series one notes
have a nominal value of A$15 million, which has been recognised at balance date as a current liability in the balance sheet (see
note 22). Subsequent to the balance date, the Company has paid A$5 million to fully settle the series one convertible note liability
of A$15 million shown in current liabilities.



The ability of the Group to continue as
a going concern in the ordinary course of business and to achieve the business growth strategies and objectives is dependent upon
its ability to collect amounts owing under its receivables, defer the capital commitment relating to the second biodiesel plant
or raise further debt or equity to meet the Groups commitments. The debt or equity funding referred to above has not been agreed
to at the date of this report.



Notwithstanding the matters mentioned above,
the Directors believe that i) the plans outlined above will be successful in the matters discussed above and will provide the Group
with sufficient financial resources to meet its committed financial liabilities and ii) the Group will realise its assets and settle
its liabilities and commitments in the normal course of business and for at least the amounts stated in the financial report. However,
should management’s plans as described above not be successful, cash flows and liquidity will continue to be materially adversely
affected.



| | c. | Biological Asset
| | -- | ----------------



The fair value of the Jatropha Curcas saplings
is determined by reference to independent market prices. Subsequent movements in the fair value of the Jatropha Curcas saplings
are determined through operational reviews of the market prices.



| | 6. | Determination of fair value
| | -- | ---------------------------



A number of the Groups accounting policies
and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values
have been determined for measurement and/or disclosure purposes based on the following methods.



Biological assets



The fair value of biological assets is
based on the market price of Jatropha sapling sales in India.



Share based payment transactions



The fair value of the employee share options
is measured using the Black-Scholes option pricing model, with the fair value of performance rights being based on the share price
of Mission NewEnergy Limited on the date of approval. Measurement inputs include the share price on measurement date, exercise
price of the instrument, expected volatility, weighted average expected life of the instrument, expected dividends and the risk
free interest rate. Service and non-market performance conditions are not taken into account in determining the fair value.



F-23







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 7. | Sales revenue
| | -- | -------------



|                                          |  | 2011 $’000 |        |  | 2010 $’000 |  |        | 2009 $’000 | 
|----------------------------------------- |  | ---------- | ------ |  | ---------- |  | ------ | ---------- | 
|                                          |  |            |        |  |            |  |        |            | 
|Sales Revenue                             |  |            |        |  |            |  |        |            | 
|                                          |  |            |        |  |            |  |        |            | 
|- Sales of goods                          |  |            | 14,080 |  |            |  | 14,394 |            | 
|Total revenue                             |  |            | 14,080 |  |            |  | 14,394 |            | 
|                                          |  |            |        |  |            |  |        |            | 
|Other Income                              |  |            |        |  |            |  |        |            | 
|Change in fair value of biological assets |  |            | 790    |  |            |  | 1,656  |            | 
|Dividend Received                         |  |            | -      |  |            |  | -      |            | 
|Interest received                         |  |            | 115    |  |            |  | 204    |            | 
|Profit on convertible note restructure    |  |            | 1,734  |  |            |  | -      |            | 
|Sundry income                             |  |            | 230    |  |            |  | 206    |            | 
|Other income                              |  |            | 2,869  |  |            |  | 2,066  |            | 



| | 8. | Expenses
| | -- | --------



|                                            |  | 2011 $’000 |        |  | 2010 $’000 |  |        | 2009 $’000 | 
|------------------------------------------- |  | ---------- | ------ |  | ---------- |  | ------ | ---------- | 
|8a Cost of sales                            |  |            | 13,351 |  |            |  | 13,561 |            | 
|Cost of growing the biological asset        |  |            | 636    |  |            |  | 1,460  |            | 
|Total                                       |  |            | 1,987  |  |            |  | 15,021 |            | 
|                                            |  |            |        |  |            |  |        |            | 
|8b Wages and Salaries                       |  |            | 3,970  |  |            |  | 3,860  |            | 
|Contributions to defined contribution plans |  |            | 233    |  |            |  | 170    |            | 
|Equity settled share based payments expense |  |            | 3,324  |  |            |  | 1,277  |            | 
|                                            |  |            | 7,527  |  |            |  | 5,307  |            | 



F-24







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|                                                       |  | 2011 $’000 |       |  | 2010 $’000 |  |       | 2009 $’000 | 
|------------------------------------------------------ |  | ---------- | ----- |  | ---------- |  | ----- | ---------- | 
|                                                       |  |            |       |  |            |  |       |            | 
|8c Other expenses:                                     |  |            |       |  |            |  |       |            | 
|                                                       |  |            |       |  |            |  |       |            | 
|Audit fees                                             |  |            | 204   |  |            |  | 118   |            | 
|Advertising                                            |  |            | 50    |  |            |  | 31    |            | 
|Computer maintenance & consumables                     |  |            | 38    |  |            |  | 46    |            | 
|Communication expenses                                 |  |            | 418   |  |            |  | 211   |            | 
|Donations, ceremonies & exhibitions                    |  |            | 2     |  |            |  | -     |            | 
|Insurance costs                                        |  |            | 107   |  |            |  | 121   |            | 
|Legal fees                                             |  |            | 319   |  |            |  | 123   |            | 
|Asset maintenance                                      |  |            | 162   |  |            |  | 320   |            | 
|Loss on disposal of asset                              |  |            | -     |  |            |  | -     |            | 
|Other                                                  |  |            | 1,190 |  |            |  | 1,121 |            | 
|Total                                                  |  |            | 2,490 |  |            |  | 2,091 |            | 
|                                                       |  |            |       |  |            |  |       |            | 
|8d) Finance Costs                                      |  |            |       |  |            |  |       |            | 
|Amortisation of liability portion of convertible notes |  |            | 2,003 |  |            |  | 1,889 |            | 
|Amortisation of convertible note issue costs           |  |            | 379   |  |            |  | 404   |            | 
|Discount on non-current receivables                    |  |            | -     |  |            |  | -     |            | 
|Total                                                  |  |            | 2,382 |  |            |  | 2,293 |            | 
|                                                       |  |            |       |  |            |  |       |            | 
|8e) Travel expenses                                    |  |            |       |  |            |  |       |            | 
|Corporate travel                                       |  |            | 273   |  |            |  | 340   |            | 
|Feedstock Logistics                                    |  |            | 493   |  |            |  | 546   |            | 
|                                                       |  |            | 766   |  |            |  | 886   |            | 



F-25







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 9. | Income tax
| | -- | ----------



|   |  |                                                                                                                                  |  |  |    |  | 2011 $’000 |  |         | 2010 $’000 |  |  | 2009 $’000 |  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------- |  |  | -- |  | ---------- |  | ------- | ---------- |  |  | ---------- | -
|a. |  | The components of tax expense comprise                                                                                           |  |  |    |  |            |  |         |            |  |  |            |  
|   |  | Current tax                                                                                                                      |  |  |    |  |            |  | (1      | )          |  |  | 29         |  
|   |  | Deferred tax                                                                                                                     |  |  | 23 |  |            |  | -       |            |  |  | -          |  
|   |  | Over provision in respect of prior years                                                                                         |  |  |    |  |            |  | -       |            |  |  | -          |  
|   |  |                                                                                                                                  |  |  |    |  |            |  | (1      | )          |  |  | 29         |  
|b. |  | The prima facie tax on the profit  (loss) from ordinary activities before income tax is reconciled to the income tax as follows: |  |  |    |  |            |  |         |            |  |  |            |  
|   |  | Accounting profit (loss) before tax                                                                                              |  |  |    |  |            |  | (21,671 | )          |  |  | (97,771    | )
|   |  | Prima facie tax (benefit)/expense on profit/ (loss) from ordinary activities before income tax at 30%                            |  |  |    |  |            |  | (6,501  | )          |  |  | (29,331    | )
|   |  | Adjusted for:                                                                                                                    |  |  |    |  |            |  |         |            |  |  |            |  
|   |  | Tax effect of:                                                                                                                   |  |  |    |  |            |  |         |            |  |  |            |  
|   |  | - overseas tax rate differential                                                                                                 |  |  |    |  |            |  | 140     |            |  |  | 7,218      |  
|   |  | - Impairment non-assessable item                                                                                                 |  |  |    |  |            |  | 960     |            |  |  | 21,927     |  
|   |  | - other non-assessable items                                                                                                     |  |  |    |  |            |  | 5,400   |            |  |  | 215        |  
|   |  | - Deferred tax asset not recognised (tax losses)                                                                                 |  |  |    |  |            |  | -       |            |  |  | -          |  
|   |  |                                                                                                                                  |  |  |    |  |            |  | (1      | )          |  |  | 29         |  
|   |  | Add:                                                                                                                             |  |  |    |  |            |  |         |            |  |  |            |  
|   |  | Over provision for income tax in prior year                                                                                      |  |  |    |  |            |  |         |            |  |  | -          |  
|   |  | Income tax attributable to entity                                                                                                |  |  |    |  |            |  | (1      | )          |  |  | 29         |  
|   |  |                                                                                                                                  |  |  |    |  |            |  |         |            |  |  |            |  
|   |  | The applicable weighted average effective current tax rates are as follows:                                                      |  |  |    |  |            |  | -       | 11         |  |  | -          |  










11   No effective tax
rate calculated due to the loss position.



F-26







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 10. | Auditors’ Remuneration
| | --- | ----------------------



|                                                                 |  | 2011 $’000 |     |  | 2010 $’000 |  |    | 2009 $’000 | 
|---------------------------------------------------------------- |  | ---------- | --- |  | ---------- |  | -- | ---------- | 
|Audit services                                                   |  |            |     |  |            |  |    |            | 
|Remuneration of the auditor of the parent entity for:            |  |            |     |  |            |  |    |            | 
|-auditing or reviewing the annual and half-year financial report |  |            | 90  |  |            |  | 75 |            | 
|                                                                 |  |            |     |  |            |  |    |            | 
|Remuneration of other auditors of subsidiaries for:              |  |            |     |  |            |  |    |            | 
|                                                                 |  |            |     |  |            |  |    |            | 
|-auditing or reviewing the financial report of subsidiaries      |  |            | 47  |  |            |  | 61 |            | 
|                                                                 |  |            |     |  |            |  |    |            | 
|Other services                                                   |  |            |     |  |            |  |    |            | 
|                                                                 |  |            |     |  |            |  |    |            | 
|- reviewing of the USA SEC registration statement                |  |            | 115 |  |            |  | -  |            | 
|                                                                 |  |            |     |  |            |  |    |            | 
|- review of tax and corporate returns of subsidiaries            |  |            | 6   |  |            |  | 1  |            | 



| | 11. | Earnings per share
| | --- | ------------------



|a. | Reconciliation of earnings to profit or loss                   |  |  |         |   |  |  |         |   |  |  |         |  
|-- | -------------------------------------------------------------- |  |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|   | Earnings used in calculation of both ordinary and dilutive EPS |  |  | (21,670 | ) |  |  | (97,800 | ) |  |  | (23,660 | )



F-27







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|b. |  | Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS    |  |  | 6,199,265 |  |  |  | 4,711,249 | 12 |  |  | 1,979,725 | 13
|-- |  | ------------------------------------------------------------------------------------------------------- |  |  | --------- |  |  |  | --------- | -- |  |  | --------- | --
|   |  | Effect of:                                                                                              |  |  |           |  |  |  |           |    |  |  |           |   
|   |  | - Performance Rights and options                                                                        |  |  | -         |  |  |  | -         |    |  |  | -         |   
|   |  | Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS |  |  | 6,199,265 |  |  |  | 4,711,249 |    |  |  | 4,711,249 |   



Diluted earnings per share exclude convertible
notes, performance rights and options that had an exercise price above the average market price during the period they existed.
Where a loss is made, all convertible notes, performance rights and options are excluded as the impact of including them would
be to reduce the loss per share. The table below reflects the entire number of equity instruments in issue at each period end,
which could potentially dilute basic earnings per share (i.e. numbers above are included in the table below):



|                                       |  | 2011 |            |  | 2010 | 14 |           | 2009 | 15
|-------------------------------------- |  | ---- | ---------- |  | ---- | -- | --------- | ---- | --
|Issued ordinary shares                 |  |      | 8,512,259  |  |      |    | 5,500,151 |      |   
|Convertible notes                      |  |      | 935,579    |  |      |    | 935,579   |      |   
|Employee and third party share options |  |      | 7,315      |  |      |    | 77,315    |      |   
|Employee performance shares            |  |      | 133,077    |  |      |    | 155,733   |      |   
|Share issue options (warrants)         |  |      | 2,995,009  |  |      |    | 2,995,009 |      |   
|TOTAL                                  |  |      | 12,583,239 |  |      |    | 9,663,787 |      |   










12 Weighted average number of ordinary shares restated
to reflect the 50:1 share consolidation undertaken in April 2011.



13 Weighted average number of ordinary shares restated
to reflect the 50:1 share consolidation undertaken in April 2011.



14 In order to facilitate a comparison of units
to the current year, the units disclosed for 2010 have been adjusted to reflect the 50:1 share consolidation.



15 In order to facilitate a comparison of units
to the current year, the units disclosed for 2010 have been adjusted to reflect the 50:1 share consolidation.



F-28







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 12. | Cash and cash equivalents
| | --- | -------------------------



|                          |  | 2011 $’000 |        |  | 2010 $’000 | 
|------------------------- |  | ---------- | ------ |  | ---------- | 
|Cash at bank and in hand  |  |            | 9,712  |  |            | 
|Short-term bank deposits  |  |            | 6,049  |  |            | 
|                          |  |            | 15,761 |  |            | 
|Reconciliation of cash    |  |            |        |  |            | 
|Cash and cash equivalents |  |            | 15,761 |  |            | 
|                          |  |            | 15,761 |  |            | 



| | 13. | Trade and Other Receivables
| | --- | ---------------------------



|                                                                                                                                           |  | 2011 $’000 |         |   | 2010 $’000 | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------- | ------- | - | ---------- | 
|CURRENT                                                                                                                                    |  |            |         |   |            | 
|Trade receivables                                                                                                                          |  |            | 6,429   |   |            | 
|Other receivables                                                                                                                          |  |            | 305     |   |            | 
|Less: Impairment provision                                                                                                                 |  |            | (151    | ) |            | 
|TOTAL                                                                                                                                      |  |            | 6,583   |   |            | 
|NON – CURRENT                                                                                                                              |  |            |         |   |            | 
|Trade receivables                                                                                                                          |  |            | 20,191  |   |            | 
|Less: Impairment provision                                                                                                                 |  |            | (17,594 | ) |            | 
|Less: Discount charge                                                                                                                      |  |            | (2,597  | ) |            | 
|TOTAL                                                                                                                                      |  |            | -       |   |            | 
|                                                                                                                                           |  |            |         |   |            | 
|Refer Note 37 relating to a prior period adjustment on recognition of additional provision for impairment against non-current receivables. | 
|                                                                                                                                           |  |            |         |   |            | 
|Impairment provision                                                                                                                       |  |            |         |   |            | 
|Opening Balance:                                                                                                                           |  |            | 18,686  |   |            | 
|Charge for the year                                                                                                                        |  |            | 1,930   |   |            | 
|Foreign currency translation difference                                                                                                    |  |            | (2,871  | ) |            | 
|Closing Balance                                                                                                                            |  |            | 17,745  |   |            | 



F-29







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



At each reporting date, the Board assesses
the likely timing of recoverability of receivables and bases this assessment on a number of significant assumptions and estimates.
Please refer to note 5, critical accounting estimates and judgements, and note 32 for a detailed discussion around credit risk,
provisioning and age analysis of trade and other receivables. With amendments to the USA renewable fuel standard, the Board was
unable to provide sufficient audit evidence at 30 June 2010 and 30 June 2011 to substantiate the recoverability of these receivables
and thus the Board took the decision to fully provide for these non-current receivables.



| | 14. | Biological Assets
| | --- | -----------------



Mission Biofuels India Pvt Limited grows
Jatropha Curcas saplings from seeds. The Jatropha Curcas saplings meet the definition of a biological asset and are carried on
statement of financial position at fair value, with fair value being determined with reference to the existing arms length sales
transactions with a large number of geographically disbursed contract farmers, and other readily available market information on
the fair value of these saplings. At 30 June 2011, Mission Biofuels India Pvt Limited had an estimated 1.5 million (2010: 21.0
million) saplings mature enough to plant on hand in its controlled nurseries. During the 2011 financial year, the company harvested
and sold approximately 33.8 million (2010: 6.4 million saplings). Mission only recognises biological assets at reporting date if
the saplings are in a condition deemed mature enough to be sold at period end. At 30 June 2011, a large number of immature saplings
were available in our nurseries. Planting before June 2011 had been delayed to match the timing of the anticipated delivery of
saplings to Missions contract farmers and hence the majority of the saplings were immature and not valued and brought on to the
balance sheet.



|                                                        |  | 2011 $’000 |        |   | 2010 $’000 | 
|------------------------------------------------------- |  | ---------- | ------ | - | ---------- | 
|Opening Balance                                         |  |            | 1,477  |   |            | 
|Add: Increase in fair value due to new plantations      |  |            | 790    |   |            | 
|Less: Sale of saplings transferred to trade receivables |  |            | (2,098 | ) |            | 
|Less: Impairment of biological asset                    |  |            | -      |   |            | 
|FX adjustments                                          |  |            | (81    | ) |            | 
|Closing Balance                                         |  |            | 88     |   |            | 



Regulatory and environmental risks



The Group is subject to laws and regulations
in various countries in which it operates. The Group has established environmental policies and procedures aimed at compliance
with local environmental and other laws. Management performs regular reviews to identify environmental risks and to ensure that
the systems in place are adequate to manage those risks.



F-30







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Supply and demand risk



The Group is exposed to risks arising from
fluctuations in the price and sales volume of Jatropha Curcas saplings. Where possible the Group manages this risk by aligning
its harvest volume to market supply and demand. Management performs regular industry trend analysis to ensure that the Group’s
pricing structure is in line with the market and to ensure that projected harvest volumes are consistent with the expected demand.



Climate and other risks



The Group’s Jatropha Curcas nurseries
are exposed to the risk of damage from climatic changes, diseases, fires and other natural forces. The Group has extensive processes
in place aimed at monitoring and mitigating those risks, including regular nursery health inspections and industry pest and disease
surveys.



| | 15. | Inventories
| | --- | -----------



|                               |  | 2011 $’000 |       |  | 2010 $’000 | 
|------------------------------ |  | ---------- | ----- |  | ---------- | 
|CURRENT                        |  |            |       |  |            | 
|Raw Material and stores - cost |  |            | 530   |  |            | 
|Finished goods – cost          |  |            | 1,079 |  |            | 
|Work in progress – cost        |  |            | 4,633 |  |            | 
|                               |  |            | 6,242 |  |            | 



The above is shown at the lower of cost
and net realisable value.



| | 16. | Other Financial Assets
| | --- | ----------------------



|Current                           |  |  |     |  |  |  |    | 
|--------------------------------- |  |  | --- |  |  |  | -- | 
|Held to maturity financial assets |  |  | 1   |  |  |  | 26 | 
|Performance bond                  |  |  | -   |  |  |  | -  | 
|Other financial assets            |  |  | 177 |  |  |  |    | 
|                                  |  |  | 178 |  |  |  | 26 | 
|Non-Current                       |  |  |     |  |  |  |    | 
|Other financial assets            |  |  | -   |  |  |  | -  | 
|                                  |  |  | -   |  |  |  | -  | 



Held to maturity investments (zero interest)
relate to investments in a Saving deposit which matures within 12 months.



F-31







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 17. | Investments in subsidiaries
| | --- | ---------------------------



| | A | Controlled Entities Consolidated
| | - | --------------------------------





|   |                                                        |  |  | Country of     |  |  |  | Percentage Owned (%) |   
|-- | ------------------------------------------------------ |  |  | -------------- |  |  |  | -------------------- | --
|   |                                                        |  |  | Incorporation  |  |  |  | 2011                 |   
|   | Parent Entity:                                         |  |  |                |  |  |  |                      |   
|   | Mission NewEnergy Limited                              |  |  | Australia      |  |  |  |                      |   
|   | Subsidiaries of Mission NewEnergy Limited:             |  |  |                |  |  |  |                      |   
|   | Mission Biotechnologies Sdn Bhd                        |  |  | Malaysia       |  |  |  | 100                  |   
|   | Mission Biofuels Sdn Bhd                               |  |  | Malaysia       |  |  |  | 100                  |   
|   | Enviro Mission Sdn Bhd                                 |  |  | Malaysia       |  |  |  | 100                  |   
|   | Mission Agro Energy Limited                            |  |  | Mauritius      |  |  |  | 100                  |   
|   | Scarborough Beach Holdings, Inc.                       |  |  | USA            |  |  |  | 100                  |   
|   | PJ Trading Pennsylvania, LLC                           |  |  | USA            |  |  |  | 100                  |   
|   | PJ Trading, LLC                                        |  |  | USA            |  |  |  | 100                  |   
|   | Indas Green Acquisition Corporation                    |  |  | Cayman Islands |  |  |  | -                    | 16
|   | Subsidiaries of Mission Agro Energy Limited            |  |  |                |  |  |  |                      |   
|   | Mission Biofuels India Private Limited                 |  |  | India          |  |  |  | 100                  |   
|   |                                                        |  |  |                |  |  |  |                      |   
|b. | Jointly controlled entities                            |  |  |                |  |  |  |                      |   
|   | Subsidiaries of Mission Biofuels India Private Limited |  |  |                |  |  |  |                      |   
|   | Mission Agro Diesel (India) Private Limited            |  |  | India          |  |  |  | 51                   |   








16  Indas Green Acquisition Corporation, being a
dormant entity, was deregistered  on 31 March 2011.



F-32







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 18. | Property Plant and Equipment
| | --- | ----------------------------





|                                                        |  | $’000             |       |   | $’000            |  |     | $’000                           |  |  | $’000         |   |  | $’000               |     |   | $’000                    |  |       | $’000           |  |  | $’000  |  
|------------------------------------------------------- |  | ----------------- | ----- | - | ---------------- |  | --- | ------------------------------- |  |  | ------------- | - |  | ------------------- | --- | - | ------------------------ |  | ----- | --------------- |  |  | ------ | -
|Cost at 1 July 2009                                     |  |                   | 1,625 |   |                  |  | 285 |                                 |  |  | 806           |   |  |                     | 223 |   |                          |  | 5,869 |                 |  |  | 40,790 |  
|Additions                                               |  |                   | 12    |   |                  |  | 85  |                                 |  |  | 86            |   |  |                     | 23  |   |                          |  | -     |                 |  |  | 2,175  |  
|Foreign Currency Translation                            |  |                   | 7     |   |                  |  | 4   |                                 |  |  | (45           | ) |  |                     | (29 | ) |                          |  | (73   | )               |  |  | 1,138  |  
|Disposal                                                |  |                   | (3    | ) |                  |  | -   |                                 |  |  | -             |   |  |                     | -   |   |                          |  | (35   | )               |  |  | -      |  
|Cost at 30 June 2010                                    |  |                   | 1,641 |   |                  |  | 374 |                                 |  |  | 847           |   |  |                     | 217 |   |                          |  | 5,761 |                 |  |  | 44,103 |  
|Additions                                               |  |                   | -     |   |                  |  | 92  |                                 |  |  | 90            |   |  |                     | -   |   |                          |  | -     |                 |  |  | 2,470  |  
|Foreign Currency Translation                            |  |                   | (250  | ) |                  |  | (59 | )                               |  |  | (161          | ) |  |                     | (30 | ) |                          |  | (985  | )               |  |  | (6,081 | )
|Disposal                                                |  |                   | -     |   |                  |  | (4  | )                               |  |  | -             |   |  |                     | -   |   |                          |  | -     |                 |  |  | -      |  
|Cost at 30 June 2011                                    |  |                   | 1,391 |   |                  |  | 403 |                                 |  |  | 776           |   |  |                     | 187 |   |                          |  | 4,776 |                 |  |  | 40,492 |  
|                                                        |  |                   |       |   |                  |  |     |                                 |  |  |               |   |  |                     |     |   |                          |  |       |                 |  |  |        |  
|Accumulated  Depreciation and  Impairment               |  | Land and Building |       |   | Office Equipment |  |     | Computer Equipment and software |  |  | Motor Vehicle |   |  | Plant and Equipment |     |   | Asset Under Construction |  |       | Biodiesel Plant |  |  | Total  |  
|                                                        |  |                   |       |   |                  |  |     |                                 |  |  |               |   |  |                     |     |   |                          |  |       |                 |  |  |        |  
|Accumulated Depreciation and Impairment at 1 July 2009  |  |                   | 49    |   |                  |  | 115 |                                 |  |  | 234           |   |  |                     | 78  |   |                          |  | 413   |                 |  |  | -      |  
|Depreciation for the year                               |  |                   | 36    |   |                  |  | 28  |                                 |  |  | 283           |   |  |                     | 21  |   |                          |  | 292   |                 |  |  | -      |  
|Impairment                                              |  |                   | -     |   |                  |  | -   |                                 |  |  | -             |   |  |                     | -   |   |                          |  | 1,682 |                 |  |  | 43,472 |  
|Foreign Currency Translation                            |  |                   | 11    |   |                  |  | 0   |                                 |  |  | 15            |   |  |                     | 3   |   |                          |  | 4     |                 |  |  | -      |  
|Disposal                                                |  |                   | -     |   |                  |  | -   |                                 |  |  | -             |   |  |                     | -   |   |                          |  | -     |                 |  |  | -      |  
|Accumulated Depreciation and Impairment at 30 June 2010 |  |                   | 96    |   |                  |  | 143 |                                 |  |  | 532           |   |  |                     | 102 |   |                          |  | 2,391 |                 |  |  | 43,472 |  







F-33







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|Accumulated Depreciation and Impairment contd.          |  | Land and Building |       |   | Office Equipment |  |     | Computer Equipment and software |  |  | Motor Vehicle |   |  | Plant and Equipment |     |   | Asset Under Construction |  |       | Biodiesel Plant |  |  | Total  |  
|------------------------------------------------------- |  | ----------------- | ----- | - | ---------------- |  | --- | ------------------------------- |  |  | ------------- | - |  | ------------------- | --- | - | ------------------------ |  | ----- | --------------- |  |  | ------ | -
|                                                        |  | $’000             |       |   | $’000            |  |     | $’000                           |  |  | $’000         |   |  | $’000               |     |   | $’000                    |  |       | $’000           |  |  | $’000  |  
|Accumulated Depreciation and Impairment at 30 June 2010 |  |                   | 96    |   |                  |  | 143 |                                 |  |  | 532           |   |  |                     | 102 |   |                          |  | 2,391 |                 |  |  | 43,472 |  
|Depreciation for the year                               |  |                   | 41    |   |                  |  | 74  |                                 |  |  | 131           |   |  |                     | 41  |   |                          |  | 168   |                 |  |  | -      |  
|Impairment                                              |  |                   | -     |   |                  |  | -   |                                 |  |  | 15            |   |  |                     | -   |   |                          |  | 283   |                 |  |  | 2,045  |  
|Foreign Currency Translation                            |  |                   | (17   | ) |                  |  | (22 | )                               |  |  | (94           | ) |  |                     | (17 | ) |                          |  | (431  | )               |  |  | (5,980 | )
|Disposal                                                |  |                   | -     |   |                  |  | (2  | )                               |  |  | -             |   |  |                     | -   |   |                          |  | -     |                 |  |  | -      |  
|Accumulated Depreciation and Impairment at 30 June 2011 |  |                   | 120   |   |                  |  | 193 |                                 |  |  | 584           |   |  |                     | 126 |   |                          |  | 2,411 |                 |  |  | 39,537 |  
|                                                        |  |                   |       |   |                  |  |     |                                 |  |  |               |   |  |                     |     |   |                          |  |       |                 |  |  |        |  
|Carrying Amounts                                        |  |                   |       |   |                  |  |     |                                 |  |  |               |   |  |                     |     |   |                          |  |       |                 |  |  |        |  
|At 30 June 2010                                         |  |                   | 1,545 |   |                  |  | 231 |                                 |  |  | 315           |   |  |                     | 115 |   |                          |  | 3,370 |                 |  |  | 631    |  
|At 30 June 2011                                         |  |                   | 1,271 |   |                  |  | 210 |                                 |  |  | 192           |   |  |                     | 61  |   |                          |  | 2,365 |                 |  |  | 955    |  



Impairment loss



Refer to note 5, Critical Accounting estimates
for a detailed discussion on the impairment of assets.



Assets under construction



These related primarily to the second biodiesel
plant under construction in Malaysia. At 30 June 2011 the plant is in the process of being transferred to Mission from its fixed
price turnkey contractor. See note 26 on capital commitments relating to this plant.



F-34







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 19. | Intangible Assets
| | --- | -----------------



|                                     |  | 2011 $’000 |        |   | 2010 $’000 | 
|------------------------------------ |  | ---------- | ------ | - | ---------- | 
|Goodwill                             |  |            |        |   |            | 
|Carrying amount at beginning of year |  |            | 1,013  |   |            | 
|Additions                            |  |            | 144    |   |            | 
|Impairment of Goodwill               |  |            | (1,157 | ) |            | 
|FX Adjustments                       |  |            | -      |   |            | 
|Carrying amount at end of year       |  |            | -      |   |            | 



Additions to goodwill for the year relate
to the acquisition of the final 0.51% of shares in Mission Biofuels India Proprietary Limited (MBIPL). Mission Agro Energy Proprietary
Limited now owns 100% of MBIPL. Refer to note 5a for a discussion on impairment testing of goodwill and note 17 for details of
ownership of subsidiaries.



| | 20. | Other Assets
| | --- | ------------



|CURRENT           |  |  |     |  |  |  |     | 
|----------------- |  |  | --- |  |  |  | --- | 
|Prepayments       |  |  | 354 |  |  |  | 457 | 
|                  |  |  | 354 |  |  |  | 457 | 
|Non-Current       |  |  |     |  |  |  |     | 
|Security Deposits |  |  | 702 |  |  |  | 182 | 
|                  |  |  | 702 |  |  |  | 182 | 



| | 21. | Trade and Other Payables
| | --- | ------------------------



|CURRENT                              |  |  |       |  |  | 
|------------------------------------ |  |  | ----- |  |  | 
|Unsecured liabilities:               |  |  |       |  |  | 
|Trade payables                       |  |  | 6,335 |  |  | 
|Interest accrued                     |  |  | 247   |  |  | 
|Sundry payables and accrued expenses |  |  | 477   |  |  | 
|                                     |  |  | 7,059 |  |  | 



F-35







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 22. | Financial Liabilities
| | --- | ---------------------



|                                           |  | 2011 $’000 |        |   | 2010 $’000 | 
|------------------------------------------ |  | ---------- | ------ | - | ---------- | 
|                                           |  |            |        |   |            | 
|CURRENT                                    |  |            |        |   |            | 
|Secured loans                              |  |            | 494    |   |            | 
|Convertible Notes                          |  |            |        |   |            | 
|- Nominal value (unsecured)                |  |            | 15,000 |   |            | 
|- Equity portion of convertible note       |  |            | (2,349 | ) |            | 
|- Unamortised costs of issues              |  |            | (90    | ) |            | 
|- Amortisation of equity portion           |  |            | 1,852  |   |            | 
|                                           |  |            | 14,907 |   |            | 
|NON-CURRENT                                |  |            |        |   |            | 
|Secured loans                              |  |            | 2,064  |   |            | 
|Convertible Notes (unsecured)              |  |            |        |   |            | 
|- Nominal value (excluding equity portion) |  |            | 45,812 |   |            | 
|- Converted to equity                      |  |            | (3,683 | ) |            | 
|- Amortisation of equity portion           |  |            | 94     |   |            | 
|- Unamortised costs of issues              |  |            | -      |   |            | 
|                                           |  |            | 44,287 |   |            | 



The secured loans above relate to financing
of the windmills in India and an office in Malaysia. These assets are held as security against these loans.



Convertible notes



46,778,845 convertible notes were issued
on 25 May 2007 at $1.30 per note. Pursuant to a tender process, Mission restructured these convertible notes in March 2011, with
the following principal terms of the restructured notes being:



F-36







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)





|                                                                                                                                                   |  | Series 1 notes |                             |    | Series 2 notes |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------------------------- | -- | -------------- | -
|                                                                                                                                                   |  |                |                             |    |                |  
|Units – pre-consolidation                                                                                                                          |  |                | 11,538,461                  |    |                |  
|                                                                                                                                                   |  |                |                             |    |                |  
|Units – post consolidation                                                                                                                         |  |                | 230,770                     | 17 |                |  
|                                                                                                                                                   |  |                |                             |    |                |  
|Maturity date                                                                                                                                      |  |                | 16 May 2012                 |    |                |  
|                                                                                                                                                   |  |                |                             |    |                |  
|Interest rate per annum                                                                                                                            |  |                | 4                           | %  |                |  
|                                                                                                                                                   |  |                |                             |    |                |  
|Convertible into ordinary shares at the option of the Holder or the Company in the circumstances set out in the Terms and Conditions of the Notes. |  |                | 1 note for 1 ordinary share |    |                |  
|                                                                                                                                                   |  |                |                             |    |                |  
|Conversion price                                                                                                                                   |  | $              | 65                          |    |                | $





| | 23. | Tax
| | --- | ---



|                                     |  | 2011  |     |   | 2010  | 
|------------------------------------ |  | ----- | --- | - | ----- | 
|                                     |  | $’000 |     |   | $’000 | 
|                                     |  |       |     |   |       | 
|Liabilities                          |  |       |     |   |       | 
|                                     |  |       |     |   |       | 
|CURRENT                              |  |       |     |   |       | 
|                                     |  |       |     |   |       | 
|Current Tax liability / (asset)      |  |       | (30 | ) |       | 
|                                     |  |       |     |   |       | 
|NON-CURRENT                          |  |       |     |   |       | 
|                                     |  |       |     |   |       | 
|Deferred tax liability comprises:    |  |       |     |   |       | 
|                                     |  |       |     |   |       | 
|Unrealised FX gains                  |  |       | -   |   |       | 
|                                     |  |       |     |   |       | 
|Accruals                             |  |       | -   |   |       | 
|                                     |  |       |     |   |       | 
|Other                                |  |       | -   |   |       | 
|                                     |  |       |     |   |       | 
|Total                                |  |       | -   |   |       | 
|                                     |  |       |     |   |       | 
|Assets                               |  |       |     |   |       | 
|                                     |  |       |     |   |       | 
|Deferred tax assets comprise:        |  |       |     |   |       | 
|                                     |  |       |     |   |       | 
|Provisions                           |  |       | -   |   |       | 
|                                     |  |       |     |   |       | 
|Transaction costs included in equity |  |       | -   |   |       | 
|                                     |  |       |     |   |       | 
|Other                                |  |       | -   |   |       | 
|                                     |  |       |     |   |       | 
|                                     |  |       | -   |   |       | 








17 Shareholders approved a share consolidation of
50:1 on 23 March 2011.



F-37









Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|                                        | Reconciliations                                                                                     |  |   |   |  |  |    
|--------------------------------------- | --------------------------------------------------------------------------------------------------- |  | - | - |  |  | ---
|                                        |                                                                                                     |  |   |   |  |  |    
|i.                                      | Gross Movements                                                                                     |  |   |   |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | The overall movement in the deferred tax account is as follows:                                     |  |   |   |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Opening balance                                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | (Charge)/credit to income statement                                                                 |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Foreign currency translation difference                                                             |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Closing balance                                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|ii.                                     | Deferred Tax Liability                                                                              |  |   |   |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | The movement in deferred tax liability for each temporary difference during the year is as follows: |  |   |   |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Tax allowances relating to unrealised FX gains:                                                     |  |   |   |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Opening balance                                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Charged to the income statement                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Closing balance                                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Tax allowances relating to accruals:                                                                |  |   |   |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Opening balance                                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Charged to the income statement                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|                                        | Closing balance                                                                                     |  |   | - |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|Other                                   |                                                                                                     |  |   |   |  |  |    
|                                        |                                                                                                     |  |   |   |  |  |    
|Opening balance                         |                                                                                                     |  | - |   |  |  | (28
|                                        |                                                                                                     |  |   |   |  |  |    
|Charge to the income statement          |                                                                                                     |  | - |   |  |  | -  
|                                        |                                                                                                     |  |   |   |  |  |    
|Foreign currency translation difference |                                                                                                     |  | - |   |  |  | 28 
|                                        |                                                                                                     |  |   |   |  |  |    
|Closing Balance                         |                                                                                                     |  | - |   |  |  | -  



F-38







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|iii. | Deferred tax assets                                                                              |  |  |   |  |  |  |   | 
|---- | ------------------------------------------------------------------------------------------------ |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | The movement in deferred tax assets for each temporary difference during the year is as follows: |  |  |   |  |  |  |   | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Provisions:                                                                                      |  |  |   |  |  |  |   | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Opening balance                                                                                  |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Charged to the income statement                                                                  |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Closing balance                                                                                  |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Transactions costs on equity issue:                                                              |  |  |   |  |  |  |   | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Opening balance                                                                                  |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | (Charged)/Credited directly to equity                                                            |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Closing balance                                                                                  |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Other                                                                                            |  |  |   |  |  |  |   | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Opening balance                                                                                  |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Charged/(Credited) to the income statement                                                       |  |  | - |  |  |  | - | 
|     |                                                                                                  |  |  |   |  |  |  |   | 
|     | Closing balance                                                                                  |  |  | - |  |  |  | - | 



Deferred tax assets on losses to a value
of $3.8 million to date are not brought to account. In addition, deferred tax assets for deductible temporary differences of A$1.9
million and deferred tax liabilities for temporary differences of $0.8 million have not been brought to account.



F-39







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 24. | Issued Capital
| | --- | --------------



|Fully paid ordinary shares                                      |  | 2011   |             |    | 2010  | 
|--------------------------------------------------------------- |  | ------ | ----------- | -- | ----- | 
|                                                                |  | $ ’000 |             |    | $’000 | 
|                                                                |  |        |             |    |       | 
|Share Capital                                                   |  |        | 96,801      |    |       | 
|                                                                |  |        |             |    |       | 
|Ordinary shares                                                 |  |        | Number      |    |       | 
|                                                                |  |        |             |    |       | 
|At the beginning of reporting period                            |  |        | 275,007,568 |    |       | 
|                                                                |  |        |             |    |       | 
|Ordinary shares issued                                          |  |        |             |    |       | 
|                                                                |  |        |             |    |       | 
|-  November 2009                                                |  |        | -           |    |       | 
|                                                                |  |        |             |    |       | 
|-  February 2010                                                |  |        | -           |    |       | 
|                                                                |  |        |             |    |       | 
|Conversion of warrants in January 2010                          |  |        | -           |    |       | 
|                                                                |  |        |             |    |       | 
|Shares issued on performance right conversion during the year   |  |        | 11,346,662  |    |       | 
|                                                                |  |        |             |    |       | 
|Subtotal                                                        |  |        | 286,354,230 | 18 |       | 
|                                                                |  |        |             |    |       | 
|Share consolidation (50:1) – April 2011                         |  |        | 5,727,085   |    |       | 
|                                                                |  |        |             |    |       | 
|Rounding adjustments                                            |  |        | 94          |    |       | 
|                                                                |  |        |             |    |       | 
|Revised ordinary shares post share consolidation                |  |        | 5,727,179   |    |       | 
|                                                                |  |        |             |    |       | 
|Share issue pursuant to Nasdaq listing – April 2011             |  |        | 2,785,000   |    |       | 
|                                                                |  |        |             |    |       | 
|Shares issued from conversion of convertible notes 23 June 2011 |  |        | 80          |    |       | 
|                                                                |  |        |             |    |       | 
|At reporting date                                               |  |        | 8,512,259   |    |       | 



Ordinary shares participate in dividends
and the proceeds on winding up of the parent entity in proportion to the number of shares held.



At the shareholders meetings each ordinary
share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.



The ordinary shares issued in April, June
and November 2009 includes a warrant (option). Each warrant entitles the holder to acquire one ordinary share of Mission NewEnergy
at an exercise price of A$15.00. The Warrants may not be exercised on a “cashless” or “net exercise” basis.
In addition, a Warrant will not entitle the holder to participate in a new issue of ordinary shares or other securities of Mission
NewEnergy unless the Warrant has been exercised. The expiration date for exercise of the Warrants will be 30 April 2014. However,
if at any time on or after April 15, 2012 the immediately preceding 20-trading day volume weighted average price (as published
by or derived from the Australian Securities Exchange) is at least A$50.00, the Company may give written notice to each warrant
holder that if such holder does not exercise its Warrants within 15 days from the date of such notice, then the Warrants would
expire on that 15th day. The Warrants will not be listed on any stock exchange.



Shares issued in February 2010 and April
2011 did not include a warrant.



---



18 Shareholders approved a share consolidation of
50:1 on 23 March 2011.



F-40







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



The following warrants and options were
in existence at reporting date:



|                                 |  | 2011 |           |  | 2010 (adjusted to reflect the
    50:1 consolidation) | 
|-------------------------------- |  | ---- | --------- |  | ----------------------------------------------------- | 
|Warrants – from share issues     |  |      | 2,995,009 |  |                                                       | 
|                                 |  |      |           |  |                                                       | 
|Employee and third party options |  |      | 7,315     |  |                                                       | 
|                                 |  |      |           |  |                                                       | 
|Employee performance rights      |  |      | 133,077   |  |                                                       | 
|                                 |  |      |           |  |                                                       | 
|Total                            |  |      | 3,135,401 |  |                                                       | 



|a. | Options and Performance Shares
|-- | ------------------------------



For information relating to the Mission
NewEnergy Limited option and performance right plans, including details of options and performance shares issued, exercised and
lapsed during the financial year and the options outstanding at year-end, refer to Note 30, Share-based Payments



|b. | Capital Management
|-- | ------------------



Management controls the capital of the
Group in order to maintain an appropriate debt to equity ratio, provide the shareholders with adequate returns and ensure that
the Group can fund its operations and continue as a going concern. Due to the development stage that the business is in, managements
preferred approach is to fund the business with equity. Management reviews historic and forecast cash flows on a regular basis
in order to determine funding needs.



The Group’s debt and capital includes
ordinary share capital, performance shares, convertible notes and financial liabilities, supported by financial assets.



The convertible notes include the following
covenants:



| | (i) | comply with  the Conditions of the convertible notes;
| | --- | -----------------------------------------------------



| | (ii) | maintain its corporate existence;
| | ---- | ---------------------------------



| | (iii) | not amend its Constitution or alter the voting or other rights attached to Shares in a manner that
is prejudicial to the interests of Noteholders;
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | not do or omit to do anything that would preclude the issue of a valid  Cleansing Notice on
the date such notice is required to be issued under the Conditions;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | make disclosure of material information to the public as required by the Listing Rules, or the
rules of any other stock exchange on which it is listed and the Corporations Act or any other applicable law;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-41







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | (vi) | not incur a total debt obligation (including any unconverted Convertible Notes outstanding at any
given time) of higher than 2.5x  Group’s net worth (being paid up equity plus any retained earnings) without the
prior consent of at least 75% of Noteholders (on the basis of one vote for every Convertible Note held unconverted).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | not issue more than 25% of the Company's share capital in options or convertible notes, without
the prior consent of at least 75% of Noteholders (on the basis of one vote for every Convertible Note held at such time unconverted).
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (viii) | maintain the capacity to issue sufficient Shares to enable the conversion of all of the outstanding
Convertible Notes into Shares in accordance with the Conditions.
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ix) | ensure that in the event of either material asset sales or consolidation or merger or other business
combination transactions, that the Noteholders be given at least 5 Business Days notice prior to the event and that the obligation
on the notes are assumed by the surviving entity or acquiring entity such that the value of the Notes are not diminished by the
event.  In any case given such an event the Noteholders can require the surviving or acquiring company to redeemed the
Outstanding Notes for their Face Value plus any accrued but unpaid interest.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There are no other externally imposed capital
requirements.



Management effectively manages the Group’s
capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in risks and
in the market. These responses include the management of debt levels, distributions to shareholders and share issues.



There have been no changes in the strategy
adopted by management to control the capital of the Group since the prior year.



| | 25. | Reserves
| | --- | --------



| | 1. | Share based payments reserve
| | -- | ----------------------------



The share based payments reserve
arose on the cumulative issue of 70,000 options and 415,000 performance shares to various officers of the Company. Refer to note
30 for details of the share based payments.



Amounts are transferred out of
the reserve and into issued capital when the options are exercised, or if lapsed, then transferred to retained earnings.



| | 2. | Foreign currency translation reserve
| | -- | ------------------------------------



The foreign currency translation
reserve records exchange differences arising on translation of foreign controlled subsidiaries.



| | 3. | Convertible Notes Reserve
| | -- | -------------------------



The Convertible Notes reserve
is used to record the equity component, less the cost of issue, of the convertible notes.



F-42







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 26. | Capital and Leasing Commitments
| | --- | -------------------------------



|   |                                 |  | 2011  |       |  | 2010  | 
|-- | ------------------------------- |  | ----- | ----- |  | ----- | 
|   |                                 |  | $’000 |       |  | $’000 | 
|a. | Operating Lease Commitments     |  |       |       |  |       | 
|   | - not later than 12 months      |  |       | 218   |  |       | 
|   | - between 12 months and 5 years |  |       | 967   |  |       | 
|   | - greater than 5 years          |  |       | 2,227 |  |       | 
|   |                                 |  |       | 3,412 |  |       | 



Mission Biotechnologies Sdn Bhd has entered
into a lease of 2 lots totalling 24,000 sq metres of land at Kuantan Port, Malaysia. The term of the sub-lease is from 1 st March
2006 to 30 th December 2027. The rental value increases by 10%, commencing 1 January 2007, and subsequently every three years,
starting 1 January 2010. Every 3 years, commencing 1 st January 2007, the annual rental will be increased by 10%.



Mission Biofuels Sdn Bhd has entered into
a lease of 2 lots totalling 24,000 sq metres of land at Kuantan Port, Malaysia for the 250,000 TPA plant. The term of the sub-lease
is from 1 st June 2007 to 31 st December 2027.  The rental value increases by 10%, commencing 1 January 2010, and subsequently
every three years, starting 1 January 2010. Every 3 years, commencing 1 st January 2013, the annual rental will be increased by
10%.



Office lease – Perth



The office lease is for a term of 1 year
from 1 February 2011.



Lease Commitments– India



Mission Biofuels India Pvt Limited has
entered into cancellable lease agreements for the office premises, godown (warehouse), guest house, car and nurseries, renewable
by mutual consent on mutually agreeable terms. The company has entered into a number of lease agreements throughout India.
Lease terms range between 3 and 36 months.



Capital Expenditure Commitments



|                                                  |  | 2011  |       |  | 2010  | 
|------------------------------------------------- |  | ----- | ----- |  | ----- | 
|                                                  |  | $’000 |       |  | $’000 | 
|Capital expenditure commitments contracted for: - |  |       |       |  |       | 
|Acquisition and installation biodiesel plants 19  |  |       | 5,228 |  |       | 
|Other                                             |  |       | 62    |  |       | 
|                                                  |  |       | 5,290 |  |       | 
|                                                  |  |       |       |  |       | 
|Payable:                                          |  |       |       |  |       | 
|- not later than 12 months                        |  |       | 5,290 |  |       | 
|                                                  |  |       | 5,290 |  |       | 



---



19 This value is net of late delivery charges and
other costs the Group believes are eligible to offset against the completion payments of the second biodiesel plant.



F-43







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



|27. | Contingent Liabilities and Contingent Assets
|--- | --------------------------------------------



The company has called upon a performance
bond placed by the contractor who constructed the 100,000 tpa biodiesel plant, due to non-satisfactory performance. The performance
bond and associated claims offset the final amount not paid. Both parties have agreed to the appointment of an arbitrator to resolve
this matter.



A subsidiary within the Group has been
assessed for income tax with a provisional assessment raised, despite losses incurred within this subsidiary. Management disputes
this assessment and is in discussion with the relevant income tax authorities seeking clarity on the basis of the assessment. The
parent entity is not aware of any other contingent liabilities or contingent assets as at 30 June 2011 .



F-44







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 28. | Segment Reporting
| | --- | -----------------



|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  | Consolidated |        
|------------------------------------------------------ |  | ------------------ | ------ | -- | ---------------- |  | ------- | ------------------------ |  |  | --------- | -- |  | ------------ | -------
|                                                       |  | Biodiesel Refining |        |    |                  |  |         |                          |  |  |           |    |  | (Continuing  |        
|                                                       |  | (Malaysia)         |        |    | Jatropha (India) |  |         | Power generation (India) |  |  | Corporate |    |  | Operations)  |        
|                                                       |  | 2011               |        |    | 2010             |  |         | 2011                     |  |  | 2010      |    |  | 2011         |        
|                                                       |  | $’000              |        |    | $’000            |  |         | $’000                    |  |  | $’000     |    |  | $’000        |        
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Primary Reporting — Business Segments                  |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Revenue                                                |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Revenue                                                |  |                    | 13,468 | 20 |                  |  | 13,867  |                          |  |  | 89        | 21 |  |              | -      
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Other revenue                                          |  |                    | 192    |    |                  |  | 153     |                          |  |  | 864       |    |  |              | 1,869  
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Total segment revenue                                  |  |                    | 13,660 |    |                  |  | 14,020  |                          |  |  | 953       |    |  |              | 1,869  
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Impairment                                             |  |                    | 2,046  |    |                  |  | 71,407  |                          |  |  | -         |    |  |              | -      
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Result                                                 |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Segment result before tax                              |  |                    | (6,198 | )  |                  |  | (76,126 | )                        |  |  | (4,797    | )  |  |              | (12,803
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Profit/loss from ordinary activities before income tax |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Income tax expense                                     |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Net profit/(loss)                                      |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Segment assets                                         |  |                    | 10,528 |    |                  |  | 10,093  |                          |  |  | 1,955     |    |  |              | 3,168  
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Segment liabilities                                    |  |                    | 6,209  |    |                  |  | 2,816   |                          |  |  | 687       |    |  |              | 931    
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Acquisitions of property, plant and equipment          |  |                    | 2,702  |    |                  |  | 2,282   |                          |  |  | 135       |    |  |              | 174    
|                                                       |  |                    |        |    |                  |  |         |                          |  |  |           |    |  |              |        
|Depreciation and amortisation                          |  |                    | 217    |    |                  |  | 1,691   |                          |  |  | 132       |    |  |              | 91     



---



20 Sales from the refining business unit are primarily
to two customers in 2011 and one customer in 2010.



21 Sales of biological assets are to a large number
of individual contract farmers.



22 Power generation revenue is from one customer.



F-45







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Segment reporting accounting
Policies



The Managing Director/Group
Chief Executive Officer is the Chief operating decision maker. The reportable segments presented are in line with the segmental
information reported during the financial year to the Managing Director/Group Chief Executive Officer.



Segment revenues and expenses
are those directly attributable to the segments and include any joint revenue and expenses where a reasonable basis of allocation
exists.  Segment assets include all assets used by a segment and consist principally of cash, receivables, inventories,
intangibles and property, plant and equipment, net of allowances and accumulated depreciation and amortisation.  While
most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or
more segments is allocated to the segments on a reasonable basis.  Segment liabilities consist principally of payables,
employee benefits, accrued expenses and borrowings.  Segment assets and liabilities do not include deferred income taxes.



Intersegment Transfers



Segment revenues, expenses and
results include transfers between segments.  The prices charged on intersegment transactions are the same as those charged
for similar goods to parties outside of the Group at an arm’s length.  These transfers are eliminated on consolidation.



Business and Geographical
Segments



The Group has three key business
segments. The Group’s business segments are located in Malaysia, India and Mauritius (the Mauritian entity acts as a holding
company for Mission Biofuels India Pvt Limited, and as such no operational activities occur in Mauritius) with the Group’s
head office located in Australia. The Biodiesel Refinery segment is located in Malaysia, the Jatropha business segment which is
located in India and the Power generation segment (India).



F-46







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 29. | Cash Flow Information
| | --- | ---------------------



|Reconciliation of Cash Flow from Operations with Profit                                       |  | 2011  |         |   | 2010  | 
|--------------------------------------------------------------------------------------------- |  | ----- | ------- | - | ----- | 
|(loss) after Income Tax                                                                       |  | $’000 |         |   | $’000 | 
|                                                                                              |  |       |         |   |       | 
|Profit / (Loss) after income tax                                                              |  |       | (21,670 | ) |       | 
|                                                                                              |  |       |         |   |       | 
|Non cash flows in profit / (loss)                                                             |  |       |         |   |       | 
|                                                                                              |  |       |         |   |       | 
|Depreciation of plant and equipment                                                           |  |       | 562     |   |       | 
|                                                                                              |  |       |         |   |       | 
|Amortisation of Convertible Note Costs                                                        |  |       | 379     |   |       | 
|                                                                                              |  |       |         |   |       | 
|Gain on the restructure of Convertible Note                                                   |  |       | (1,734  | ) |       | 
|                                                                                              |  |       |         |   |       | 
|Amortisation of Equity portion of Convertible Note                                            |  |       | 2,003   |   |       | 
|                                                                                              |  |       |         |   |       | 
|Provision for employee benefits                                                               |  |       | 20      |   |       | 
|                                                                                              |  |       |         |   |       | 
|Impairment of Trade Receivables                                                               |  |       | 1,930   |   |       | 
|                                                                                              |  |       |         |   |       | 
|Discounting of long term receivables                                                          |  |       | -       |   |       | 
|                                                                                              |  |       |         |   |       | 
|Impairment of assets                                                                          |  |       | 3,501   |   |       | 
|                                                                                              |  |       |         |   |       | 
|Share based payment expense                                                                   |  |       | 3,324   |   |       | 
|                                                                                              |  |       |         |   |       | 
|Net cash provided by / (used in) operating activities before change in assets and liabilities |  |       | (11,685 | ) |       | 
|                                                                                              |  |       |         |   |       | 
|Change in assets and liabilities                                                              |  |       |         |   |       | 
|                                                                                              |  |       |         |   |       | 
|- (Increase) decrease in receivables                                                          |  |       | (6,169  | ) |       | 
|                                                                                              |  |       |         |   |       | 
|- (Increase) decrease in inventories                                                          |  |       | (5,090  | ) |       | 
|                                                                                              |  |       |         |   |       | 
|- (Increase) decrease in biological assets                                                    |  |       | 1,389   |   |       | 
|                                                                                              |  |       |         |   |       | 
|- (Increase) decrease in other assets                                                         |  |       | (524    | ) |       | 
|                                                                                              |  |       |         |   |       | 
|- (Increase) decrease in deferred tax and current tax                                         |  |       | 17      |   |       | 
|                                                                                              |  |       |         |   |       | 
|- Increase (decrease) in creditors and accruals                                               |  |       | 5,378   |   |       | 
|                                                                                              |  |       |         |   |       | 
|Foreign Currency Adjustments                                                                  |  |       | 1,595   |   |       | 
|                                                                                              |  |       |         |   |       | 
|                                                                                              |  |       | (3,404  | ) |       | 
|                                                                                              |  |       |         |   |       | 
|Cash (used in) operations                                                                     |  |       | (15,089 | ) |       | 



F-47







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Credit Standby Facilities with Banks



|                |  | 2011  |        |   | 2010  | 
|--------------- |  | ----- | ------ | - | ----- | 
|                |  | $’000 |        |   | $’000 | 
|                |  |       |        |   |       | 
|Loan facilities |  |       | 2,558  |   |       | 
|                |  |       |        |   |       | 
|Amount utilised |  |       | (2,558 | ) |       | 
|                |  |       |        |   |       | 
|                |  |       | -      |   |       | 



Facilities at June 2011 relate term loans
for the funding of various items of Property, Plant and Equipment. The loan terms range from five to eight years with interest
rates from 3.4% to 16.75%. These loans do not have an option to extend.



F-48







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 30. | Interests and Remuneration of Key Management Personnel
| | --- | ------------------------------------------------------



|                         |  | 2011 |       |  | 2010 | 
|------------------------ |  | ---- | ----- |  | ---- | 
|                         |  | $000 |       |  | $000 | 
|                         |  |      |       |  |      | 
|Salaries                 |  |      | 1,457 |  |      | 
|                         |  |      |       |  |      | 
|Non-cash benefits        |  |      | 15    |  |      | 
|                         |  |      |       |  |      | 
|Post employment benefits |  |      | 73    |  |      | 
|                         |  |      |       |  |      | 
|Share based payments     |  |      | 3,245 |  |      | 
|                         |  |      |       |  |      | 
|Total                    |  |      | 4,790 |  |      | 



F-49







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Options



|                                             |  | Balance 1/7/2009 |           |  | Expired |  |          | New issue |  |  | Balance
1/7/2010 |  |  | Balance after consolidation at 50:1 | 23        |  | Lapsed |  |        | Balance 30/6/2011 |  |  | Vested  |  
|-------------------------------------------- |  | ---------------- | --------- |  | ------- |  | -------- | --------- |  |  | ---------------- |  |  | ----------------------------------- | --------- |  | ------ |  | ------ | ----------------- |  |  | ------- | -
|                                             |  |                  |           |  |         |  |          |           |  |  |                  |  |  |                                     |           |  |        |  |        |                   |  |  |         |  
|Director                                     |  |                  |           |  |         |  |          |           |  |  |                  |  |  |                                     |           |  |        |  |        |                   |  |  |         |  
|Guy Burnett 24                               |  |                  | -         |  |         |  | -        |           |  |  | 1,750,000        |  |  |                                     | 1,750,000 |  |        |  | 35,000 |                   |  |  | (35,000 | )
|Executive                                    |  |                  |           |  |         |  |          |           |  |  |                  |  |  |                                     |           |  |        |  |        |                   |  |  |         |  
|James Garton 25                              |  |                  | 1,750,000 |  |         |  | -        |           |  |  | -                |  |  |                                     | 1,750,000 |  |        |  | 35,000 |                   |  |  | (35,000 | )
|Third parties                                |  |                  |           |  |         |  |          |           |  |  |                  |  |  |                                     |           |  |        |  |        |                   |  |  |         |  
|For services rendered in 2009 equity raising |  |                  | 731,492   |  |         |  | (365,746 | )26       |  |  | -                |  |  |                                     | 365,746   |  |        |  | 7,315  |                   |  |  | -       |  
|TOTAL                                        |  |                  | 2,481,492 |  |         |  | (365,746 | )         |  |  | 1,750,000        |  |  |                                     | 3,865,746 |  |        |  | 77,315 |                   |  |  | (70,000 | )



---



|23 | Shareholders approved a share consolidation of 50:1 on 23 March 2011.
|-- | ---------------------------------------------------------------------



|24 | Grant date was 19 October 2009, share price on grant date was $14.25, exercise price is $8.5, fair value at grant date was $7.97, volatility used was 125.35%, risk free rate used was 4.83%, the options expire on 30 June 2011. Prices adjusted to reflect the impact of the share consolidation.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|25 | Grant date was 25 June 2009, share price on grant date was $9.25, exercise price is $8.5, fair value at grant date was $4.84, volatility used was 138.77%, risk free rate used was 4.16%, the options expire on 30 June 2011. Prices adjusted to reflect the impact of the share consolidation.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|26 | Share price on grant date was $8, volatility and risk free rate used in valuation was 138.77% and 4.16% respectively, exercise price is $50/$60. Prices adjusted to reflect the impact of the share consolidation.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-50







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Performance rights



|                              |  | Balance 30/6/2009 |           |    | New issue |  |           | Exercised |  |  | Lapsed   |   |  | Balance 30/6/2010 |          |   | New Issue |  |           | Exercised |  |  | Lapsed before
    consolidation |    |  | Balance before
    consolidation of Performance rights |             |   | Balance after
    consolidation |  |         | Lapsed after
    consolidation |  |  | Balance 30/06/2011 |  |  | Vested and
    unexercised at 30/06/2011 |        
|----------------------------- |  | ----------------- | --------- | -- | --------- |  | --------- | --------- |  |  | -------- | - |  | ----------------- | -------- | - | --------- |  | --------- | --------- |  |  | ------------------------------- | -- |  | ------------------------------------------------------ | ----------- | - | ------------------------------- |  | ------- | ------------------------------ |  |  | ------------------ |  |  | ---------------------------------------- | -------
|                              |  |                   |           |    |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                                 |    |  |                                                        |             |   |                                 |  |         |                                |  |  |                    |  |  |                                          |        
|Director                      |  |                   |           |    |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                                 |    |  |                                                        |             |   |                                 |  |         |                                |  |  |                    |  |  |                                          |        
|Nathan Mahalingam             |  |                   | -         |    |           |  | -         |           |  |  | -        |   |  |                   | -        |   |           |  | -         |           |  |  | 5,000,000                       | 27 |  |                                                        | (3,333,332  | ) |                                 |  | -       |                                |  |  | 1,666,668          |  |  |                                          | 33,334 
|Guy Burnett                   |  |                   | -         |    |           |  | 1,500,000 | 28        |  |  | (200,000 | ) |  |                   | (300,000 | ) |           |  | 1,000,000 |           |  |  | 5,000,000                       | 29 |  |                                                        | (3,733,332  | ) |                                 |  |         |                                |  |  | 2,266,668          |  |  |                                          | 45,334 
|                              |  |                   |           |    |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                                 |    |  |                                                        |             |   |                                 |  |         |                                |  |  |                    |  |  |                                          |        
|Executives                    |  |                   |           |    |           |  |           |           |  |  |          |   |  |                   |          |   |           |  |           |           |  |  |                                 |    |  |                                                        |             |   |                                 |  |         |                                |  |  |                    |  |  |                                          |        
|James Garton                  |  |                   | 1,500,000 |    |           |  | 5,000,000 | 30        |  |  | (200,000 | ) |  |                   | (300,000 | ) |           |  | 6,000,000 |           |  |  |                                 |    |  |                                                        | (3,733,332  | ) |                                 |  | -       |                                |  |  | 2,266,668          |  |  |                                          | 45,334 
|Senior employees collectively |  |                   | 1,200,000 | 31 |           |  | -         |           |  |  | (119,999 | ) |  |                   | (293,334 | ) |           |  | 786,667   |           |  |  | 1,550,000                       | 32 |  |                                                        | (546,666    | ) |                                 |  | (50,000 | )                              |  |  | 1,740,001          |  |  |                                          | 34,808 
|Total                         |  |                   | 2,700,000 |    |           |  | 6,500,000 |           |  |  | (519,999 | ) |  |                   | (893,334 | ) |           |  | 7,786,667 |           |  |  | 11,550,000                      |    |  |                                                        | (11,346,662 | ) |                                 |  | (50,000 | )                              |  |  | 7,940,005          |  |  |                                          | 158,810



---



Refer to the Remuneration report for full details on key management
personnel remuneration and benefits



27 Grant date was 6 July 2010,
share price and fair value on grant date was $13.25.  The performance rights vest in equal tranches at 1/7/2010, 31/12/2010
and 1/7/2011 for service.



28 Grant date was
19 October 2009, share price on grant date was $14.25, fair value at grant date was $10.69.



29 Grant date was 6 July 2010,
share price and fair value on grant date was $13.25.The performance rights vest in equal tranches at 1/7/2010, 31/12/2010 and
1/7/2011 for service.



30 Grant date was 30 March 2010, share price on
grant date was $17.25, fair value at grant date was $12.94.The performance shares vest in equal tranches at 1/7/2010, 31/12/2010
and 1/7/2011 for service.



31 Grant date was 25 June 2009;
share price on grant date was $9.25and fair value at grant date was $6.94. 40% of the performance shares vest in equal tranches
at 31/12/2009, 30/06/2010 and 31/12/2010 for service, and 60% of the performance shares vest in equal tranches on Positive Group
cash generation from operations by 30 June 2010, EPS of A$3.00 by 30 June 2011, and EPS of A$7.50 by 30 June 2012.



32 Grant date was 28 September
2010, share price and fair value on grant date was $9.75. 40% of the performance shares vest in equal tranches at 31/12/2010,
30/06/2011 and 31/12/2011 for service, and 60% of the performance shares vest in equal tranches on achievement of a Group EPS
of A$3.00 by 30 June 2011, EPS of A$7.50 by 30 June 2012 and EPS of A$7.50 by 30 June 2013.



F-51







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 31. | Related Parties
| | --- | ---------------



|                                                                                                                                                                       |  | 2011  |       |  | 2010  | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | ----- |  | ----- | 
|                                                                                                                                                                       |  | $’000 |       |  | $’000 | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Transactions between related parties are on a normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. |  |       |       |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Transactions with related parties:                                                                                                                                     |  |       |       |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Other Related Parties                                                                                                                                                  |  |       |       |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Management fee charged to Mission Biotechnologies Sdn Bhd, a 100% owned subsidiary company                                                                             |  |       | 656   |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Management fee charged to Mission Biofuels Sdn Bhd, a 100% owned subsidiary company                                                                                    |  |       | 985   |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Sale of Jatropha crude oil between Mission’s controlled subsidiaries                                                                                                   |  |       | 10    |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Increase in investment by Mission NewEnergy Ltd in Mission Biofuels India PL, via Mission Agro Energy Ltd                                                              |  |       | 2,713 |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Increase in investment by Mission NewEnergy Ltd in Mission Biofuels SB                                                                                                 |  |       | 3,989 |  |       | 
|                                                                                                                                                                       |  |       |       |  |       | 
|Increase in investment by Mission NewEnergy Ltd in Mission biotechnologies SB                                                                                          |  |       | -     |  |       | 



|Inter Company Loan Balances     | 
|------------------------------- | 
|                                | 
|                                | 
|                                | 
|Loan From                       | 
|Mission New Energy Ltd          | 
|                                | 
|Mission New Energy Ltd          | 
|                                | 
|Mission New Energy Ltd          | 
|                                | 
|Mission Biotechnologies Sdn Bhd | 
|                                | 
|Mission Biofuels Sdn Bhd        | 
|                                | 
|Mission Biotechnologies Sdn Bhd | 
|                                | 
|Mission Biotechnologies Sdn Bhd | 



F-52







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 32. | Financial Instruments
| | --- | ---------------------



Financial Risk Management



The Group has a financial risk management
policy in place and the financial risks are overseen by the Board. The Group’s financial instruments consist mainly of deposits
with banks, secured loans, convertible notes, other financial assets, accounts receivable, accounts payable, and loans to and from
subsidiaries.



The principal risks the Group is exposed
to through its financial instruments are interest rate risk, foreign currency risk, liquidity risk and credit risk.



The fair value hierarchy presented below
categorises the fair value instruments into Groups by valuation method;



Level 1: quoted prices in active markets,



Level 2: inputs, other than quoted prices
that are observable, and



level 3: inputs that are not based on observable
market data.



Fair value of financial instruments



|                                                                |  | Carrying amount $,000 |        |  | Fair Value $,000 |  |        | Level 1 |  |  | Level 2 |  |  | Level 3 |       
|--------------------------------------------------------------- |  | --------------------- | ------ |  | ---------------- |  | ------ | ------- |  |  | ------- |  |  | ------- | ------
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Financial assets                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Cash and cash equivalents                                       |  |                       | 15,761 |  |                  |  | 15,761 |         |  |  | -       |  |  |         | 15,761
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Other Financial Assets                                          |  |                       | 139    |  |                  |  | 139    |         |  |  | -       |  |  |         | 139   
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Derivative assets - forward exchange contracts used for hedging |  |                       | 39     |  |                  |  | 39     |         |  |  | 39      |  |  |         | -     
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Receivables (Current)                                           |  |                       | 6,583  |  |                  |  | 6,583  |         |  |  | -       |  |  |         | -     
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Receivables (Non-current)                                       |  |                       | -      |  |                  |  | -      |         |  |  | -       |  |  |         | -     
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Financial liabilities                                           |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Trade and other payables                                        |  |                       | 7,059  |  |                  |  | 7,059  |         |  |  |         |  |  |         | -     
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Current loans                                                   |  |                       | 14,907 |  |                  |  | 14,971 |         |  |  | -       |  |  |         | 14,991
|                                                                |  |                       |        |  |                  |  |        |         |  |  |         |  |  |         |       
|Non-current loans                                               |  |                       | 44,287 |  |                  |  | 44,845 |         |  |  | -       |  |  |         | 48,845



F-53







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



The fair value of cash and cash equivalents,
other financial assets, receivables, trade and other payables and current loans are short-term instruments in nature whose carrying
value is equivalent to fair value.



Non-current receivables are carried at
a discounted value, which reflects the fair value.



Non-current loans are carried at amortised
cost, with the fair value being determined using a discounted cash flow model incorporating current commercial borrowing rates.



Interest rate risk



Interest rate risk is managed with a mixture
of fixed and floating rate deposits, fixed rate convertible note debt and floating rate debt.  For further details on
interest rate risk refer to the table below under liquidity risk. The Group’s main interest rate risk, being fair value interest
rate risk, arises from the long term convertible note debt held by the parent.



Group sensitivity



At 30 June 2011, if interest rates had
changed by -/+ 25 basis points, with all other variables held constant, the following financial impacts would have been recorded
by the Group;



| | · | Effect on post tax profit – A$ Nil
million lower/higher (2010: A$ Nil million lower/higher)
| | - | -------------------------------------------------------------------------------------------

| | · | Equity would have been – A$ Nil
lower/higher (2010: A$ Nil million lower/higher)
| | - | --------------------------------------------------------------------------------

| | · | The fair value of convertible notes –
A$ 344 thousand  higher/A$ 341 thousand  lower (2010: A$ 0.28 million lower/higher
| | - | ------------------------------------------------------------------------------------------------------------------------



Foreign currency risk



The Group operates internationally through
a number of subsidiaries and is thus exposed to fluctuations in foreign currencies, arising from the foreign currencies held in
its bank accounts, the sale of goods in currencies other than the Group’s measurement currency, and the translation of results
from investments in foreign operations. The foreign exchange exposures are primarily to the Indian Rupee, Malaysian Ringgit and
the US dollar.



Foreign exchange risks arising from the
sale of products are hedged using forward exchange contracts.



Foreign currency risks arising from commitments
in foreign currencies are managed by holding cash in that currency. Foreign currency translation risk is not hedged, with translation
differences being reflected in the foreign currency translation reserve.



Group sensitivity



At 30 June 2011, if foreign currencies
had changed by -/+ 10%, with all other variables held constant, the following financial impacts would have been recorded by the
Group;



F-54







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Effect on cash and cash equivalent –
A$ 0.941 million lower/ A$1.15 million  higher (2010: A$ 1.0 million lower/ A$1.0 higher)



Profit and Loss would have been –
A$ 0.941 million lower/ A$1.150 million higher (2010: A$ 1.0 million lower/ A$1.0 higher)



Hedging of Foreign Currency Risk



At financial report date the Group had
in place a number of forward exchange contracts to protect against adverse movements in currency risk inherent in a sales contract.
Cash flow hedge accounting has been applied, with the fair value being $39,000 at reporting date, and the corresponding effective
value being reflected in other comprehensive income. The cash flows relative to these hedges are expected to occur within two months
of the reporting date.



Credit risk



Credit risk arises from the sale of biodiesel,
Jatropha Curcas saplings and cash held at period end.



Cash is only held in accredited banks and
credit risk arising from the sale of biodiesel is managed through the use of Letter of Credits.



Credit risk arising from sales of Jatropha
Curcas saplings is managed through the following approach:



Sales of Jatropha Curcas saplings to contract
farmers are concluded after a detailed review of the suitability of the contract farmer and the proposed land to be used for contract
farming. The sale is concluded via a Demand Cum Delivery Note, which states that the balance owing is at call by Mission Biofuels
India Pvt Limited,



A portfolio approach, where a large number
of relatively low value sales (around AU$250 per contract farmer, depending on the contract farming acreage) are made to a geographically
disbursed series of contract farmers, Contract farmers are required to incur considerable expense to prepare the land, prior to
delivery of saplings by Mission Biofuels India Pvt Limited, and thus have significant incentive to ensure the crop is viable.



Mission Biofuels India Pvt Limited has
entered into contract farming agreements with each farmer to purchase back the oil seeds produced by the Jatropha Curcas saplings
sold to the farmers. The Jatropha Curcas saplings have an estimated production life in excess of 30 years. Receivables are secured
against these future contracted purchases of Jatropha Curcas seeds.



Mission Biofuels India Pvt Limited has
in place memoranda of understanding with a number of leading financial institutions in India who have expressed a desire to loan
monies directly to the contract farmers to fund their working capital requirements. Disbursement of these loans will assist the
farmers in repaying monies owed to Mission Biofuels India Pvt Limited.



These financial institutions have formulated
specific schemes of financing for Jatropha farming.



In addition, the National Bank for Agriculture
and Rural Development (NABARD) of India (apex body for agricultural financing) has in place a standardised scheme of financing
to farmers of Jatropha Curcas.



F-55







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Several financial institutions, who do
not have memoranda of understanding with the Company, have also disbursed loans to the contract farmers of the Company based on
the standardised scheme stipulated by NABARD.



Disbursement of these loans to the farmers
will enable them to repay the amounts owed to the Company.



Second Biodiesel plant guarantee



The parent entity has provided a corporate
guarantee to the contractor of the second Biodiesel plant in place of the standard letter of credit originally placed at construction
commencement.



Commodity Risk



The Group is exposed to market prices of
input costs into the production of biodiesel. The key raw material currently being used to manufacture biodiesel is crude palm
oil. This risk is managed by negotiating ‘cost plus a margin’ sales contracts which minimises the Group’s exposure
to variations in this key input cost.



Group sensitivity



At 30 June 2011, if the price of crude
palm oil had changed by -/+ 10%, with all other variables held constant, the following financial impacts would have been recorded
by the Group;



Effect on post tax profit – A$ Nil
lower/higher



Equity would have been – A$ Nil lower/higher



F-56







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



Financial Instruments (cont’d)



Liquidity risk



|                               |  |       |        |  |       |  |        | Weighted Average Interest Rate | 
|------------------------------ |  | ----- | ------ |  | ----- |  | ------ | ------------------------------ | 
|                               |  | 2011  |        |  | 2010  |  |        | 2011                           | 
|                               |  | $'000 |        |  | $'000 |  |        | %                              | 
|Financial Assets:              |  |       |        |  |       |  |        |                                | 
|Cash and cash equivalents      |  |       | 15,761 |  |       |  | 17,155 |                                | 
|Other financial assets         |  |       | 178    |  |       |  | 26     |                                | 
|Loans and Receivables          |  |       | 6,583  |  |       |  | 4,168  |                                | 
|                               |  |       | 22,522 |  |       |  | 21,349 |                                | 
|Financial Liabilities:         |  |       |        |  |       |  |        |                                | 
|                               |  |       |        |  |       |  |        |                                | 
|Current debt                   |  |       |        |  |       |  |        |                                | 
|Floating Interest Rate         |  |       | 494    |  |       |  | 624    |                                | 
|Fixed Interest Rate            |  |       | 14,413 |  |       |  | -      |                                | 
|Non Interest Bearing           |  |       | 7,059  |  |       |  | 3,602  |                                | 
|Total Current Debt             |  |       | 21,966 |  |       |  | 4,226  |                                | 
|                               |  |       |        |  |       |  |        |                                | 
|Non-current debt (1 to 5 Year) |  |       |        |  |       |  |        |                                | 
|                               |  |       |        |  |       |  |        |                                | 
|Floating Interest Rate         |  |       | 2,064  |  |       |  | 3,039  |                                | 
|Fixed Interest Rate            |  |       | 42,223 |  |       |  | 55,989 |                                | 
|Non Interest Bearing           |  |       | -      |  |       |  | 109    |                                | 
|Total Non Current Debt         |  |       | 44,287 |  |       |  | 59,137 |                                | 



The Group manages liquidity risk by monitoring
forecast cash flows and ensuring that adequate cash is maintained.



F-57







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 33. | Parent entity information
| | --- | -------------------------



|                                                                                                                 |  | 2011  |          |   | 2010  | 
|---------------------------------------------------------------------------------------------------------------- |  | ----- | -------- | - | ----- | 
|Information relating to Mission NewEnergy Limited:                                                               |  | $’000 |          |   | $’000 | 
|                                                                                                                 |  |       |          |   |       | 
|Current assets                                                                                                   |  |       | 21,233   |   |       | 
|                                                                                                                 |  |       |          |   |       | 
|Total assets                                                                                                     |  |       | 22,010   |   |       | 
|                                                                                                                 |  |       |          |   |       | 
|Current liabilities                                                                                              |  |       | (14,948  | ) |       | 
|                                                                                                                 |  |       |          |   |       | 
|Total liabilities                                                                                                |  |       | (57,172  | ) |       | 
|                                                                                                                 |  |       |          |   |       | 
|Net asset (deficit)/surplus                                                                                      |  |       | (35,162  | ) |       | 
|                                                                                                                 |  |       |          |   |       | 
|Issued capital                                                                                                   |  |       | 96,697   |   |       | 
|                                                                                                                 |  |       |          |   |       | 
|Retained loss                                                                                                    |  |       | (142,665 | ) |       | 
|                                                                                                                 |  |       |          |   |       | 
|Share based payments reserve                                                                                     |  |       | 4,866    |   |       | 
|                                                                                                                 |  |       |          |   |       | 
|Convertible notes reserve                                                                                        |  |       | 5,940    |   |       | 
|                                                                                                                 |  |       |          |   |       | 
|Total shareholders’ equity                                                                                       |  |       | (35,162  | ) |       | 
|                                                                                                                 |  |       |          |   |       | 
|(Loss)/profit of the parent entity                                                                               |  |       | (35,983  | ) |       | 
|                                                                                                                 |  |       |          |   |       | 
|Total comprehensive income of the parent entity                                                                  |  |       | (35,983  | ) |       | 
|                                                                                                                 |  |       |          |   |       | 
|Details of any guarantees entered into by the parent entity in relation to the debts of its
    subsidiaries 33  |  |       | 5,209    |   |       | 
|                                                                                                                 |  |       |          |   |       | 
|Details of any contingent liabilities of the parent entity 34                                                    |  |       | -        |   |       | 
|                                                                                                                 |  |       |          |   |       | 
|Details of any contractual commitments by the parent entity for the acquisition of property, plant or equipment. |  |       | -        |   |       | 



---



33   The parent entity has provided a corporate
guarantee to the contractor of the second Biodiesel plant in place of the standard letter of credit originally placed at construction
commencement.



34 See the Contingent Liability note 27



35 Being a letter of credit provided by the parent
entity for the purchase of equipment by a subsidiary.



F-58







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 34. | Impairment of loans and investments
| | --- | -----------------------------------



|                                                                        |  | 2011  |      |   | 2010  | 
|----------------------------------------------------------------------- |  | ----- | ---- | - | ----- | 
|                                                                        |  | $’000 |      |   | $’000 | 
|                                                                        |  |       |      |   |       | 
|Non-Current asset held for sale                                         |  |       | 161  |   |       | 
|                                                                        |  |       |      |   |       | 
|Loans, receivables and advances to jointly controlled entity/subsidiary |  |       | 242  |   |       | 
|                                                                        |  |       |      |   |       | 
|Less: Cumulative Provision for impairment                               |  |       | (403 | ) |       | 
|                                                                        |  |       |      |   |       | 
|Carrying value                                                          |  |       | -    |   |       | 
|                                                                        |  |       |      |   |       | 
|Provision in the consolidated income statements                         |  |       | -    |   |       | 



| | 35. | Non-current assets held for sale
| | --- | --------------------------------



On 2 May 2008 the Board resolved to sell
Mission Agro Diesel (India) Pvt Limited (MADIPL). Subsequently the Board has exercised an option to sell the Groups shareholding
in MADIPL to the remaining shareholders. However, as no firm outcome on the sale has been achieved, the Board considered it prudent
for the Group to fully provide for the carrying value of the investment.



| | 36. | Subsequent events
| | --- | -----------------



Other than the matter mentioned below,
there have been no significant subsequent events up until the date of signing this Financial Report.



At the date of this report, the Board has
paid A$5 million to fully settle the series one convertible note liability of A$15 million shown in current liabilities (refer
note 22).



F-59







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 37. | Prior period adjustment
| | --- | -----------------------



With the move to undertake a second public
listing in the United States of America (USA), the Board has taken steps to ensure that the financial statements meet the USA regulatory
requirements, as well as Australian requirements. In order to address a difference in these regulatory requirements, Mission is
required to make a further provision for certain receivables in the feedstock business unit so that it can comply with the US regulatory
requirements. This has had the effect of increasing the provision for doubtful debts by A$4.3 mil with a corresponding impact on
profit and loss. The impact of this adjustment has been reflected in the 30 June 2010 financial results and shown as a prior year
adjustment. Accordingly, the prior period’s results have been restated to reflect the impact of these adjustments. This accounting
adjustment has no impact on the cash flows of the Group. There is no impact to the results of operations for the twelve months
ended 30 June 2009.



The net impact of the adjustment is as
follows:



|                                                        |  | 30 June 2010 as previously reported $’000 |          |   | Adjustment $’000 |  |        | Revised 30 June 2010 $’000 | 
|------------------------------------------------------- |  | ----------------------------------------- | -------- | - | ---------------- |  | ------ | -------------------------- | 
|                                                        |  |                                           |          |   |                  |  |        |                            | 
|Statement of comprehensive income                       |  |                                           |          |   |                  |  |        |                            | 
|                                                        |  |                                           |          |   |                  |  |        |                            | 
|Provision for doubtful debts                            |  |                                           | (4,839   | ) |                  |  | (4,321 | )                          | 
|                                                        |  |                                           |          |   |                  |  |        |                            | 
|Net profit attributable to members of the parent entity |  |                                           | (93,479  | ) |                  |  | (4,321 | )                          | 
|                                                        |  |                                           |          |   |                  |  |        |                            | 
|Statement of financial position                         |  |                                           |          |   |                  |  |        |                            | 
|                                                        |  |                                           |          |   |                  |  |        |                            | 
|Receivables – non current                               |  |                                           | 4,321    |   |                  |  | (4,321 | )                          | 
|                                                        |  |                                           |          |   |                  |  |        |                            | 
|Retained earnings                                       |  |                                           | (112,938 | ) |                  |  | (4,321 | )                          | 



F-60







Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011 (Contd.)



| | 38. | Company Details
| | --- | ---------------



The registered office of the company is:  Mission
NewEnergy Limited, Tempo Offices, Unit B9, 431 Roberts Road, Subiaco, WA 6008, Australia.



The principal places of business are:



|Australia |  | Mission NewEnergy Limited                                                                               |  |                                                                                                        
|--------- |  | ------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------
|          |  | Head Office                                                                                             |  |                                                                                                        
|          |  | Unit  4, 97 Hector Street West, Osborne Park,  WA 6017, Australia                                       |  |                                                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|Malaysia  |  | Mission Biofuels Sdn Bhd                                                                                |  | Mission Biotechnologies Sdn Bhd                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|          |  | Unit 621, Block A, Kelana centre point, No. 3, Jalan ss7/ 19, Kelanajaya, 47301 Petaling Jaya, Selangor |  | Unit 621, Block A, Kelana centre point, No. 3, Jalan ss7/ 19, Kelanajaya, 47301 Petaling Jaya, Selangor
|          |  |                                                                                                         |  |                                                                                                        
|          |  | Enviro Mission Sdn Bhd                                                                                  |  |                                                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|          |  | Unit 621, Block A, Kelana centre point, No. 3, Jalan ss7/ 19, Kelanajaya, 47301 Petaling Jaya, Selangor |  |                                                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|Mauritius |  | Mission Agro Energy Limited                                                                             |  |                                                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|          |  | 9th Floor Ebene Tower                                                                                   |  |                                                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|          |  | 52 Cybercity                                                                                            |  |                                                                                                        
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|          |  | Ebene                                                                                                   |  |                                                                                                        
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|          |  | Republic of Mauritius                                                                                   |  |                                                                                                        
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|India     |  | Mission Biofuels (India) Pvt Limited                                                                    |  | Mission Agro Diesel (India) Pvt Limited                                                                
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|          |  | Shops nos. 1,2 and 3                                                                                    |  | 608 Powai Plaza,                                                                                       
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|          |  | Sun heights, Ground floor                                                                               |  | Hiranandani  Business Park                                                                             
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|          |  | Gandhingar bridge                                                                                       |  | Powai, Mumbai - 400076,                                                                                
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|          |  | Adishankaracharyya Marg                                                                                 |  | India                                                                                                  
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|          |  | Powai, Mumbai                                                                                           |  |                                                                                                        
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|          |  | Maharashtra                                                                                             |  |                                                                                                        
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|          |  | India, 400 076                                                                                          |  |                                                                                                        
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|USA       |  | Scarborough Beach Holdings, Inc.                                                                        |  | PJ Trading, LLC                                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|          |  | 300 E. Basse Road, Suite 1539, San Antonio, TX, USA 78209                                               |  | 300 E. Basse Road, Suite 1539, San Antonio, TX, USA 78209                                              
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|          |  | PJ Trading Pennsylvania, LLC                                                                            |  |                                                                                                        
|          |  |                                                                                                         |  |                                                                                                        
|          |  | 300 E. Basse Road, Suite 1539, San Antonio, TX, USA 78209                                               |  |                                                                                                        



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