Mission NewEnergy (MNELF) 20-F 2012 FY Annual report (foreign)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

£ 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, 2012

OR

£ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

OR

£	Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	Date of event requiring this shell 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, Australia
(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
None	None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Ordinary Shares, no par value

(Title of Class)

 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of June 30, 2012: 9,452,415 Ordinary Shares

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

¨ Yes     x No

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.

¨ Yes     x No

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).

¨ Yes     x No

TABLE OF CONTENTS

		Page
CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT		2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		2
INDUSTRY AND MARKET DATA		3
PART I
	Item 1. Identity of Directors, Senior Management and Advisers	3
	Item 2. Offer Statistics and Expected Timetable	3
	Item 3. Key Information	4
	Item 4. Information on the Company	20
	Item 4A.Unresolved Staff Comments	29
	Item 5. Operating and Financial Review and Prospects	30
	Item 6. Directors, Senior Management and Employees	45
	Item 7. Major Shareholders and Related Party Transactions	61
	Item 8. Financial Information	62
	Item 9. The Offer and Listing	63
	Item 10. Additional Information	64
	Item 11. Quantitative and Qualitative Disclosures About Market Risk	75
	Item 12. Description of Securities Other than Equity Securities	77
PART II
	Item 13. Defaults, Dividend Arrearages and Delinquencies	77
	Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	77
	Item 15. Controls and Procedures	78
	Item 16. [Reserved]	78
	Item 16A. Audit Committee Financial Expert	78
	Item 16B. Code of Ethics	78
	Item 16C. Principal Accountant Fees and Services	79
	Item 16D. Exemptions from the Listing Standards for Audit Committees	79
	Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers	79
	Item 16F. Change in Registrant’s Certifying Accountant	79
	Item 16G. Corporate Governance	79
	Item 16H. Mine Safety Disclosures	79
PART III
	Item 17. Financial Statements	79
	Item 18. Financial Statements	79
	Item 19. Exhibits	79

i

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, 2010, 2011 and 2012 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.

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.

2

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 related to the restructuring we commenced in January 2012;

• 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.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

3

Item 3. Key Information

A. Selected Financial Data.

The following selected consolidated statements of operations and other consolidated financial data for the fiscal years 2012, 2011 and 2010 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, 2012, 2011 and 2010 and the balance sheet data as at June 30, 2012 and 2011 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, 2009 and 2008 and the balance sheet data as at June 30, 2010, 2009 and 2008 have been derived from our audited financial statements that are not included in this annual report.

	2012 U$(1)			2012 A$			2011 A$			2010 A$			2009 A$			2008 A$
	(in thousands, except share and per share data)
Income Statement data:
Total sales revenue		28,170			27,289			14,080			14,394			43,368			9,403
Total other income		11,372			11,016			2,869			2,066			11,809			20,530
Cost of sales		(27,329	)		(26,474	)		(13,987	)		(15,021	)		(45,709	)		(10,964	)
Employee benefits expense		(4,321	)		(4,186	)		(7,527	)		(5,307	)		(5,117	)		(2,694	)
Other income (expenses)		(10,810	)		(10,472	)		(11,818	)		(88,751	)		(19,271	)		(5,962	)
Finance costs		(3,348	)		(3,243	)		(5,288	)		(5,152	)		(8,401	)		(5,868	)
Profit/(loss) from operations before income tax		(6,266	)		(6,070	)		(21,671	)		(97,771	)		(23,321	)		4,445
Income tax (expense) benefit		(17	)		(16	)		1			(29	)		(434	)		(161	)
Net (loss)/profit		(6,283	)		(6,086	)		(21,670	)		(97,800	)		(23,755	)		4,284
Profit/(Loss) attributable to non-controlling interests		70			68			-			-			-			-
Profit/(Loss) attributable to members of the parent		(6,212	)		(6,018	)		(21,670	)		(97,800	)		(23,755	)		4,284
Basic and diluted earnings (loss) per share(2)		(0.71	)		(0.69	)		(3.50	)		(20.76	)		(12.00	)		2.31
Weighted average ordinary number of shares outstanding(3)		8,919,299			8,919,299			6,199,265			4,711,249			1,979,725			1,852,853
Balance Sheet data:
Total current assets		7,863			7,682			29,236			25,007			26,372			54,317
Total assets		10,956			10,703			36,598			33,749			118,030			114,580
Total current liabilities		2,418			2,362			22,059			4,300			9,550			10,379
Total non-current liabilities		31,952			31,215			44,287			59,137			57,441			55,579
Total liabilities		35,973			35,144			66,346			63,437			66,991			65,958
Retained earnings (accumulated losses)		(143,690	)		(140,377	)		(135,720	)		(117,259	)		(19,475	)		2,904
Total equity		(25,018	)		(24,441	)		(29,748	)		(29,688	)		51,039			48,622
Other financial data:
Dividends per share		—			—			—			—			—			—

4

(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, 2012, which exchange rate was A$1.00 = US$1.0236. 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, 2011 to June 30, 2012 which as A$1.00 = US$1.0323. 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, 2012, the noon buying rate for Australian dollars into U.S. dollars was A$1.00 = US$1.0236. On October 19, 2012, the noon buying rate for Australian dollars into U.S. dollars was A$1.00 = U.S $ 1.0328.

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,
2008		0.9562		0.9042		0.9644		0.7860
2009		0.8055		0.7423		0.9797		0.6073
2010		0.8480		0.8837		0.9369		0.7751
2011		1.0732		0.9905		1.0970		0.838
2012		1.0236		1.0323		1.1026		0.9453
Month ended
April 30, 2012		1.0410		1.0350		1.0447		1.0255
May 31, 2012		0.9711		0.9980		1.0345		0.9709
June 30, 2012		1.0236		1.0323		1.1026		0.9453
July 31, 2012		1.0522		1.0300		1.0522		1.0131
August 31, 2012		1.0334		1.0475		1.0591		1.0301
September 30, 2012		1.0388		1.0406		1.0561		1.0195
October 31, 2012 (through October 19, 2012)		1.0328		1.0276		1.0397		1.0188

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

5

B. Capitalization and Indebtedness.

Not applicable.

C. Reasons for the Offer and Use of Proceeds.

Not applicable.

6

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 incurred an operating loss for the year ended June 30, 2012 of $6.1 million (2011: $21.7 million), with net cash used in operating activities of $4.9 million (2011: 15.1 million). At June 30, 2012, the current assets less current liability surplus was $5.3 million (2011: $7.2 million) and the net asset deficiency $24.4 million (2011: $29.7 million). The net asset deficiency is primarily as a result of the impairment of the majority of the refinery assets during the current and previous financial years (refer to note 5a).

During the financial year, the Company has paid A$5 million to fully settle the series one convertible note liability of A$15 million shown in current liabilities at June 30, 2011. At June 30, 2012, the Company has a non-current liability for the series two convertible notes of A$32.9 million (nominal value).

As announced on August 17, 2012, a debt funding package has been agreed in principle with SLW International, LLC (“SLW”) a substantial convertible note holder, to provide the Group with a US$5 million line of credit facility. In addition, the Company has sent a Notice of Meeting to Shareholders to approve a Convertible Note restructure. Please refer to the Subsequent events note (Note 34) for further information on these transactions. The restructure of the convertible note debt is subject to shareholder approval. The Group has appointed an independent expert to review whether the transaction is fair and reasonable to shareholders (as required by the ASX listing rules), in order to be able to recommend the transaction to shareholders. The Independent Expert’s Report and notice of meeting are finalized and have been sent to shareholders with the shareholder meeting to be held on November 23, 2012. Please refer to the subsequent events section in the F pages for details of an application lodged with the Takeovers Panel in regard to the funding arrangement and convertible note restructure. At the date of this report, the Takeovers Panel has declined to conduct proceedings in relation to this matter.

The Directors believe that at the date of this report the Group has sufficient financial resources at June 30, 2012 to meet its committed financial liabilities.

The financial statements for the fiscal year ended June 30, 2012 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 this financial report. The cash flow forecasts from operations are based on the forecast cash flows required to sustain the business and cash on hand at June 30, 2012. The cash flow forecasts do not take into account any capital commitments as these are not foreseen to be payable within the forthcoming twelve months.

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 the ability of the Group to do a sufficient combination of the following things to enable its commitments to be met:

· Obtain shareholder approval for the proposed funding and restructure arrangements with SLW.

· Failing approval of the SLW arrangements, raise debt or equity funding from other sources.

· Generate positive cash flows from operations.

· Raise cash through sale of assets and recovery of receivables.

· Reduce cash outflows through cost control measures.

7

The Directors consider that there are reasonable grounds to expect that the Group will be able to meet its commitments through the measures listed above, and accordingly have prepared the financial report on a going concern basis in the belief that the Group will realize 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 the Group not be successful in the matters discussed above, there is material uncertainty whether the Group will be able to continue as a going concern.

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 foreseeable future. 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, 2012, we had total non-current indebtedness of A$32.9 million, including approximately A$31.1 million (accounting value) outstanding under our convertible notes which is due and payable in May 2014, and A$1.8 million of other debt. Our high level of indebtedness could have important consequences. For example, it could:

· 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.

8

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.

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.

9

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

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;

· 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 generate profitable sales this will significantly reduce our revenues and harm our results of operations.

In 2012, our biofuel revenue was generated primarily from three customers, with our by-products readily sold to a number of customers. Our contracts in 2012 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 of our inability to find profitable sales contracts our refining operations are currently in care and maintenance. If we are unable to source new customers our revenues will be significantly reduced and could have a material adverse effect on our results of operations.

If we cannot find suitably qualified personnel to run our refineries we may be unable to deliver into sales contracts which may result in lost revenues and incurred costs.

The operation of our refineries requires suitably qualified personnel. With the current status of the refineries being in care and maintenance, the majority of personnel have been retrenched. The ability to restart the refineries may be affected by an inability to employ suitably trained staff.

If we cannot get the refineries to run successfully after being in care and maintenance. we may be unable to deliver into sales contracts which may result in lost revenues and incurred costs.

With the refineries being under care and maintenance, such non-operation may result in significant costly technical and mechanical delays if the decision were made to restart production.

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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..

At this time, our refining operation is in care and maintenance and not operating. However, should we return to operations, 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 dependent 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.

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 entered into contracts with farmers 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. Further as we have restructured our operations in India and substantially reduced our field force we may not be able to influence the agronomy activities of our contract farmers or be engaged in contract farming at all. We may be unable to enhance the results of the low performing states or focus our operations in the areas giving the best results. Our contract farming operation 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. Further, as yields are below expectations, and we have been unable to accurately predict yields in the past, resulting in an inability to predict yields going forward, a decision has been made not to expand the contract farming acreage until more clarity can be obtained on yields.

Insufficient funds to fund the contract farming model would severely limit the ability to gain value from the contract farming operations.

Our operations require a large field force in order to manage the contract farming operations. An inability to fund this field force would likely result in uneconomic quantities of Jatropha seeds being collected to make the business operation financially viable.

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.

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

As we continue with our downscaled 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 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. We currently have no customers and have no visibility on our ability to attract customers. As such our refining operations have been put on care and maintenance.

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. Due to insufficient and unprofitable sales volumes under this mandate, we terminated the arrangements to supply biodiesel and we currently have no biodiesel sales in Malaysia and have no visibility towards further sales in Malaysia. As such, our refining operation shave been put on care and maintenance.

We are unable to perform under the offtake agreement with Valero.

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. As a result, we do not expect to supply biodiesel to Valero under the offtake agreement until these regulatory hurdles are resolved.

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, we may enter into hedging positions to protect against commodity risk. 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.

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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. 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.

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.

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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.

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, Indonesian rupiah, 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.

We may not be able to execute and deliver on our Indonesian palm oleochemical joint venture project.

Assuming that we are able to restart our Indonesian joint venture, our ability to develop our oleochemcial complex and generate financial return from the Indonesian joint venture relies on the ability to arrange substantial equity and debt financing, to construct and develop the site and to profitably operate the facility. At this stage of the project we can provide no assurances of our ability to finance, develop or operate the oleochemical facility. Further we can provide no protection from political risks inherent within the region of proposed operation.

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Risks Related to Our Strategy

We may not be able to restart refining operations.

In January 2012 the company announced a substantial restructure of its operations. One result of the restructure was to cease the refining operations until such time as profitable trading opportunities present them self. The refining operations are currently held in care and maintenance. Should such profitable opportunities present themselves there can be no assurance that the Company would be able to restart refining operations. Further the Company can make no assurances as to its ability or cost thereof to attract necessary staff, obtain working capital lines and re-commission the equipment.

We may be unable to shut down our Jatropha operations in India

In January 2012, the Company announced a substantial restructure of its operations, including the Indian Jatropha operations. In October 2012 the Company announced that the Indian operations had been substantially downsized and the Company was focused on divesting its remaining Indian assets. The Company can provide no assurances that it will be able to sell its Indian assets or that it may not face unforeseen liabilities associated with closing the Indian operation.

We may not be able to maintain and our Jatropha Contract Farmer network and as such our contract for Jatropha supply maybe not be fruitful.

Another result of the restructure was to cease further planting operations and to dramatically reduce the field force in India. The result of which is a substantially reduced field network to liaise with the Jatropha contract farmers. To the extent that the contract farming acreage under contract bears yield there can be no assurances that the Company will be able to collect yield. Further the Company can make no assurances that it will be able to either collect based on its existing contract farmers nor that it will be able to sign up new contract farmers. The result of either the inability to collect Jatropha yield from existing contract farmers or sign up new farmers may result in significantly lower supply of Jatropha which would materially adversely effect the Company’s financial results.

We have terminated our joint venture in Indonesia following our joint venture partners breach of material obligations. If we are unable to resolve the dispute we may suffer substantial financial loss.

In July 2012, the Company announced that it had canceled its Indonesian Joint venture following the breach by the joint venture partner to perform material obligations. If the joint venture partners are unable to determine a way forward the Company may be materially adversely financially effected. The Company can provide no assurances that the project will continue or that despite being due that it will receive any financial or other compensation following the termination.

We may be unable to sell our assets for fair market value or sell them at all.

If the Company sells its assets, it may not be able to realize its original investment, nor an amount greater than the current debt obligations of the Company and as such upon the sale of its assets can provide no assurance as to the realization of proceeds for the Company or shareholders.

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.

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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. Further, we can provide no assurances of having access to any Jatropha oil or seed cake. 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.. 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.

We currently are not generating revenue from operations and thus we may be unable 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 currently expect that our cash flow will be used to fund operating losses and capital expenditures. Should we become operational we would also require substantial working capital. Additionally, as of the date of this annual report we are required to repay approximately A$32.9 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 25% 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 25% 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. In June 2012 we decided to discontinue 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.

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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 six months in fiscal 2012, nine months in 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 continue the halt in 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.

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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.

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

Unless an active trading market develops for our securities, you may not be able to sell your ordinary shares.

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.” Although we are a reporting company, currently there is only a limited trading market for our ordinary shares and a more active trading market may never develop or, if it does develop, may not be maintained. Failure to develop or maintain an active trading market will have a generally negative effect on the price of our ordinary shares, and you may be unable to sell your ordinary shares or any attempted sale of such ordinary shares may have the effect of lowering the market price and therefore your investment could be a partial or complete loss.

As a foreign private issuer, we follow certain home country corporate governance practices which may afford less protection to holders of our ordinary shares.

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices.. 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. 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.

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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, 2012. 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, 2012 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.”

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 OTC Bulletin Board. 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.

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.

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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.

On January 27, 2012, the Company launched a major re-structure including a reduction in operating expenditure on all fronts, divestment of non-core assets and efforts to raise additional capital. At the same time, the Company announced that it would cease planting further Jatropha acreage and dramatically downscale its field operations.

On February 20, 2012, the Company announced a major initiative with the acquisition of 85% of Oleovest, a special purpose company with a 70% interest in a Joint Venture with PTPN111 (a state owned major palm oil plantation company) to set up a downstream palm oil and oleo-chemical complex in Indonesia.

On May 4, 2012, the Company announced the final production runs in its Malaysian refining operation. The refining assets have been put in care and maintenance.

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On the July4, 2012, the Company’s ordinary shares were formally delisted from trading on the NASDAQ Global Market.

On July 11, 2012, the Company announced that due to failure of material obligations by PTPN111, it had terminated its Joint Venture in Indonesia.

On October 8, 2012, the Company announced that a placement of approximately 15% of its outstanding equity raising approximately US$100,000 before placement costs.

On October 19, 2012, the Company announced that its Indian operations had been significantly downsized and that the Company was focused on divesting its remaining Indian assets.

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

	2012 A$'000		2011 A$'000		2010 A$'000
Biodiesel refineries		765		2,981		2,250
Land & buildings		-		-		12
IT systems & office equipment		68		182		171
Vehicles & sundry equipment		-		-		23

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 principal office is located at Unit B2, 431 Roberts Rd, Subiaco, Western Australia 6008 Australia. Our telephone number is +61-8-6313-3975. Our website address is www.missionnewenergy.com. Information on our website and websites linked to it do not constitute part of this annual report.

B. Business Overview.

Recent Developments

The Company is not operating its biodiesel refining segment. The refineries are being held in care and maintenance either awaiting a return to positive operating conditions or the sale of assets.

The Company has materially diminished its Jatropha contract farming operation and the company is now focused on divesting the remaining Indian assets. The Company intends to cease all Indian operations.

At this point in time, due to failure of material obligations by PTPN111, the Joint Venture in Indonesia has been terminated. The Company is reviewing its position in the Joint Venture in Indonesia and expects that this will result in either the continuation of the project of the sale of its equity interests.

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.

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 cannot be determined at this stage, 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.

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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. The transesterification and pre-treatment unit is yet to be handed over to us by the EPCC contractor. 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. Both plants are currently non-operational and being held in care and maintenance.

In February of 2012, the Company acquired an 85% stake in Oleovest Pte Ltd, a company incorporated in Singapore. Oleovest is a special purpose company which has a 70% equity stake in PT Sinergi Oleo Nusantara (“PTSON”), a newly formed joint venture company in Indonesia which is 30% owned by PT Perkebunan Nusantara III (“PTPN III”). Under the Joint Venture Agreement, PTSON will establish a new downstream palm oil and oleo-chemical complex at the PTPN III owned Sei Mangkei Industrial Zone in North Sumatra, which in the first stage is expected to consist of a 600,000 tpa edible oil refinery, a 250,000 tpa Methyl Ester (“biodiesel”) plant and a 100,000 tpa Fatty Alcohol plant. The project to be built at an estimated cost of US$200 million will require successfully arranging approximately US$140 million in debt and US$60 million in equity, before construction begins. To start with, Mission will invest approximately US$3.0 million to acquire the stake and fund the initial operations of PTSON. Once fully funded, it is anticipated that the project would be implemented over approximately 3 years.

Historically, we have produced biodiesel product for the European and Malaysian market that we have sold to various customers.

Our Competitive Strengths

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

Established Refining Operations

Should the market condition for biodiesel production become profitable, we believe our established operations will allow the Company to react faster than competitors that either need to build or acquire refining assets. With a cumulative nameplate production capacity of 105 million gallons per annum (350,000 tonnes per annum), this scale makes us commercially relevant to large scale fuel blenders.

We have a potential supply of feedstock that does not compete with food crops

Should the Company intend to re-engage in Jatropha contract farming, we have established a contract farmer network that potentially provides us with a supply of relatively priced stable feedstock.

Joint Venture Agreement with State Owned Indonesia Palm Plantation Company to develop Oleochemical Complex

Our Joint Venture agreement with PTPNIII to build a substantial oleochemcial complex, while currently terminated, provides us the potential to build a refining complex with a dedicated supply of palm oil as feedstock material.

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Our Strategies

The Company is focused on maximizing shareholder value through operation or divestment of assets.

Malaysian Assets

The Company intends to keep its Malaysian assets in care and maintenance while awaiting a favourable change in operating conditions or if deemed to be economically beneficial to shareholders may sell the assets for an equity position in a related company or for a cash value.

Jatropha Contract Farming Network & Indian Operations

The Company is ceasing all further Jatropha operations. We intend to divest ourselves of all remaining Indian operations and assets.

Indonesian Joint Venture

The Company will work with the Joint Venture partners to seek a way forward with the Indonesian Oleo-chemical project.

The Company is reviewing its position in the Joint Venture in Indonesia and expects that this will result in either the continuation of the project of the sale of its equity interests.

Corporate Opportunities

The Company will continue to look at other related opportunities and projects on a continued basis, which are expected to create synergies with existing projects to enhance shareholder value.

Biodiesel Production

Refinery overview

Refining capability is a key element of our long term strategy to be an integrated biofuel producer 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. Our refining process for Plant I has been certified for compliance to ISO 9001:2008, which is the highest commercial quality management certification..

We constructed and in June 2010 commissioned the transesterification unit of 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.

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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.

Grey:  Inputs

Light Green:  Saleable by-products

Dark Green:  Saleable primary products

Feedstock (typically palm 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.

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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.

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,
	2010			2011			2012
Production		14,151			12,149			17,119
Capacity Utilization		14	%		3.5	%		4.9	%

Subsequent to its commissioning of the transesterification unit, we have not yet used Plant II to produce biodiesel for commercial sales because the full facility is yet to be commissioned.

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In fiscal 2012, our biofuel revenue was generated primarily from three new customers, with our by-products readily sold to a number of customers. Our contract with these customers have expired.

Refining By-product Sales

We have historically sold our glycerin and fatty acid distillates ex works into the immediate cash payment and delivery market. However such sales have been negatively impacted by our restructuring.

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. 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. As a result, we do not expect to be able to supply biodiesel to Valero under the offtake agreement until these regulatory hurdles are resolved.

Summary of Historic Sales

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

Indian Operations:
Description	Fiscal Year Ended June 30, 2010		Fiscal Year Ended June 30, 2011		Fiscal Year Ended June 30, 2012
	Indian rupees, in millions
Agricultural Income		27,538		36,250		2,345
Wind Mill electricity generation		21,473		23,345		24,901
Crude Jatropha Oil		5,006		1,305		—
Others		—		3,801		2,787
Total		54,017		64,701		30,033

Malaysian Operations:
Description	Fiscal Year Ended June 30, 2010		Fiscal Year Ended June 30,  2011		Fiscal Year Ended June 30, 2012
	Malaysian ringgits
Biofuels		39,288,051		40,717,910		82,713,450
Pure Glycerin		196,556		-		114,625
Crude Glycerin		815,584		369,158		2,181,344
PFAD		1,035,293		693,904		2,932,160
Crude Jatropha Oil		-		146,082		-
Total		41,335,484		41,927,054		87,941,579

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 historically 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.

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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.

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 long-term 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.

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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.

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:

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All subsidiaries are 100% owned at June 30, 2012, except Mission Agro Diesel (India) which is 51% owned by us and Oleovest Pte Ltd, which is 85% owned by us. PT Sinergi Oleo Nusantara is 70% owned by Oleovest Pte Ltd. 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 is a dormant corporation with no active operations.

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		12.0		30		18.7	%	February 2008 and June 10
Plant II		6.0		75		0	%	Not yet commissioned

(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 2012. The total tonnage produced during this period was 82,788 tonnes and the operating nameplate capacity is 441,667 tonnes for the entire period.

We are in in formal arbitration with KNM over the final payment and commissioning for the refinery; however, we cannot be certain when the arbitration will be finalized.

Our principal executive and registered administrative offices are located on premises comprising approximately 60 square meters in an office building in Perth, Australia.

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, and an apartment in India for use by the operational staff.

Item 4A. Unresolved Staff Comments

None.

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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.

Overview

Given our going concern opinion from our auditors, history of losses, excess of liabilities over assets and negative cash flows from operating activities as of June 30, 2012, we will need to further debt or equity, generate positive cash flows from operations, defer the coupon commitments relating to the convertible notes, sell material assets, recover receivables and implement further cost control to meet the Group’s commitments. As announced to the market on the August 17, 2012, a debt funding package has been agreed in principle with SLW International, LLC (SLW), a substantial convertible note holder, to provide the Group with a US$5 million line of credit facility, which we believe such funds will be more than adequate for 12 months of operating costs. The facility is conditional on the restructure of the Group’s existing convertible note debt whereby each existing convertible note will be exchanged for a new convertible note. The restructure of the convertible note debt is subject to shareholder approval. The Group has appointed an independent expert to review whether the transaction is fair and reasonable to shareholders, in order to be able to recommend the transaction to shareholders. The Independent Experts Report and notice of meeting are close to final form.

We historically have been 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 2012, we incurred a net loss of A$6.1 million (US$6.3 million). We generated revenues of A$38.3 million (US$39.6 million) in fiscal 2012. If we are unable to achieve our business 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 2012, biodiesel refining contributed 70% of our revenue, upstream feedstock business contributed 0% of our revenue and other operations (including wind farm operations) contributed 1% of our revenue and the unallocated segment (mostly corporate) contributed 29%.

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 the foreseeable future. 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.

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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 three 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.

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.

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 may 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.

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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, 2012, the two wind mills had generated and delivered 6,253,671 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.

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, 2011 and 2012.

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

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

Procure seeds

Grow saplings in Mission’s nurseries

Delivery/sale of saplings to contract farmers

Provide agronomy support to contract farmers and initiate bank loan process

Business operational activity

Seeds are purchased from the general market (note that these seeds have traditionally been collected by local farmers from Jatropha plants growing in the wild).   Mission field staff sign a 30 year Contract Farming Agreement with prospective contract farmers.

Seeds are sown in nurseries. These seeds germinate and grow rapidly into saplings over a period of around three months.   During this time in the nursery, local labor is employed to tend to the growing saplings and water and fertilizer is applied.

Around mid-July the rain starts in India (locally called the monsoons). Saplings are then uprooted and transported to our contract farmers to be re-planted in the required wet conditions.   Thus Mission is selling its biological assets to the contract farmers, which we term “on-sold”.   A Delivery Cum Demand Note (“DCDN”) is signed by the contract farmer accepting the delivery of the saplings. It is the farmer’s responsibility to plant and tend to the saplings in his own fields.

Mission staff provide agronomy advice to contract farmers on matters such as;     •  Pruning     •  Weeding     •  Fertilizer      application   Mission staff starts communications with farmers and banks to initiate the bank loan process.

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Year 1

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

Procure seeds

Grow saplings in Mission’s nurseries

Delivery/sale of saplings to contract farmers

Provide agronomy support to contract farmers and initiate bank loan process

Biological asset and other income assessment

Not applicable as the definition of a biological asset is not met.

The saplings take around three months to grow to a stage where they are robust enough to be uprooted and transported to contract farmers.   When the sapling is deemed robust enough to survive uprooting and transportation to contract farmers, the recognition and measurement criteria of a biological asset are deemed to be met, and hence Mission recognizes a biological asset, with the associated contra journal entry crediting other income.

Due to the fact that Mission has uprooted and transferred ownership and responsibility of the saplings to the contract farmers, the biological assets are derecognized upon delivery to the contract farmer.

Not applicable as Mission does not have the biological asset under its control.

Due to the relatively short growth period of the biological asset until uprooting and distribution to farmers (around three months) and the fact that the material growth in value occurs within one reporting period, Mission recognizes the value of the biological asset once, i.e. the fair value does not increase systematically over a number of reporting periods, and hence multiple

tranches of fair value revenue are booked to account.

Year 1

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

Procure seeds

Grow saplings in Mission’s nurseries

Delivery/sale of saplings to contract farmers

Provide agronomy support to contract farmers and initiate bank loan process

Revenue recognition assessment

Not applicable as no biological asset or sales made.

The contra entry related to the recognition of the biological asset is recognized in other income when the biological asset is recognized.

Mission does not recognize revenue when the saplings are delivered to the farmer.   This is because other income from the change in fair value of the biological asset has already been recognized and the further recognition of revenue when the sapling is delivered to the contract farmer would result in revenue being recognized twice in regard to the same sapling, which would not be showing the true and fair position of the financial transactions associated with the growing and ultimate sale of the saplings. Hence we derecognize the biological asset and recognize a receivable on delivery of the sapling to the contract farmer.

Not applicable.

Receivables

Not applicable during this period as no deliveries of saplings has occurred to the contract farmers.

Not applicable during this period as no deliveries of saplings has occurred to the contract farmers.

A receivable is recognized at the point in time when the saplings are delivered to the contract farmer. The DCDN signed by the farmer confirms acceptance by the farmer for the saplings delivered, the price per sapling, and that the amount is due and payable to the company on companies demand.

Receivable remains in existence until paid in cash or offset through the future buy back of seeds from the farmer.   Please refer to the discussion below on the business activities from year 2 – 30 for information on the recoverability of the receivable.

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Year 1

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

Procure seeds

Grow saplings in Mission’s nurseries

Delivery/sale of saplings to contract farmers

Provide agronomy support to contract farmers and initiate bank loan process

Cost of sales

Not applicable because seeds purchased are recognized in inventory and held on balance sheet until distributed to the nurseries for growing saplings or to the crushing unit for oil extraction.

Costs incurred in growing the saplings include;     •  cost of seeds issued to the      nursery; and     •  water, labor and fertilizer.   All such costs are expensed to the profit and loss and shown as cost of sales. There are no elements of cost of sale expenses held on balance sheet to be expensed at a later point in time.

Costs incurred in transporting the saplings to the contract farmers are expensed to the profit and loss as cost of sales.

Not applicable.

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.

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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.

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.

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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. If at a point in time it is determined that revenue will not ultimately be realized into cash, no revenue is recognized for that period, as is the case for the 2012 financial year.

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.

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.

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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. However, handover from the EPCC contractor is still pending. The construction of a distillation column within the plant property is materially complete, however pending visibility of sales that require such specifications, the commissioning has been put on hold.

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 and into 2012.

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 and 2012 financial years 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.

Credit risk of receivables in feedstock business

With the downsizing of the feedstock operations, all receivables from sale of saplings have been impaired. Sales of electricity, which is under a power purchase agreement, and the resulting receivable are to a large Indian State Owned enterprise and hence credit risk is deemed low.

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	As of and for the year ended
	June 30, 2012 A$ in millions			June 30, 2011 A$ in millions			June 30, 2010 A$ in millions
Gross carrying value of the sapling sale receivable		18.8			20.9			23.4
Provision for impairment		(16.6	)		(17.6	)		(18.6	)
Discount on non-current portion of receivable		(2.2	)		(2.6	)		(2.8	)
Net carrying value of receivables		—			0.7			2.0
Current		—			0.7			2.0
Non-current		—			-			—
Total Carrying value		—			0.7			2.0

Amounts collected in the Jatropha operations are presented below:

	As of and for the year ended
	June 30, 2012 A$ in millions		June 30, 2011 A$ in millions		June 30, 2010 A$ in millions
Cash collected		0.2		0.7		1.9

Comparison of Results of Operations

Fiscal 2012 compared with fiscal 2011

Revenue. Revenue increased by A$21.9 million (133%) from A$16.4 million in fiscal 2011 to A$38.3 million in fiscal 2012 principally as a result of an increase in biofuel sales (increased A$13.8 million from A$13.5 million in fiscal 2011 to A$27.3 million in fiscal 2012) and other revenue (increased A$ 8.2 million from A$ 2.8 million in 2011 to A$11.0 million in 2012). Our refinery operated for approximately six months in fiscal 2012 and approximately three months in 2011. We operated at lower than full capacity (17% in 2012 and 12% in 2011). The increase in capacity usage (i.e. volume of biodiesel sales) and revenue is primarily as a result of the implementation of a biodiesel mandate in Malaysia in fiscal year 2012. Sales of product for the Biodiesel mandate were made to two large petroleum companies operating in Malaysia. The continued low overall capacity under-utilization was due to low 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 (other than the mandated market in Malaysia) 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 and Gasoil 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 revenue from external; customers in fiscal 2012, the refinery business generated revenue of A$27.3 million (98.2%), with other operations (including wind farm) generating A$0.5 million (1.8%).

Of the other revenue in fiscal 2012, the fair value revenue from biological assets in the feedstock business generated revenue of A$0 (0%), a gain on settlement of convertible note of A$10.3 million (93.5%) was recorded, with sundry income (including interest) generating A$0.7 million (6.5%).

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 2011	Fiscal 2012
Plant I	– Plant fully commissioned twelve months – Plant operated three months – Yearly capacity utilization of 12%	– Plant fully commissioned twelve months – Plant operated six months – Yearly capacity utilization of 14%
Plant II	– In the process of being handed over – No capacity utilization	– In the process of being handed over – No capacity utilization

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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. Sales contracts for biodiesel sales are primarily “feedstock cost plus” sales contracts, i.e. the Company obtains gross profit above the cost of crude palm oil feedstock. Hence as our cost per ton of crude palm purchased moves (driven by market forces and the commodity price of crude palm oil), so does our revenue increase, and vice versa. This thus generates a feedstock plus margin for Mission, in effect given that feedstock is approximately 85% of the cost of sales, results in a relatively stable gross profit margin regardless of feedstock cost. This gross profit margin is affected by commodity price movements of the remaining commodities required to make biodiesel. Cost of biodiesel increased from A$ 13.4 million (includes change in inventory cost) in fiscal 2011 (99% of sales revenue) to A$26.2 million (includes change in inventory cost) in fiscal 2012 (96% of sales revenue) which is primarily attributable to the increase in both volume of biodiesel sales and the underlying sales price driver, being the cost price of crude palm oil.

Cost of growing our biological assets reduced from A$0.6 million in fiscal 2011 to A$0.4 million in fiscal 2012, attributed to efficiencies and reductions in operations in 2012.

Expenses. Total expenses increased by A$6.7 million (18%) from A$37.7 million in fiscal 2011 to A$ 44.4 million in fiscal 2012 principally due the increase in cost of sales from A$13.9 million in fiscal 2011 to A$26.5 million in fiscal 2012. The increase in cost of sales was offset by a reduction in employee benefits expense of A$3.3 million from A$7.5 million in fiscal 2011 to A$4.2 million in fiscal 2012 and a reduction in net foreign exchange gains/(losses) from a loss in fiscal 2011 of A$1.8 million to a gain in fiscal 2012 of A$0.3 million.

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Additional movements in expenses include:

• Impairment of trade receivables.   Impairment of trade receivables decreased A$0.9 million (48%) from A$1.9 million in fiscal 2011 to A$1.0 million in fiscal 2012. The reduction reflects the zero value of sales of Jatropha saplings in fiscal 2012 financial year. The impairment is driven by the poor yield of Jatropha seeds in the 2011/12 season and the resultant downsizing of the feedstock operations and therefore all receivables from the sale of saplings have been impaired.

• Depreciation and amortization.   Depreciation and amortization remained the same at A$0.4 million in fiscal 2011 year and A$0.4 million in fiscal 2012.

• Finance costs.   Finance costs have reduced by A$1.7 million from A$4.9 million in fiscal 2011 to A$3.2 million for the 2012 fiscal year, primarily as a result of the settlement of the series one convertible notes in September 2011

Income tax.   Income tax expense increased by A$17,000 from an income of A$1,000 in fiscal 2011 to an expense of A$16,000 in fiscal 2012.

(Loss) for the year.   As a result of the foregoing, our loss before income tax decreased from A$21.2 million in fiscal 2011 to A$6.1 million in fiscal 2012.

Fiscal 2011 compared with fiscal 2010

Revenue. Revenue remained static from A$16.5 million in fiscal 2010 to A$16.4 million in fiscal 2011. Revenue from the refining segment reduced marginally (reduced A$ 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 operated three months – Yearly capacity utilization of 13%	– Plant fully commissioned twelve months – Plant operated three months – Yearly capacity utilization of 12%
Plant II	– Not commissioned – No capacity utilization	– In the process of being handed over – 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.

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Cost of sales. Sales contracts for biodiesel sales are primarily “feedstock cost plus” sales contracts, i.e. the Company obtains gross profit above the cost of crude palm oil feedstock. Hence as our cost per ton of crude palm purchased moves (driven by market forces and the commodity price of crude palm oil), so does our revenue increase, and vice versa. This thus generates a feedstock plus margin for Mission, in effect given that feedstock is approximately 85% of the cost of sales, results in a relatively stable gross profit margin regardless of feedstock cost. This gross profit margin is affected by commodity price movements of the remaining commodities required to make biodiesel. Cost of biodiesel decreased marginally from A$ 13.6 million in fiscal 2010 (98% of sales revenue) to A$13.4 million in fiscal 2011 (99% of sales revenue) which is primarily attributable to the increase in both volume of biodiesel sales and the underlying sales price driver, being the cost price of crude palm oil.

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$2.1 million in fiscal 2011.

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$1.7 million (81.0%) from A$2.1 million in fiscal 2010 year to A$0.4 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.

(Loss) 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.

Impact of Inflation

We do not believe that inflation has had a material effect on our business.

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.

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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 the issuance of convertible notes and equity securities to investors. The Group is in the process of raising new debt to fund future operations and is reviewing strategic options to generate funds for the group, either from generating cash from product sales, new strategic initiatives or sale of assets.

The following table sets forth our consolidated cash flows since fiscal 2010.

	Year ended June 30
	2012			2011			2010
				(audited)
Net cash provided by (used in) operating activities		(4,871	)		(15,089	)		(6,902	)
Net cash provided by (used in) investing activities		(3,968	)		(4,094	)		(6,405	)
Net cash provided by (used in) financing activities		(5,461	)		19,640			14,937
Effect of exchange rate changes on cash held in foreign currency		(5	)		(1,851	)		(722	)
Net movement in cash and cash equivalents		(14,305	)		(1,394	)		(908	)
Cash and cash equivalents at the beginning of the year		15,761			17,155			16,247
Cash and cash equivalents at the end of the year		1,456			15,761			17,155

Fiscal 2012 compared with fiscal 2011

Net cash used in operating activities in fiscal 2012 and 2011 consisted of losses incurred in operations. The losses were incurred in all segments of the business. Due to low throughput volume our refining operations generated insufficient gross profit to cover overheads, resulting in a negative cashflow from refining operations. Our Jatorpha operations, while still in development is generating negligible revenue, resulting in negative operating cashflow from the Jatropha segment. As a result of negative operating cashflow in all segments and group overheads, the group was cashflow negative for the years. However, cash used in 2012 was A$4.9 million as opposed to cash used in fiscal year 2012 or A$15.1 million. This improvement in cashflow is principally a result of miss match of revenue vs. cost recognition between the two financial years. In fiscal year 2011 the group purchased a material value of inventories for production of biodiesel which was sold in the fiscal year 2012. In addition, the group has significantly reduced the operating costs of the group in the fiscal year 2012 and the interest payment on the convertible notes reduced as a result of settlement of the series one convertible notes in September of 2011, thus no longer attracting interest, and the conversion of a portion of the series two convertible notes, also no longer attracting an interest charge.

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

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Net cash used in financing activities was A$5.5 million in fiscal 2012. The outflow was primarily for the settlement of the series one convertible note.

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.

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

Due to the lower than expected yields in the 2011 Jatropha season, the Company is is ceasing all further Jatropha operations. We intend to divest ourselves of all remaining Indian operations and assets. The reduction of operations is expected to result in no yield, and hence will affect the profitability and liquidity of this business segment.

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.. Due to the scale back of operations we have made provision for all receivables.

Convertible Notes

We issued 50,000,000 convertible notes at a price of A$1.30 per note in May 2007 “Series 1 convertible notes”. 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. The series one convertible note, with a nominal value of A$15 million, was due in May 2012. We settled the liability relating to the remaining Series 1 Convertible Note holder in September 2011 for A$5 million after mutual agreement with the 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. At no stage during the period have any covenants on these convertible notes been breached.

During 2012, 198,885 convertible notes were converted into ordinary shares.

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The remaining Series 2 notes totaling 505,904 convertible notes can be convertible into an aggregate of 2,023,616 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 facilities.

Secured loans

As of June 30, 2012, we had secured loans of A$ 1.8 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.

As of June 30, 2011, we had secured loans of A$ 2.6 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.

In March 2012 Mission decided that due to being unable to reach a settlement with KNM Process Systems SDN BHD (“KNM”) as it relates to the handover and final acceptance for Mission’s 250,000 tpa biodiesel plant, the matter has been referred to arbitration.

We cannot be certain when the arbitration process 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.

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 expenditure on research and development was A$11,000, A$168,000 and A$154,000 in fiscal years 2012, 2011 and 2010, respectively.

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All research and development expenditures have been expensed through the Profit and Loss.

We have currently suspended all research and development projects.

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, 2012:

	Payments due by period
	Total A$’000		less than 1 year		1 – 3 years		3 – 5 years		more than 5 years
Operating lease obligations		3,035		154		493		356		2,032
Secured loans		1,764		1,650		114		-		-
Convertible notes		31,101		-		31,101		—		—
Interest on convertible notes		3,288		1,973		1,315		—		—
Capital commitments		3,483		3,483		—		—		—
Total		42,671		7,260		33,023		356		2,032

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	57	Chairman
Nathan Mahalingam	55	Chief Executive Officer and Director
Guy Burnett	44	Chief Financial Officer, Director and Company Secretary
Datuk Zain Yusuf	73	Director
Admiral (Ret) Tan Sri Dato’ Seri Mohd Anwar bin Haji Mohd Nor	62	Director
Arun Bhatnagar	68	Director
Peter Torre	40	Director
James Garton	36	Head of Corporate Finance/Mergers and Acquisitions
Samsudeen Ganny	53	Vice President of Refining (joined on July 1, 2011)
Nadason Sinnasami	66	Chief Operating Officer Feedstock Operations

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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. Mr. Amara is an civil engineer and experienced chief executive with extensive business experience gained over 30 plus years in the Australian and international markets; spanning the infrastructure, industrial and property sectors. For the past 17 years he has held CEO, executive leadership and Board positions with major construction and engineering groups. Mr Amara has a record of achievement in establishing, growing and rejuvenating businesses and strategic leadership. He has served as chairman of the Art Gallery of Western Australia, the West Australian Opera Company and Heritage Perth and as a board member of the Perth International Arts Festival. Appointed Chairman March 31, 2006. Board member since March 31, 2006. He is currently a non-executive director of Austal, director of OTOC 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 a Director of WSA Group of Companies, immediate past chairman of the Malaysian Australia Business Council and served as a Director of Airod Sdn Bhd, NADI Bhd, Malacca Securities Sdn Bhd, Faber Group Bhd, PJ Bumi Bhd and as chairman of Confoil (Malaysia) Bhd, a Malaysian - Australian joint venture company in Malaysia.

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.

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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, Food 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.

Samsudeen Ganny.Mr Gannyjoined 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).

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.

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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 year 2012, the aggregate remuneration we paid and that accrued to our directors and senior management was A$1.5 million.

2012	Short term						Post				Proportion of			Value of options and performance shares
	Salary		Non-cash Benefits		Share based payments		employment Super Contribution		Total		remuneration performance related			as a proportion of remuneration
	$’000		$’000		$’000		$’000		$’000		%			%
Directors											-			-
Mr Dario Amara		100		-		-		9		109		-			-
Datuk Zain Yusuf		75		-		-		1		76		-			-
Mr Nathan Mahalingam		288		-		-		-		288		-			-
Admiral (Ret) Tan Sri Dato’ Sri Mohd Anwar bin Haji Mohd Nor		50		-		-		1		51
Mr Arun Bhatnagar		50		18		-		-		68		-			-
Mr Guy Burnett		218		-		-		20		238		-			-
Mr. Peter Torre		50		-		-		4		54		-			-
Key management personnel
Mr Samsudeen Ganny1		113		-		49		14		176		28	%		28	%
Mr James Garton (Group Head of Corporate Finance)		272		-		-		17		289		-			-
Mr Sinnasami Nadason (Group Plantation Advisor)		78		-		-		-		78
TOTAL		1,294		18		49		66		1,427		-			-

¹Mr Ganny joined the group on 1 July 2011

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In fiscal year 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		Super annuation Contribution(1)		Total
	A$’000		A$’000		A$’000		A$’000		A$’000		A$’000		%			%
Dario Amara		100		—		—		—		9		109		—			—
Nathan Mahalingam		340		—		—		1,324		4		1,668		79	%		—
Guy Burnett		257		—		—		1,347		23		1,627		83	%		83	%
Datuk Zain Yusuf		75		—		—		—		1		76		—			—
Admiral (Ret) Tan Sri Dato’ Sri Mohd Anwar bin Haji Mohd Nor		50		—		—		—		1		51		—			—
Arun Bhatnagar		50		—		15		—		—		65		—			—
James Garton		311		—		—		572		23		906		63	%		63	%
Kalaiselvan Somasundaram		76		—		—		2		9		87		—			—
Mr. Peter Torre		38								3		41
Mr. Sinnasami Nadason		62		—		—		—		—		62
		1,359		—		15		3,245		73		4,692

(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 (pre 50:1 consolidation)performance rights and 3.5 million (pre 50:1 consolidation) 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.

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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	December 31, 2009
1	June 2009		559,999	June 30, 2010
1	June 2009		560,002	December 31, 2010
2	March 2010		5,000,00	July 1, 2010
2	March 2010		5,000,00	January 1, 2011
2	March 2010		5,000,00	July 1, 2011
3	October 2010		206,668	December 31, 2010
3	October 2010		206,668	June 30, 2011
3	October 2010		206,668	December 31, 2011
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 dependent 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	Positive group operating cash flow
1		840,000	June 30, 2011	Earnings per share of A$0.06
1		840,000	June 30, 2012	Earnings per share of A$0.15
3		310,000	June 30, 2011	Earnings per share of A$0.06
3		310,000	June 30, 2012	Earnings per share of A$0.15
3		310,000	June 30, 2013	Earnings per share of A$0.15
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. The June 30, Tranche 2 performance based rights did not vest because our consolidated earnings per share for fiscal 2011 was not 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, 2013 if our consolidated earnings per share for fiscal 2013 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.

Options

Each option gave 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 was 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 were transferable at the option of the holder and are not subject to any vesting conditions. At June 30, 2012, all options had expired.

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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.

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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.

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

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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.

Board Diversity

The Board has a formal diversity policy which states that Mission NewEnergy Limited is committed to embedding a corporate culture that embraces diversity through:

• Recruitment on the basis of competence and performance and selection of candidates from a diverse pool of qualified candidates,

• Maintaining selection criteria that does not indirectly disadvantage people from certain groups,

• Provide equal employment opportunities through performance and flexible working practices,

• Maintain a safe working environment and supportive culture by taking action against inappropriate workplace and business behavior that is deemed as unlawful (discrimination, harassment, bullying, vilification and victimization),

• Promote diversity across all levels of the business,

• Undertake diversity initiatives and measuring their success,

• Regularly surveying our work climate, and

• The Board of Directors establishing measurable objectives in achieving gender diversity.

Since the Company’s incorporation, given its cross-jurisdictional operations in Australia, Malaysia and India, a diversity practice is naturally in place.

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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 2011 and 2012 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.

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

The Board has 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

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· the Remuneration and Nomination Committee.

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

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 dissolved its Advisory Board.

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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 recognizes 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. 

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Ownership of Equity settled 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, 2012.

Equity settled Options

	Balance July 1, 2010		Balance after consolidation at 50:12		Lapsed			Balance June 30, 2011		New issue		Balance June 30, 2012
Directors
Guy Burnett3		1,750,000		35,000		(35,000	)		-		-		-
Executive
James Garton4		1,750,000		35,000		(35,000	)		-		-		-
TOTAL		3,500,00		70,000		(70,000	)		-		-		-

² Shareholders approved a share consolidation of 50:1 on March 23, 2011.

³ 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.

⁴ 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.

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2012 Equity settled Performance Rights

	Balance June 30, 2010		New Issue			Exercised			Lapsed before consolidation			Balance before consolidation of Performance rights		Balance after consolidation		Lapsed after consolidation			Balance June 30, 2011		New Issue		Exercised			Lapsed			Balance June 30. 2012		Vested and unexercised at 30/06/2012
Director
Nathan Mahalingam		-		5,000,000	5		(3,333,332	)		-			1,666,668		33,334		-			33,334		-		(33,334	)		-			-		-
Guy Burnett		1,000,000		5,000,000	6		(3,733,332	)					2,266,668		45,334		(6,000	)		39,334		-		(33,334	)		(6,000	)		-		-
Executives																																-
James Garton		6,000,000					(3,733,332	)		-			2,266,668		45,334		(6,000	)		39,334		-		(33,334	)		(6,000	)		-		-
Senior employees collectively		786,667		1,550,000	7		(546,666	)		(50,000	)		1,740,001		34,808		(13,733	)		21,075		20,000		(16,675	)		(22,800	)		1,600		-
Total		7,786,667		11,550,000			(11,346,662	)		(50,000	)		7,940,005		158,810		(25,733	)		133,077		20,000		(116,677	)		(34,800	)		1,600		-

Performance Rights

The performance conditions of the performance rights were chosen to encourage staff retention and to drive company performance. The achievement of the performance condition is deemed achieved if:

(a) the employee is still in employment within the Group on the vesting date where the performance criteria is for service, and

(b) measured against audited financial results where company performance is the vesting condition.

⁵Grant 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.

⁶Grant 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.

⁷Grant 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.

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D. Employees.

As of June 30, 2012, we had approximately 45 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		1		3		6
Engineering, operations, R&D and information systems		0		0		4		30

Historic Employees

For the fiscal year ended June 30,	USA		Australia		Malaysia		India
2010		-		3		57		367
2011		1		2		65		398
2012		1		1		7		36

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.

Due to the change in the scope of the Company’s operations, the Company decided to significantly reduce the amount of employees during the fiscal year ended June 30, 2012.

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 10,870,275 as of October 24, 2012 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

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

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Principle Shareholders(1)	Number of Shares		Percentage
McDermott Industries Ltd(2)		2,000,000		16.85	%
Nadaraja Muthu(3)		1,417,860		13.04	%
SLW International LLC(5)		868,448		7.56	%
Houston International Insurance Group(6)		850,410		7.82	%
Directors and Executive Officers:
Nathan Mahalingam(4)		612,956		5.64	%
James Garton		112,051		1.03	%
Guy Burnett		112,001		1.03	%
Dario Amara		2,000		0.02	%
Datuk Zain Yusuf		—		—
Arun Bhatnagar		—		—
Admiral (Ret) Tan Sri Dato’ Sri Mohd Anwar bin Haji Mohd Nor		—		—
Peter Torre		—		—
Samsudeen Ganny		10,000		0.09	%
Nadasan Sinnasami		—		—
All directors and executive officers as a group (10 persons)

*	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 B2, 431 Roberts Rd, Subiaco, Western Australia 6008, 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 27 Jalan SS7/4, Petaling Jaya, Selangor, Malaysia, 47301.
(4)	Address of Unit 725, 7th 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) 152,195 ordinary shares owned directly by SLW International, LLC (“SLW”), (ii) 100,000 ordinary shares owned by the principal of SLW, Stephen L. Way, in his IRA account with sole power to vote, and (iii) 505,908 ordinary shares that would be issuable to SLW upon conversion of the Company’s 4.00% convertible notes due May 2014, and (iv) 110,345 ordinary shares that would be issuable to the principal of SLW upon exercise of the Warrants.  Information is based on a Schedule 13G filed with the SEC on October 16, 2012.
(6)	Address of 800 Gessner, Suite 600, Houston, Texas, 77024. Includes 850,410 shares of common stock. Information is based on a Schedule 13G filed with the SEC on February 15, 2012.

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.

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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 16.85% (excluding dilutive effect of warrants);

• Mission Equities Sdn Bhd decreased from 27.08% at June 30, 2007 to 5.64% as at October 22, 2012.

As of October 19, 2012, we had sixty-one holders of record in the United States with a combined holding of 5,521,152 shares, representing 50.8% 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, 2011 through to June 30, 2012, 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, 2012 and June 30, 2011, respectively.

Management rights with subsidiaries

During fiscal 2012, Mission NewEnergy received management fees from both Mission Biotechnologies Sdn Bhd, a 100% owned subsidiary company, in the amount of A$627,000, and Mission Biofuels Sdn Bhd, a 100% owned subsidiary company, in the amount of A$940,000. These transactions were on commercial terms and conditions no more favorable 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 favorable 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.

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. Mission and KNM Group have agreed that Ir Lee Swee Eng is a related party and as such Ir Lee Swee Eng has conflict of interest, which until such time as the arbitration between KNM and Mission is resolved, prevents Mission from supporting the promotion of Ir Lee Swee Eng's nominated director.

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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 15.5% 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, 2012.

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.

A subsidiary within the Group 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 of approximately A$2m which the contractor is claiming is due to them. Both parties have agreed to the appointment of an arbitrator to resolve this matter.

A subsidiary within the group has terminated a JV agreement in Indonesia and is in discussion with the JV party to determine an appropriate way forward. This may result in an inflow greater than the value invested, however at this stage it is not possible to quantify this value.

A subsidiary within the Group has been assessed for a State Tax with a provisional assessment and penalties raised totaling A$0.16 million. Management disputes this assessment and is in discussion with the relevant tax authorities seeking clarity on the basis of the assessment.

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.

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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.

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) and the OTC Bulletin Board (symbol: MNELF) for the periods indicated. Our ordinary shares were delisted from trading on the Nasdaq on July 9, 2012. 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 and OTC are in US Dollars.

	OTC Bulletin Board				NASDAQ				ASX
	High		Low		High		Low		High		Low
	US$		US$		US$		US$		A$		A$
Fiscal year ended
June 30, 2012
First Quarter		-		-		2.54		0.48		4.03		0.50
Second Quarter		-		-		0.49		0.11		0.60		0.11
Third Quarter		0.14		0.06		-		-		0.11		0.06
Fourth quarter (through October 24, 2012)		0.07		0.06		-		-		0.08		0.07
June 30, 2011
First Quarter		-		-		-		-		0.29		0.19
Second Quarter		-		-		-		-		0.20		0.17
Third Quarter		-		-		-		-		0.24		0.17
Fourth Quarter		-		-		8.15		5.46		8.50		4.90
June 30, 2010
First Quarter		-		-		-		-		0.30		0.16
Second Quarter		-		-		-		-		0.51		0.24
Third Quarter		-		-		-		-		0.49		0.30
Fourth Quarter		-		-		-		-		0.35		0.22
Month ended
April 2012		-		-		0.49		0.34		0.60		0.29
May 2012		-		-		0.40		0.14		0.44		0.17
June 2012		-		-		0.15		0.11		0.20		0.11
July 2012		0.14		0.10		-		-		0.11		0.10
August 2012		0.11		0.07		-		-		0.10		0.07
September 2012		0.14		0.06		-		-		0.10		0.06
October 2012 (through October 24 2012)		0.07		0.06		-		-		0.08		0.07
Fiscal year ended June 30,
2012 (through October 24, 2012)		0.07		0.06		-		-		0.08		0.07
2011		-		-		8.15		5.46		8.50		0.17
2010		-		-		-		-		0.51		0.16
2009		-		-		-		-		0.81		0.16
2008		-		-		-		-		1.58		0.57

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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.

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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.

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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 installment.

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.

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.

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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 orinterest 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.

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.

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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.

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.

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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.

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;

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• 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 (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. 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.

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.

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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.

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, 2012. 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, 2013. 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:

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• 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 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.

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 ASX 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.

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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.

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 transfer 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%.

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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%⁸. 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 32.5%. 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.

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.

Transfer Duty

No transfer duty is payable by Australian residents or foreign residents on the trading of shares that are quoted on the ASX or NASDAQ/OTC.

⁸ Note that this is subject to proposed legislation to remove the discount for non-resident shareholders with effect from May 8, 2012.

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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.

Credit Risk

Malaysian Operations

Credit risk for receivables at June 30, 2012 in the refining operations stemmed from sales to large Malaysian oil companies with an inherent low risk of credit default. At the date of this report, all material biodiesel sale receivables had been recovered.

Indian Operations

With the downsizing of the feedstock operations, all receivables from sale of saplings have been impaired. Sales of electricity, which is under a power purchase agreement, and the resultant receivable are to a large Indian State Owned enterprise and hence credit risk is deemed low.

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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, Indonesian Rupiah, 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, 2012, 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$ 0.1 million lower/ A$0.1 million higher (2011: A$ 0.941 million lower/ A$1.15 higher).

Profit and Loss would have been – A$ 0.1 million lower/ A$0.1 million higher (2011: A$ 0.941 million lower/ A$1.150 higher).

Hedging of Foreign Currency Risk

At financial report date the Group had no forward exchange contracts in place.

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, 2012, 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 (2011: A$ Nil million lower/higher).

Equity would have been – A$ Nil lower/higher (2011: A$ Nil million lower/higher).

The fair value of convertible notes – A$ 0.298 million higher/A$ 0,172 million lower (2011: A$ 0.344 million / A$ 0.341 million lower/higher).

Commodity Risk

The Group is exposed to market prices of input costs into the production of biodiesel and associated by products produced. At period end the group had some product on hand to be sold.

Group Sensitivity

At June 30, 2012, if the price of these products 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$0.1 million lower / A$0.1 million higher.

Equity would have been – A$0.1 million lower / A$0.1 million higher.

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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.

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. In 2012 the Group used A$4.9m for operations, A$4.0 million for capital expenditure and advances to related entities and A$5.5 million for debt redemption. We had A$1.5 million in cash on hand at June 30, 2012.

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.

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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, 2012. 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.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

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

The Company’s management has evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012 based upon criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, concluded that, as of June 30, 2012, the Company’s internal control over financial reporting was effective based on these criteria.

C. Changes in Internal Control over Financial Reporting.

There was no change in internal control over financial reporting during the year ended June 30, 2012 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.

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.

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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, 2012 and 2011 were $123,000 and $258,000 , respectively.

All other Fees. A$0 and for the fiscal year ending 2012 and A$115,000 for a review of the registration statement filed with the U.S. SEC in fiscal year 2011.

Tax Fees. The Company incurred fees totaling $0 during the fiscal year ended June 30, 2012. The Company incurred fees totaling $0 during the fiscal year ended June 30, 2011.

Audit-Related Fees. A$0 and for the fiscal years ending 2012 and 2011.

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

Not applicable.

Item 16H. Mine Safety Disclosures

Not applicable.

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

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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).
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).

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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 (incorporated by reference to Exhibit 4.16 of our annual report on Form F-20 (File No. 001-35022) filed with the SEC on December 28, 2011).
4.17		Employment Agreement of Samsudeen Ganny, dated as of June 21, 2011 (incorporated by reference to Exhibit 4.17 of our annual report on Form F-20 (File No. 001-35022) filed with the SEC on December 28, 2011).
4.18	*	Series 2 Convertible Note Deed Poll.
4.19	*	Form of Warrant
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.

__________

* Filed herewith.

# Order for confidential treatment of portions of this document has been granted by the SEC pursuant to Rule 406 of the Securities Act.

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SIGNATURES

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

			Mission NewEnergy Limited
Date:  October 30, 2012	By:	/s/ Guy Burnett
			Name: Guy Burnett
			Title:    Chief Financial Officer and Company Secretary

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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

Einfo.wa@au.gt.com

W www.grantthornton.com.au

Report of Independent Registered Public Accounting Firm

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 2011 and 2012, 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 2012. 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 2011 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended 30 June 2012, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

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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 2 to the financial statements, the Company incurred operating cash outflows of $4.9 million during the year ended 30 June 2012 and, as of that date, the consolidated entity’s total liabilities exceeded its total assets by $24.4 million. These conditions, along with other matters as set forth in Note 2 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 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

GRANT THORNTON AUDIT PTY LTD

Chartered Accountants

Perth, 30 October 2012

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

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CONSOLIDATED GROUP INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2012

	Note	2012			2011			2010
		$'000			$'000			$'000
Sales revenue	7		27,289			13,557			14,394
Other income	7		11,016			2,869			2,066
Total revenue			38,305			16,426			16,460
Changes in Inventory			(4,759	)		5,090			(2,442	)
Cost of materials	8a		(21,715	)		(18,959	)		(12,579	)
Employee benefits expense	8b		(4,186	)		(7,527	)		(5,307	)
Net foreign exchange gains/(losses)			340			(1,769	)		568
Consultants’ expenses			(692	)		(328	)		(594	)
Impairment	5a		(5,676	)		(5,169	)		(82,989	)
Shareholder expenses			(252	)		(125	)		(121	)
Travel expenses	8e		(691	)		(766	)		(886	)
Research and development			(11	)		(168	)		(154	)
Rental expenses			(199	)		(176	)		(271	)
Other expenses	8c		(2,907	)		(2,493	)		(2,186	)
Depreciation and amortisation expenses			(384	)		(396	)		(2,118	)
Finance Cost – amortisation	8d		(1,084	)		(2,382	)		(2,293	)
Finance costs			(2,159	)		(2,483	)		(2,859	)
Profit/(loss) before income tax			(6,070	)		(21,225	)		(97,771	)
Income tax (expense)/benefit	9		(16	)		1			(29	)
Net (loss)/profit before non-controlling interest			(6,086	)		(21,224	)		(97,800	)
Profit/(Loss) attributable to non-controlling interests			68			-			-
Net (loss)/profit attributable to members of the parent entity from continuing operations			(6,018	)		(21,224	)		(97,800	)
Loss for the year from discontinued operations	36		(112	)		(446	)		-
Loss for the year			(6,130	)		(21,670	)		(97,800	)
Basic earnings/(loss) per share ($)	11		(0.69	)		(3.50	)		(20.76	)
Diluted earnings/(loss) per share ($)	11		(0.69	)		(3.50	)		(20.76	)

The accompanying notes form part of this financial report

85

CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2012

	2012 $’000			2011 $’000			2010 $’000
(Loss)/Profit for the period		(6,130	)		(21,670	)		(97,800	)
Other comprehensive income
Exchange differences on translating foreign operations		(195	)		(1,917	)		286
Gain on convertible note restructure		-			3,209			-
Gain on settlement of Series 1 convertible note		1,473			-			-
Effective portion of change in fair value of cash flow hedge		(39	)		39			-
Other comprehensive income/(loss) for the period net of tax		1,239			1,331			286
Total comprehensive (loss) for the period attributable to the parent		(4,891	)		(20,339	)		(97,514	)
Attributable to non-controlling equity interests		(68	)		-			-
Total comprehensive  (loss) for the period		(4,959	)		(20,339	)		(97,514	)

The accompanying notes form part of this financial report

86

CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2012

	Note	2012			2011
		$'000			$'000
CURRENT ASSETS
Cash and cash equivalents	12		1,456			15,761
Trade and other receivables	13		4,225			6,583
Biological assets	14		-			88
Inventories	15		1,192			6,242
Other financial assets	16		581			178
Other assets	20		204			354
Current tax assets	23		24			30
Total current assets			7,682			29,236
Non-current assets held for sale	36		2,286			-
NON-CURRENT ASSETS
Property, plant and equipment	18		681			6,660
Intangible assets	19		-			-
Deferred tax assets	23		-			-
Other Assets	20		54			702
Total non-current assets			735			7,362
TOTAL ASSETS			10,703			36,598
CURRENT LIABILITIES
Trade and other payables	21		2,175			7,059
Financial Liabilities	22		83			14,907
Short-term provisions			104			93
Total current liabilities			2,362			22,059
Liabilities included in disposal group held for sale	36		1,567			-
NON-CURRENT LIABILITIES
Financial liabilities	22		31,215			44,287
Deferred tax liabilities	23		-			-
Total non-current liabilities			31,215			44,287
TOTAL LIABILITIES			35,144			66,346
NET ASSETS (DEFICIT)			(24,441	)		(29,748	)
EQUITY
Issued capital	24		110,320			96,801
Reserves	25		5,684			9,171
Retained earnings (Accumulated losses)			(140,377	)		(135,720	)
Non-controlling Interests	35		(68	)		-
Total Equity (Deficiency)			(24,441	)		(29,748	)

The accompanying notes form part of these financial statements.

87

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 2012

	Ordinary Share Capital		Retained Earnings (Accumulated Losses)			Share Based Payments Reserve		Foreign Currency Translation Reserve			Convertible Notes Reserve			Cash flow Hedge reserve		Non- controlling Interests			Total
	$'000		$'000			$'000		$'000			$'000			$'000		$'000			$'000
Balance as at 30 June  2010		76,634		(117,259	)		1,541		244			9,146			-		6			(29,688	)
Changes in Convertible note reserve due to restructure9		-		3,209			-		-			(3,209	)		-		-			-
Profit/(Loss) attributable to members of parent entity		-		(21,670	)		-		-			-			-		-			(21,670	)
Other comprehensive income		-		-			-		(1,917	)		-			39		-			(1,878	)
Pro-rata expenses for options and performance rights		-		-			3,327		-			-			-		-			3,327
Issue of New Shares		20,167		-			-		-			-			-		-			20,167
Elimination of non-controlling interest after purchase of shares		-		-			-		-			-			-		(6	)		(6	)

⁹The restructure was completed in April 2011 where the majority of note holders agreed to extend the maturity date of the convertible note from May 2012 to May 2014 with a change in the conversion ratio from 1:1 to 1:4.

88

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			Non- controlling Interests			Total
	$'000		$'000			$'000		$'000			$'000			$'000			$'000			$'000
Balance as at 30 June 2011		96,801		(135,720	)		4,868		(1,673	)		5,937			39			-			(29,748	)
Gain on settlement of Series 1 Convertible Note		-		1,473			-		-			(2,254	)		-			-			(781	)
Gain on conversion of  convertible notes to equity		-		-			-		-			(1,038	)		-			-			(1,038	)
(Loss) attributable to members of parent entity		-		(6,130	)		-		-			-			-			-			(6,130	)
Other comprehensive income		-		-			-		(195	)		-			(39	)		-			(234	)
Conversion of convertible notes to equity		13,239		-			-		-			-			-			-			13,239
Expenses for options and performance rights		-		-			39		-			-			-			-			39
Issue of Shares to Advisory Board		280		-			-		-			-			-			-			280
Non-controlling interest		-		-			-		-			-			-			(68	)		(68	)
Balance as at 30 June 2012		110,320		(140,377	)		4,907		(1,868	)		2,645			-			(68	)		(24,441	)

89

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

CONSOLIDATED GROUP STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2012

	Note	2012 $’000			2011 $’000			2010 $’000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers			32,232			10,128			17,126
Payments to suppliers and employees			(35,374	)		(22,494	)		(21,331	)
Interest received			289			161			167
Finance costs			(2,023	)		(2,909	)		(2,859	)
Income tax paid			5			25			(5	)
Net cash (used in) operating activities	29		(4,871	)		(15,089	)		(6,902	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment			(615	)		(3,957	)		(7,540	)
Proceed from sale of equipment			170			-			-
Release of performance bond and deposits			103			-			1,112
Acquisition of subsidiary			(950	)		-			-
Advance to related entity			(2,676	)		-			-
Investment in held to maturity investment and deposits			-			(137	)		23
Net cash (used in) investing activities			(3,968	)		(4,094	)		(6,405	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from share issue (net of costs)			-			20,167			15,511
(Repayments)/proceeds from borrowings			(5,461	)		(527	)		(574	)
Net cash provided by financing activities			(5,461	)		19,640			14,937
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(14,300	)		457			1,630
Cash and cash equivalents at beginning of the financial year			15,761			17,155			16,247
Effects of exchange rate fluctuations of cash held in foreign currencies			(5	)		(1,851	)		(722	)
CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR	12		1,456			15,761			17,155

The accompanying notes form part of these financial statements.

90

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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) with its operations in Malaysia, Indonesia and India;

· that owns and operated a 100,000 tpa (approx. 30 million gallons p.a.) biodiesel plant at Kuantan in Malaysia producing biodiesel;

· that is in the process of finalising the transfer of a 250,000 tpa (approx. 75 million gallons p.a.) trans-esterification plant constructed by KNM Process Systems Sdn Bhd to Mission. In March 2012 Mission decided that due to being unable to reach a settlement with KNM Process Systems SDN BHD (“KNM”) as it relates to the handover and final acceptance for Mission’s 250,000 tpa biodiesel plant, the matter has been referred to arbitration.;

· that is reassessing the viability of its upstream feedstock business in India;

· that owns 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 report is a general purpose financial report which has been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). Mission NewEnergy Limited is a for-profit entity for the purpose of preparing the financial statements.

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 investors, bankers, suppliers and its customer base.

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.

91

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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.

Going Concern

The Group incurred an operating loss for the year ended 30 June 2012 of $6.1 million (2011: $21.7 million), with net cash used in operating activities of $4.9 million (2011: 15.1 million). At balance date, the current assets less current liability surplus was $5.3 million (2011: $7.2 million) and the net asset deficiency $24.4 million (2011: $29.7 million). The net asset deficiency is primarily as a result of the impairment of the majority of the refinery assets during the current and previous financial years (refer to note 5a). These factors indicate substantial doubt exists regarding the group’s ability to continue as a going concern.

During the financial year, the Company has paid A$5 million to fully settle the series one convertible note liability of A$15 million shown in current liabilities at 30 June 2011. At 30 June 2012, the Company has a non-current liability for the series two convertible notes of A$32.8 million (nominal value).

As announced to the market on the 17^th August 2012, a debt funding package has been agreed in principle with SLW International, LLC (SLW) a substantial convertible note holder, to provide the Group with a US$5 million line of credit facility. The facility is conditional on the restructure of the Group’s existing convertible note debt whereby each existing convertible note will be exchanged for a new convertible note. Please refer to the Subsequent events note (Note 34) for further information on this transaction. The restructure of the convertible note debt is subject to shareholder approval. The Group has appointed an independent expert to review whether the transaction is fair and reasonable to shareholders (as required by the ASX listing rules), in order to be able to recommend the transaction to shareholders. The Independent Expert’s Report and notice of meeting are close to final form. Please refer to the subsequent events section for details of an application lodged with the Takeovers Panel in regard to this funding arrangement. At the date of this report, the Takeovers Panel has announced that it has declined to conduct proceedings.

The Directors believe that at the date of this report the Group has sufficient financial resources at 30 June 2012 to meet its committed financial liabilities.

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 this financial report. The cash flow forecasts from operations are based on the forecast cash flows required to sustain the business and cash on hand at 30 June. The cash flow forecasts do not take into account any capital commitments as these are not foreseen to be payable within the forthcoming twelve months.

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 the ability of the Group to do a sufficient combination of the following things to enable its commitments to be met:

· Obtain shareholder approval for the proposed funding and restructure arrangements with SLW.

· Failing approval of the SLW arrangements, raise debt or equity funding from other sources.

· Generate positive cash flows from operations.

· Raise cash through sale of assets and recovery of receivables.

· Reduce cash outflows through cost control measures.

92

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

The Directors consider that there are reasonable grounds to expect that the Group will be able to meet its commitments through the measures listed above, and accordingly have prepared the financial report on a going concern basis in the belief that 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 the Group not be successful in the matters discussed above, there is material uncertainty whether the Group will be able to continue as a going concern.

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

· Downstream Palm Oil Joint Venture Project – Indonesian Rupiah

· USA operations - United States Dollar

· Other – Australian Dollar.

The Board of Directors approved this financial report on 28 September 2012.

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 AASB 127 ‘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, Oleovest PL, Scarborough Beach Holdings, Inc., PJ Trading, LLC, and PJ Trading Pennsylvania, LLC.

A list of controlled and jointly controlled entities with details of acquisitions and disposals is contained in Note 17 to the financial statements. All controlled entities have a 30 June financial year-end.

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.

Non-controlling interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

93

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

b. Business combinations

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

c. 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.

d. Inventories

Inventories are measured at the lower of cost and net realisable value.

94

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

e. 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. Depreciation

The depreciable amount of all fixed assets including buildings and capitalized 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.

95

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

g. 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 capitalized 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 recognized as a liability and amortized on a straight-line basis over the life of the lease term.

h. Financial Instruments

Recognition

Financial instruments are initially measured at fair value on trade date, which includes transaction costs (except where the instrument is classified as ‘fair value through profit or loss’ in which case transaction costs are expensed to profit or loss immediately), 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 AASB 139: Recognition and Measurement of Financial Instruments. Realized and unrealized 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 amortized cost using the effective interest rate method.

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 recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized 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 amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.

96

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss. On conversion, the financial liability is reclassified to equity; no gain or loss is recognized 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 amortized 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. Un-realized gains and losses arising from changes in fair value are taken directly to equity.

Financial liabilities

Non-derivative financial liabilities are recognized at amortized 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.

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 recognized initially at fair value; attributable transaction costs are recognized 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.

97

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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 recognized 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 recognized 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 recognized immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognized in equity is included in the carrying amount of the asset when the asset is recognized. 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.

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 recognized in the income statement.

i. 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.

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.

j. 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.

k. Research and development

Expenditure during the research phase of a project is recognized as an expense when incurred. Development costs are capitalized 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.

98

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

l. 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.

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.

m. 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.

99

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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 Black Scholes 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.

n. 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.

o. 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.

p. 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.

q. 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.

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).

r. 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.

s. 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

100

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

t. 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.

u. 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

v. Non-current assets held for sale

Non-current assets held for sale are measured at the lower of cost or fair value less cost top sell 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.

Liabilities are classified as 'held for sale' and presented as such in the statement of financial position if they are directly associated with a disposal group.

w. 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.

101

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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 IAS 8.31 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)

102

Mission New Energy Limited and Controlled Entities 

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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

103

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

• 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.

104

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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 2011. During the twelve months ended 30 June 2012 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 and Oleovest PL.

At 30 June 2012 the Board has reviewed the carrying value of goodwill relating to the Group’s:

· Feedstock operations. The Board reviewed the significant assumptions applied in assessing the carrying value at 30 June 2011 and fully impaired goodwill.

· Downstream Palm Oil Joint Venture Project. The Board has reviewed the carrying value of goodwill in this segment and has determined that due to the termination of the joint venture agreement with PTPN 111, the goodwill value of $0.95 million has been impaired.

Credit risk of receivables

Malaysian operations

Credit risk for receivables at 30 June 2012 in the refining operations stemmed from sales to large Malaysian oil companies with an inherent low risk of credit default. At the date of this report, all material biodiesel sale receivables had been recovered.

Indian Operations

With the poor yield of Jatropha seeds in the 2011/12 season and the resultant downsizing of the feedstock operations, all receivables from sale of saplings have been impaired. Sales of electricity, which is under a power purchase agreement, and the resultant receivable are to a large Indian State Owned enterprise and hence credit risk is deemed low.

105

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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

Due to uneconomic conditions and lack of visibility into further profitable sales contracts the 100,000 tpa refinery was put into care and maintenance in June 2012. The 250,000tpa is under care and maintenance of the EPCC contractor and yet to be handed over to Mission.

The Board reviews the carrying value of its refinery assets at each reporting date. The Board had previously determined to write down the carrying value of the refineries and continues to apply this principal for the 2012 financial year.

In addition to the impairment to 30 June 2011, further impairment has been provided during the year ended 30 June 2012 for capital additions to a value of $2.2 million.

Windmill impairment

At 30 June 2012, the Board re-assessed the carrying value of the windmills. 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 was 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. No impairment was provided for in the 2012 financial year.

	June 2012		June 2011		June 2010
	$000		$000		$000
Impairment of refineries		2,210		2,046		71,252
Impairment of windmills		-		-		1,837
Impairment of other assets		1,108		36		-
Impairment of Goodwill		950		1,157		-
Impairment of trade receivables		1,007		1,930		9,160
Impairment of inventories and biological assets		401		-		740
Total		5,676		5,169		82,989

106

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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’.

In line with the impairment of the carrying value of assets in the subsidiaries, the parent entity has impaired the value of all subsidiaries to zero, except for the investment into PT Sinergi Oleo Nusantara, which is carried at cost. This accounting adjustment has no impact on the cash flows or the Consolidated Financial Statements of the Group. Refer to note 33: Parent Information for further details.

b. 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.

107

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

7. Sales revenue

	2012 $’000		2011 $’000		2010 $’000
Sales Revenue
-     Sales of goods		27,289		13,557		14,394
Total revenue		27,289		13,557		14,394
Other Income
Change in fair value of biological assets		-		790		1,656
Interest received		289		115		204
Gain on convertible note restructure		-		1,734		-
Gain on settlement of convertible notes		10,300		-		-
Sundry income		427		230		206
Other income		11,016		2,869		2,066

During the year the company settled the outstanding Series One convertible notes for a cash payment of A$5 million. The Series One convertible notes represented a $15 million liability that was due in May 2012. Due to the early repayment Mission has settled the debt at a substantial discount resulting in a gain of $10,300,000.

During the current financial year, the company materially completed the Jatropha harvest season. The harvest was significantly lower than company expectations and a detailed review of the company’s operations was commenced in-light of its cash position and visibility on its Jatropha operations. The operations have been significantly downsized and the company is now focused on divesting the remaining Indian assets. The company has decided not to undertake further planting of Jatropha. Due to these results from the operations, no change in fair value revenue from saplings was recognised during the current financial year.

108

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

8. Expenses

	2012 $’000		2011 $’000		2010 $’000
8a)       Cost of materials		21,284		18,323		11,119
Cost of growing biological assets		431		636		1,460
Total		21,715		18,959		12,579

8b) Employee costs
Wages and Salaries	3,656	3,970	3,860
Contribution to defined contribution plans	231	233	170
Equity settled share based payments expense	299	3,324	1,277
	4,186	7,527	5,307

8c) Other expenses:
Audit fees	150	204	118
Advertising	2	50	31
Business acquisition costs	501	-	-
Computer maintenance & consumables	58	38	46
Communication expenses	286	343	211
Insurance costs	251	107	121
Legal fees	291	319	123
Plant operating costs	580	163	254
Asset maintenance	137	239	320
Other administrative costs	651	1,030	962
Total	2,907	2,493	2,186

109

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

	2012 $’000		2011 $’000		2011 $’000
8d) Finance Costs
Amortisation of liability portion of convertible notes		1,067		2,003		1,889
Amortisation of convertible note issue costs		17		379		404
Total		1,084		2,382		2,293
8e) Travel expenses
Corporate travel		274		273		340
Feedstock Logistics		417		493		546
		691		766		886

9. Income tax

		2012 $’000			2011 $’000			2010 $’000
a.     The components of tax expense comprise
Current tax			16			(1	)		29
Deferred tax	23		-			-			-
Over provision in respect of prior years			-			-			-
			16			(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 (loss) before tax			(6,070	)		(21,225	)		(97,771	)
Loss for the year from discontinued operations			(112	)		(446	)		-
Total loss for the year			(6,182	)		(21,671	)		(97,771	)
Prima facie tax (benefit)/expense on profit/ (loss) from ordinary activities before income tax at 30%			(1,855	)		(6,501	)		(29,331	)
Adjusted for:
Tax effect of:
-         overseas tax rate differential			267			140			7,218
-         Impairment non-assessable item			995			960			21,927
-         other non-assessable items			609			5,400			215
			16			(1	)		29
Add:
Over provision for income tax in prior year			-			-			-
Income tax attributable to entity			16			(1	)		29
The applicable weighted average effective current tax rates are as follows:			-	10		-			-

¹⁰ No effective tax rate calculated due to the loss position.

110

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

10. Auditors’ Remuneration

	2012 $’000		2011 $’000		2011 $’000
Audit services
Remuneration of the auditor of the parent entity for:
-     auditing or reviewing the financial reports		123		143		75
Other services
- reviewing of the USA SEC registration statement		-		115		62

11. Earnings per share

a.     Reconciliation of earnings to profit or loss
Earnings used in calculation of both ordinary and dilutive EPS	(6,130	)	(21,670	)	(97,800	)
b.    Weighted average number of ordinary shares outstanding during         the year used in calculating basic EPS	8,919,299		6,199,265		4,711,249
Effect of:
- Performance Rights and options	-		-		-
Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS	8,919,299		6,199,265		4,711,249

111

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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):

	2012		201111		201012
Issued ordinary shares		9,452,415		8,512,259		5,500,151
Convertible notes		505,904		935,579		935,579
Employee and third party share options		-		7,315		77,315
Employee performance rights		1,601		133,077		155,733
Share issue options (warrants)		2,995,009		2,995,009		2,995,009
TOTAL		12,954,929		12,583,239		9,663,787

12. Cash and cash equivalents

	2012 $’000		2011 $’000
Cash at bank and in hand		1,420		9,712
Short-term bank deposits		36		6,049
		1,456		15,761
Reconciliation of cash
Cash and cash equivalents		1,456		15,761
		1,456		15,761

¹¹ 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.

¹² 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.

112

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

13. Trade and Other Receivables

	2012 $’000			2011 $’000
CURRENT
Trade receivables		1,089			6,429
Other receivables13		3,136			305
Less: Impairment provision		-			(151	)
TOTAL		4,225			6,583
NON – CURRENT
Trade receivables		18,772			20,191
Less: Impairment provision		(16,589	)		(17,594	)
Less: Discount charge		(2,183	)		(2,597	)
TOTAL		-			-
Impairment provision
Opening Balance:		17,745			18,686
Charge for the year		1,007			1,930
Foreign currency translation difference		(2,163	)		(2,871	)
Closing Balance		16,589			17,745

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.

¹³ Included in Current: Other Receivables is an amount of A$2.7m relating to the investment into the palm oil project in Indonesia which the Board deems to be recoverable within the forthcoming twelve months.

113

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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 2012, Mission Biofuels India Pvt Limited had NIL (2011: 1.5 million) saplings mature enough to plant on hand in its controlled nurseries. During the current financial year, the company materially completed the Jatropha harvest season. The harvest was significantly lower than company expectations and a detailed review of the company’s operations was commenced in-light of its cash position and visibility on its Jatropha operations. The operations have been significantly downsized and the company is now focussed on divesting the remaining Indian assets. The company has decided not to undertake further planting of Jatropha. Due to these results from the operations, no change in fair value revenue from saplings was recognised during the current financial year, and all biological assets held on balance sheet at 30 June 2011 have been impaired.

	2012 $’000			2011 $’000
Opening Balance		88			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		(99	)		-
FX adjustments		11			(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.

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.

114

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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

	2012 $’000		2011 $’000
CURRENT
Raw Material and stores - cost		577		530
Finished goods – cost		615		1,079
Work in progress – cost		-		4,633
		1,192		6,242

The above is shown at the lower of cost and net realizable value.

16. Other Financial Assets

Current
Held to maturity financial assets	-	1
Other financial assets	581	177
	581	178

115

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

17. Investments in subsidiaries and Jointly controlled entities

A  Controlled Entities Consolidated

	Country of		Percentage Owned (%)
	Incorporation		2012		2011
Parent Entity:
Mission NewEnergy Limited		Australia
Subsidiaries of Mission NewEnergy Limited:
Mission Biotechnologies Sdn Bhd		Malaysia		100		100
Mission Biofuels Sdn Bhd		Malaysia		100		100
Enviro Mission Sdn Bhd		Malaysia		100		100
Mission Agro Energy Limited		Mauritius		100		100
Mission NewEnergy USA LLC,14		USA		100		100
PJ Trading Pennsylvania, LLC15		USA		100		100
PJ Trading, LLC16		USA		100		100
Oleovest PL		Singapore		85		-
Subsidiaries of Mission Agro Energy Limited
Mission Biofuels India Private Limited		India		100		100

b.Jointly controlled entities

Subsidiaries of Mission Biofuels India Private Limited
Mission Agro Diesel (India) Private Limited	India	51	51

¹⁴Mission NewEnergy USA LLC (formerly Scarborough Beach Holdings, LLC), being a dormant entity, was deregistered on 10 September 2012

¹⁵ PJ Trading Pensylvania, LLC, being a dormant entity, was deregistered on 23 July 2012

¹⁶ PJ Trading, LLC, being a dormant entity, was deregistered on 9 August 2012

116

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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 or deregister Mission Agro Diesel (India) Pvt Limited 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 or deregistered.

In February 2012 Mission acquired 85% of Oleovest PL, a Singapore registered company, which in turn owns 70% of PT Sinergi Oleo Nusantara, an Indonesian registered company. Oleovest PL has terminated the joint venture agreement in PT Sinergi Oleo Nusantara.

The details of the investment in Oleovest PL are as follows:

	$’000
Fair value of consideration and settled in cash	1,418
Less: Acquisition cost	(468	)
Net fair value of consideration and settled in cash	950
Recognized amount of identifiable net assets and liabilities	NIL
Goodwill on acquisition	950

Please refer to Note 5a for a discussion on the review of goodwill for impairment.

117

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

18. Property Plant and Equipment

	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
Cost at 30 June 2010		1,641			374			847			217			5,761			44,103			29,560			82,503
Additions		-			92			90			-			-			2,470			511			3,163
Foreign Currency Translation		(250	)		(59	)		(161	)		(30	)		(985	)		(6,081	)		(4,472	)		(12,038	)
Disposal		-			(4	)		-			-			-			-			-			(4	)
Cost at 30 June 2011		1,391			403			776			187			4,776			40,492			25,599			73,624
Additions		-			25			43			-			-			673			92			833
Foreign Currency Translation		(104	)		(46	)		286			(2	)		(760	)		(653	)		3,425			2,146
Held for Sale (Current Asset)		(515	)		-			-			-			(3,998	)		-			-			(4,513	)
Disposal		(189	)		(3	)		(150	)		(53	)		-						(48	)		(443	)
Cost at 30 June 2012		583			379			955			132			18			40,512			29,068			71,647
Accumulated Depreciation and Impairment
Accumulated Depreciation and Impairment at 30 June 2010		96			143			532			102			2,391			43,472			28,220			74,956
Depreciation for the year  (continuing operation)		41			74			131			41			2			-			107			396
Depreciation for the year (discontinued operation)		-			-			-			-			166			-			-			166
Impairment		-			-			15			-			283			2,045			-			2,343
Foreign Currency Translation		(17	)		(22	)		(94	)		(17	)		(431	)		(5,980	)		(4,334	)		(10,895	)
Disposal		-			(2	)		-			-			-			-			-			(2	)
Accumulated Depreciation and Impairment at 30 June 2011		120			193			584			126			2,411			39,537			23,993			66,964

118

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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 2011		120			193			584			126			2,411			39,537			23,993			66,964
Depreciation for the year (continuing operation)		36			73			154			34			-			-			87			384
Depreciation for the year (discontinued operation)		-			-			-			-			131			-			-			131
Impairment		-			63			359			-			-			1,300			1,596			3,318
Foreign Currency Translation		(17	)		(27	)		(22	)		(2	)		(396	)		(325	)		3,401			2,612
Held for Sale (Current Asset)		(98	)		-			-			-			(2,128	)		-			-			(2,226	)
Disposal		-			(2	)		(168	)		(38	)		-			-			(9	)		(217	)
Accumulated Depreciation and Impairment at 30 June 2012		41			300			907			120			18			40,512			29,068			70,966
Carrying Amounts
At 30 June 2011		1,271			210			192			61			2,365			955			1,606			6,660
At 30 June 2012		542			79			48			12			-			-			-			681

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 2012 the transfer of this plant to Mission and final payment is under arbitration. See note 26 on capital commitments relating to this plant.

119

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

19. Intangible Assets

	2012 $’000			2011 $’000
Goodwill
Carrying amount at beginning of year		-			1,013
Additions		950			144
Impairment of Goodwill		(950	)		(1,157	)
FX Adjustments		-			-
Carrying amount at end of year		-			-

Additions to goodwill for the year relate to the acquisition of 85% of shares in Oleovest PL. 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	204	354
	204	354
Non-Current
Security Deposits	54	702
	54	702

21. Trade and Other Payables

CURRENT
Unsecured liabilities:
Trade payables	1,293	6,335
Interest accrued	646	247
Sundry payables and accrued expenses	236	477
	2,175	7,059

120

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

22. Financial Liabilities

	2012 $’000			2011 $’000
CURRENT
Secured loans		83			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
		83			14,907
Liabilities included in disposal group held for sale		1,567			-
NON-CURRENT
Secured loans		114			2,064
Convertible Notes (unsecured)
- Nominal value (unsecured)		32,884			45,812
- Equity portion of convertible note		(2,644	)		(3,683	)
- Amortisation of equity portion		861			94
		31,215			44,287

The secured loans and liabilities included in disposal group held for sale 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

At 30 June 2012 the following convertible notes were in existence:

121

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

	Series 2 notes
Units – post consolidation		505,904
Maturity date		16 May 2014
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 4 ordinary shares
Conversion price	$	16.25

23. Tax

	2012 $’000			2011 $’000
Liabilities
CURRENT
Current Tax liability / (asset)		(24	)		(30	)
NON-CURRENT
Deferred tax liability comprises:
Unrealised FX gains		-			-
Accruals		-			-
Other		-			-
Total		(24	)		(30	)
Assets
Deferred tax assets comprise:
Provisions		-			-
Transaction costs included in equity		-			-
Other		-			-
		-			-

122

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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 unrealized 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	-	-
Charge to the income statement	-	-
Foreign currency translation difference	-	-
Closing Balance	-	-

123

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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$0.1 million and deferred tax liabilities for temporary differences of $0.7 million have not been brought to account.

124

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

24. Issued Capital

Fully paid ordinary shares

	2012		2011
	$’000		$’000
Share Capital (Issued and authorised)		110,320		96,801

Ordinary shares	Number		Number
At the beginning of reporting period		8,512,259		275,007,568
Ordinary shares issued
-  July 2011		18,444		-
- January 2012		10,168		-
Shares issued on performance right conversion during the year		116,004		11,346,662
Subtotal		8,656,875		286,354,230	17
Share consolidation		-		5,727,085
Rounding adjustments		-		94
Revised ordinary shares post share consolidation		8,656,875		5,727,179
Share issue pursuant to Nasdaq listing – April 2011		-	bold;	2,785,000
Shares issued from conversion of convertible notes		795,540		80
At reporting date		9,452,415		8,512,259

¹⁷ Shareholders approved a share consolidation of 50:1 on 23 March 2011.

125

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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.

The following warrants and options were in existence at reporting date:

	2012		2011
Warrants – from share issues		2,995,009		2,995,009
Employee and third party options		-		7,315
Employee performance rights		1,600		133,077
Total		2,996,609		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.

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, however where equity funding is not available debt funding will be considered. 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.

126

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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;

(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.

The Company has complied with these provisions during the reporting period.

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.

127

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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.

26. Capital and Leasing Commitments

	2012 $’000		2011 $’000
a.     Operating Lease Commitments
- not later than 12 months		154		218
- between 12 months and 5 years		849		967
- greater than 5 years		2,032		2,227
		3,035		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%.

Lease Commitments– India

Mission Biofuels India Pvt Limited has entered into cancellable lease agreements for the office premises, godown (warehouse), guest house and car, 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.

128

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Capital Expenditure Commitments

	2012 $’000		2011 $’000
Capital expenditure commitments contracted for: -
Acquisition and installation biodiesel plants18		3,483		5,228
Other		-		62
		3,483		5,290

27. Contingent Liabilities and Contingent Assets

A subsidiary within the group 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 of approximately A$2m which the contractor is claiming is due to them. Both parties have agreed to the appointment of an arbitrator to resolve this matter.

A subsidiary within the group has terminated a JV agreement in Indonesia and is in discussion with the JV party to determine an appropriate way forward. This may result in an inflow greater than the value invested, however at this stage it is not possible to quantify this value.

A subsidiary within the Group has been assessed for a State Tax with a provisional assessment and penalties raised totalling A$0.16 million. Management disputes this assessment and is in discussion with the relevant tax authorities seeking clarity on the basis of the assessment.

The Group is not aware of any other contingent liabilities or contingent assets as at 30 June 2012.

¹⁸ 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.

129

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

28. Segment Reporting

	Biodiesel Refining (Malaysia)			Jatropha (India)			Power generation (India)			Downstream Palm Oil Project (Indonesia)		Unallocated		Consolidated (Continuing Operations)
	2012 $’000			2012 $’000			2012 $’000			2012 $’000		2012 $’000		2012 $’000
Primary Reporting — Business Segments
Revenue
Revenue from external customers		27,265	19		24	20		489	21		-		-		27,778
Interest received		60			11			-			-		218		289
Other revenue		360			67			-			-		10,300		10,727
Total segment revenue		27,685			102			489			-		10,518		38,794
Changes in Inventory		(4,786	)		27			-			-		-		(4,759	)

¹⁹Sales from the refining business unit are primarily to two customers in 2012 and two customer in 2011.

²⁰ Sales of biological assets are to a large number of individual contract farmers.

²¹Power generation revenue is from one customer.

130

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

28. Segment Reporting

	Biodiesel Refining (Malaysia)			Jatropha (India)			Power generation (India)			Downstream Palm Oil Project (Indonesia)			Unallocated			Consolidated (Continuing Operations)
	2012 $’000			2012 $’000			2012 $’000			2012 $’000			2012 $’000			2012 $’000
Costs of materials		(21,367	)		(348	)		(110	)		-			-			(21,825	)
Employee benefits expense		(1,190	)		(817	)		-			-			(2,032	)		(4,039	)
Impairment		(2,699	)		(919	)		-			-			(2,058	)		(5,676	)
Depreciation and amortisation		(179	)		(125	)		(131	)		-			(80	)		(515	)
Interest expense		(598	)		-			(360	)		-			(1,561	)		(2,519	)
Other expenses		(1,734	)		(563	)		-			(454	)		(2,892	)		(5,643	)
Segment result before tax		(4,868	)		(2,643	)		(112	)		(454	)		1,895			(6,182	)
Profit/loss from ordinary activities before income tax																	(6,182	)
Income tax expense																	(16	)
Net profit/(loss)																	(6,198	)

131

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

28. Segment Reporting

	Biodiesel Refining (Malaysia)		Jatropha (India)		Power generation (India)		Downstream Palm Oil Project (Indonesia)		Unallocated		Consolidated (Continuing Operations)
	2012 $’000		2012 $’000		2012 $’000		2012 $’000		2012 $’000		2012 $’000
Non-current Segment assets		574		156		-		-		5		735
Total Segment assets		4,319		774		1,944		2,731		935		10,703
Segment liabilities		1,386		242		1,567		-		31,949		35,144
Acquisitions of property, plant and equipment		732		46		-		-		55		833

132

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

	Biodiesel Refining (Malaysia)			Jatropha (India)			Power generation (India)			Downstream Palm Oil Project (Indonesia)		Unallocated			Consolidated (Continuing Operations)
	2011 $’000			2011 $’000			2011 $’000			2011 $’000		2011 $’000			2011 $’000
Primary Reporting — Business Segments
Revenue
Revenue from external customers		13,468			89			523			-		-			14,080
Interest received		36			-			-			-		79			115
Other revenue		200			820			-			-		1,734			2,754
Total segment revenue		13,704			909			523			-		1,813			16,949
Changes in Inventory		5,101			(11	)		-			-		-			5,090
Costs of materials		(18,452	)		(507	)		(118	)		-		-			(19,077	)
Employee benefit expense		(1,235	)		(1,179	)		-			-		(5,113	)		(7,527	)
Impairment		(2,046	)		(1,966	)		(262	)		-		(1,157	)		(5,431	)
Depreciation and amortisation		(217	)		(132	)		(166	)		-		(47	)		(562	)

133

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

	Biodiesel Refining (Malaysia)			Jatropha (India)			Power generation (India)			Downstream Palm Oil Project (Indonesia)		Unallocated			Consolidated (Continuing Operations)
	2011 $’000			2011 $’000			2011 $’000			2011 $’000		2011 $’000			2011 $’000
Interest expense		(50	)		-			(423	)		-		(2,433	)		(2,906	)
Other expenses		(1,362	)		(1,429	)		-			-		(5,416	)		(8,207	)
Segment result before tax		(4,557	)		(4,315	)		(446	)		-		(12,353	)		(21,671	)
Profit/loss from ordinary activities before income tax																(21,671	)
Income tax expense																1
Net profit/(loss)																(21,670	)
Non-current segment assets		3,080			252			2,892			-		1,138			7,362
Total Segment assets		10,528			1,955			2,379			-		21,736			36,598
Segment liabilities		6,209			687			2,278			-		57,172			66,346
Acquisitions of property, plant and equipment		2,702			135			-			-		326			3,163

134

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (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 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 exclude transfers between segments.

Business and Geographical Segments

The Group has four key business segments. The Group’s business segments are located in Malaysia, Indonesia, 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 downstream palm oil project is located in Indonesia, the Jatropha business segment is located in India along with the Power generation segment.

135

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

29. Cash Flow Information

Reconciliation of Cash Flow from Operations with Profit (loss) after Income Tax	2012 $’000			2011 $’000
Profit / (Loss) after income tax before non-controlling interests		(6,198	)		(21,670	)
Non cash flows in profit / (loss)
Depreciation of plant and equipment		516			562
Amortisation of Convertible Note Costs		17			379
Gain on the settlement/restructure of Convertible Note		(10,300	)		(1,734	)
Amortisation of Equity portion of Convertible Note		1,067			2,003
Provision for employee benefits		11			20
Impairment of Trade Receivables		1,007			1,930
Impairment of assets		4,268			3,501
Impairment of inventories		402			-
Share based payment expense		299			3,324
Net cash provided by / (used in) operating activities before change in assets and liabilities		(8,911	)		(11,685	)
Change in assets and liabilities
- (Increase) decrease in receivables		3,954			(6,169	)
- (Increase) decrease in inventories		4,759			(5,090	)
- (Increase) decrease in biological assets		-			1,389
- (Increase) decrease in other assets		230			(524	)
- (Increase) decrease in deferred tax and current tax		6			17
- Increase (decrease) in creditors and accruals		(4,691	)		5,378
Foreign Currency Adjustments		(218	)		1,595
		4,040			(3,404	)
Cash (used in) operations		(4,871	)		(15,089	)

136

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Cash flows from discontinued operations (being the Windmill segment) are a net operating cash profit of $0.02 million for the period ended 30 June 2012 ($0.02 million loss for 30 June 2011).

Credit Standby Facilities with Banks

	2012 $’000			2011 $’000
Loan facilities		1,764			2,558
Amount utilised		(1,764	)		(2,558	)
		-			-

Facilities at June 2012 relate term loans for the funding of various items of Property, Plant and Equipment. The loan terms range from three to four years with interest rates from 3.4% to 19.09%. These loans do not have an option to extend.

137

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

30. Interests and Remuneration of Key Management Personnel

	2012  $000		2011  $000
Salaries		1,329		1,457
Non-cash benefits		18		15
Post employment benefits		66		73
Share based payments		49		3,245
Total		1,462		4,790

Equity settled Options

	Balance 1/7/2010		Balance after consolidation at 50:122		Lapsed			Balance 30/6/2011		New issue		Balance 30/6/2012
Directors
Guy Burnett23		1,750,000		35,000		(35,000	)		-		-		-
Executive
James Garton24		1,750,000		35,000		(35,000	)		-		-		-
TOTAL		3,500,000		70,000		(70,000	)		-		-		-

²² Shareholders approved a share consolidation of 50:1 on 23 March 2011.

²³ Grant date was 19 October 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 30 June 2011. Prices adjusted to reflect the impact of the share consolidation.

²⁴ 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.

138

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Equity settled Performance rights

	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		New Issue			Exercised			Lapsed			Balance 30/06/2012		Vested and unexercised at 30/06/2012
Director
Nathan Mahalingam		-		5,000,000	25		(3,333,332	)		-			1,666,668		33,334		-			33,334		-			(33,334	)		-			-		-
Guy Burnett		1,000,000		5,000,000	26		(3,733,332	)					2,266,668		45,334		(6,000	)		39,334		-			(33,334	)		(6,000	)		-		-
Executives																																	-
James Garton		6,000,000					(3,733,332	)		-			2,266,668		45,334		(6,000	)		39,334		-			(33,334	)		(6,000	)		-		-
Senior employees collectively		786,667		1,550,000	27		(546,666	)		(50,000	)		1,740,001		34,808		(13,733	)		21,075		20,000	28		(16,675	)		(22,800	)		1,600		-
Total		7,786,667		11,550,000			(11,346,662	)29		(50,000	)		7,940,005		158,810		(25,733	)		133,077		20,000			(116,677	)30		(34,800	)		1,600		-

²⁵Grant 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.

²⁶Grant 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.

²⁷Grant 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.

²⁸Grant date was 1 July 2011, share price and fair value on grant date was $4.90. 10,000 of the performance rights vest on 31 December 2012 for service and 10,000 vest on 30 June 2012 if the refining operations are cash flow positive for the 2012 financial year.

²⁹The weighted average exercise price was $11.21 for performance rights exercised in 2011.

³⁰The weighted average exercise price was $5.47 for performance rights exercised in 2012.

139

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Ordinary shares held by key management personnel

	Balance 30/6/2010		Exercised pursuant to performance rights		Disposed		Balance 30/06/2011		Exercised pursuant to performance rights		Disposed		Balance 30/06/2012
Dario Amara		2,000		-		-		2,000		-		-		2,000
Nathan Mahalingam		512,955		66,667		-		579,622		33,334		-		612,956
Guy Burnett		4,000		74,667		-		78,667		33,334		-		112,001
James Garton		4,050		74,667		-		78,717		33,334		-		112,051
Samsudeen Ganny		-		-		-		-		10,000		-		10,000
Kalaiselvan Somasundaram31		1,600		800		-		2,400		-		-		2,400
Total		524,605		216,801		-		741,406		110,002		-		851,408

Refer to the Remuneration report for full details on key management personnel remuneration and benefits

³¹Mr Kalaiselvan resigned on 1 July 2011

140

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

31. Related Parties

	2012 $’000		2011 $’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		627		656
Management fee charged to Mission Biofuels Sdn Bhd, a 100% owned subsidiary company		940		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		2,400		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		-		-

141

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Inter Company Loan Balances

		2012 $’000		2011 $’000
Loan From	Loan To		Amount		Amount
Mission New Energy Ltd	Mission Agro Energy Ltd		551		551
Mission New Energy Ltd	Mission Biotechnologies Sdn Bhd		4,100		13,250
Mission New Energy Ltd	Mission Biofuels Sdn Bhd		1,202		261
Mission New Energy Ltd	Oleovest PL		2,739		-
Mission New Energy Ltd	PT Sinergi Oleo Nusantara		45		-
Mission Biotechnologies Sdn Bhd	Mission Agro Energy Ltd		100		100
Mission Biofuels Sdn Bhd	Mission Biotechnologies Sdn Bhd		-		36
Mission Biotechnologies Sdn Bhd	Mission Biofuels Sdn Bhd		-		-
Mission Biotechnologies Sdn Bhd	Mission Biofuels (India) Pvt Ltd		69		66
Mission Biotechnologies Sdn Bhd	Oleovest Pte Ltd		4		-
Mission Biotechnologies Sdn Bhd	PT Sinergi Oleo Nusantara		76		-

All intercompany loans from the parent entity have been fully provided for, except for the loan to Oleovest PL.

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 Group does not have any financial assets carried at fair value therefore no further disclosure in relation to the fair value hierarchy is presented.

142

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Fair value of financial instruments

	Carrying amount $,000		Fair Value $,000
Financial assets
Cash and cash equivalents		1,456		1,456
Other Financial Assets		581		581
Receivables (Current)		4,225		4,225
Financial liabilities
Trade and other payables		2,175		2,175
Current loans		83		83
Non-current loans and equity portion		31,215		32,036

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 2012, 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 (2011: A$ Nil million lower/higher)

· Equity would have been – A$ Nil million lower/higher (2011: A$ Nil million lower/higher)

· The fair value of convertible notes – A$ 0.298 million higher/A$ 0.172 million and lower (2011: A$ 0.344 million / A$ 0.341 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, Indonesian Rupiah and the US dollar.

143

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

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 2012, 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$ 0.1 million lower/ A$0.1 million higher (2011: A$ 0.941 million lower/ A$1.15 million higher)

Profit and Loss would have been – A$ 0.1 million lower/ A$0.1 million higher (2011: A$ 0.941 million lower/ A$1.15 million higher)

Hedging of Foreign Currency Risk

At financial report date the Group had no forward exchange contracts in place.

Credit risk

Malaysian operations

Credit risk for receivables at 30 June 2012 in the refining operations stemmed from sales to large Malaysian oil companies with an inherent low risk of credit default. At the date of this report, all material biodiesel sale receivables had been recovered.

Indian Operations

With the downsizing of the feedstock operations, all receivables from sale of saplings have been impaired. Sales of electricity, which is under a power purchase agreement and the resultant receivable, are to a large Indian State Owned enterprise and hence credit risk is deemed low.

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.

144

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Commodity Risk

The Group is exposed to market prices of input costs into the production of biodiesel and associated by products produced. At period end the group had some product on hand to be sold.

Group sensitivity

At 30 June 2012, if the price of these products 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$0,1 million lower / A$0.1 million higher

Equity would have been – A$0.1 million lower / A$0.1 million higher

145

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

Financial Instruments (cont’d)

Liquidity risk					Weighted Average Interest Rate
	2012		2011		2012			2011
	$'000		$'000		%			%
Financial Assets:
Cash and cash equivalents		1,456		15,761		2.5	%		2.9	%
Other financial assets		581		178		-			-
Loans and Receivables		4,225		6,583		-			-
		6,262		22,522
Financial Liabilities summarized by contractual maturity:
Current debt
Floating Interest Rate		1,650		494		18.3	%		15.1	%
Fixed Interest Rate		-		14,413		-			4	%
Non Interest Bearing		2,175		7,059		-			-
Total Current Debt		3,825		21,966
Non-current debt
Floating Interest Rate(1 to 3 Years)		114		2,064		3.4	%		15.8	%
Floating Interest Rate(4 to 5 Years)		-		-
Fixed Interest Rate(1 to 3 Years)		31,101		42,223		4.0	%		4.0	%
Fixed Interest Rate(4 to 5 Years)		-		-
Total Non-Current Debt		31,215		44,287

The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash is maintained.

146

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

33. Parent entity information

	2012			2011
Information relating to Mission NewEnergy Limited:	$’000			$’000
Current assets		887			21,233
Total assets		892			22,010
Current liabilities		(848	)		(14,948	)
Total liabilities		(31,948	)		(57,172	)
Net asset (deficit)/surplus		(31,057	)		(35,162	)
Issued capital		110,215			96,697
Retained loss		(141,191	)		(142,665	)
Share based payments reserve		4,907			4,866
Convertible notes reserve		2,645			5,940
Total shareholders’ equity		(31,057	)		(35,162	)
(Loss)/profit of the parent entity		(7,633	)		(35,983	)
Total comprehensive income of the parent entity		(7,633	)		(35,983	)
Details of any guarantees entered into by the parent entity in relation to the debts of its subsidiaries *		3,483			5,209
Details of any contingent liabilities of the parent entity		-			-
Details of any contractual commitments by the parent entity for the acquisition of property, plant or equipment.		-			-

* 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.

The Parent entity is not aware of any other contingent liabilities or contingent assets as at 30 June 2012.

147

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

34. Subsequent events

Other than the matters mentioned below, there have been no significant subsequent events up until the date of signing this Financial Report.

Mission, through its subsidiary, Oleovest PL, has served a notice of termination to PT Perkebunan Nusantara III (“Persero”) (“PTPN III”) an Indonesian state owned enterprise for breach of material obligations under the Joint Venture & Shareholders’ Agreement.

Mission was formally de-listed from the NASDAQ Global Market. Mission continues to trade on the Australian Stock Exchange (ASX) under the symbol “MBT”.

A debt funding package as referred to above has been agreed in principle with SLW International, LLC (SLWI) a substantial convertible note holder, to provide the company with a US$5 million line of credit facility (“Facility”).

Under the terms of the Facility, the company may draw up to US$5 million over the 24 month term of the Facility. At maturity or default, the company must repay the principal amount outstanding plus twenty five percent of the maximum principal amount reached during the term of the Facility, or US$1 million, whichever is greater. The Facility will be secured through a first priority security over all assets of the company, and if required by the lender, the company’s subsidiaries and (or alternatively) security over the shares of the subsidiaries of the company, and the Facility may not be used for any capital expenditure or debt service. Funds will be advanced in one or more tranches as agreed by the lender and all payments by the company of any material amount shall be subject to lender approval. In addition to certain restrictions on activities of the company, the company shall be obligated to repay all or part of the then outstanding amount upon the receipt by the company or its subsidiaries of funds related to the sale or other disposal of any material assets. No such sale or disposal of assets may occur without the express and written prior approval of the lender. The lender will have the right to appoint a Director to the Board and the company is required to maintain the ongoing employment of Mr. Nathan Mahalingam as Chief Executive Officer.

The company has agreed to deal exclusively with the lender for funding while completing the conditions to close, which include finalising definitive Facility documentation, definitive security documentation, shareholder approval, no material adverse change in respect of Mission’s operations and the restructure of the convertible note debt.

The company has also taken to shareholder for approval to convert each existing convertible note, by way of an exchange offer, whereby each existing convertible note will be exchanged for a new convertible note. The key difference between an existing convertible note and a new convertible note is that the new note will bear no coupon/interest payments, will have a conversion ratio of one note to four hundred and thirty three ordinary shares and the condition that any proceeds from the sale of material assets will be first applied on a pro-rata basis towards settlement of the principal amount outstanding under the new convertible notes.

If the Convertible Note restructure is successful all further interest payment obligations of the company under the existing convertible notes would be removed and further, if the new convertible notes were to be converted to equity, the company would no longer be liable to repay its debt under such convertible notes which currently totals more than A$32 million. Instead of repaying the notes, the Company would issue approximately 219 million shares equal to approximately ninety six percent of the total issued shares of the company following the issue.

148

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

On 19 September 2012, a shareholder filed an application with the Takeovers Panel, seeking an interim order that Mission not proceed with the finalisation of the SLW definitive facility documents and definitive security documentation (as referred to above in the Financial Position section), until the Panel application is dealt with and a final order that, the term sheet be cancelled, or alternatively cancelled to the extent that it requires Mission to deal exclusively with SLW for funding and restricts Mission from dealing with its assets. The Company agreed to not proceed with finalisation of definitive facility documents and definitive security documentation and to not dispatch to Mission shareholders any notice of meeting relating to seeking shareholder approval for the proposed convertible note restructure announced to the Australian Securities Exchange on 17 August 2012 until the Takeover Panel application is dealt with. On the 8 October Mission announced a placement of 1,417,860 ordinary shares at A$0.0705 raising approximately A$100,000 and also announced that the SLWI facility was no longer contingent upon the convertible note restructure. On the 16^th October 2012 Mission lodged a Notice of Meeting of Shareholders to approve the convertible note restructure. On 3 October 2012 (and again on the 19 October 2012) the Takeover Panel announced that it has declined to conduct proceedings.

The Board has approved management to sell non-core assets. At the date of this report a sale and purchase agreement to sell the Refining office has been signed.

35. Non-controlling Interests

	2012 $’000		2011 $’000
Issued Capital		70		-
Reserves		-		-
Retained loss		68		-

The non-controlling interest has a 15% (2011: N/A) equity holding in Oleovest PL.

149

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

36. Non-current assets held for sale and discontinued operations

The Board has resolved to sell non-core assets in India, being the windmills and office complex in India. Accordingly these assets have been classified as non-current assets held for sale.

The revenue, expenditure and carrying amount of the assets and liabilities in this disposal group are summarised as follows:

Discontinued operations – Power generation segment	2012 $’000			2011 $’000
Revenue		489			523
Cost of materials		(110	)		(118	)
Depreciation		(131	)		(166	)
Impairment		-			(262	)
Finance Costs		(360	)		(423	)
Net loss from discontinued operations attributable to members of the parent		(112	)		(446	)
Non-current assets classified as held for sale
- Property, Plant and Equipment – power generation segment		1,869			-
- Property, Plant and Equipment – jatropha segment		417
Liabilities classified as held for sale
- Financial liabilities – power generation segment		1,567			-
- Financial liabilities – jatropha segment		-			-

The assets in this disposal group are actively being marketed for sale and are expected to be sold within the forthcoming twelve months.

37. Authorisation of financial statements

The consolidated financial statements for the year ended 30 June 2012 (including comparatives) were approved by the board of directors on 28 September 2012.

Nathan Mahalingam

Director

150

Mission New Energy Limited and Controlled Entities

(ABN 63 117 065 719)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Contd.)

38. Company Details

The registered office of the company is: Mission NewEnergy Limited, Unit B2, 431 Roberts Road, Subiaco, WA 6008, Australia.

The principal places of business are:

Australia	Mission NewEnergy Limited Head Office Unit B2, 431 Roberts Rd, Subiaco, Western Australia, 6008, Australia.
Malaysia	Mission Biofuels Sdn Bhd Unit 621, Block A, Kelana centre point, No. 3, Jalan ss7/ 19, Kelanajaya, 47301 Petaling Jaya, Selangor	Mission Biotechnologies Sdn Bhd 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 Ebene Republic of Mauritius
India	Mission Biofuels (India) Pvt Limited Shops nos. 1,2 and 3 Sun heights, Ground floor Gandhingar bridge Adishankaracharyya Marg Powai, Mumbai Maharashtra India, 400 076	Mission Agro Diesel (India) Pvt Limited 608 Powai Plaza, Hiranandani Business Park Powai, Mumbai - 400076, India

151