The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Some of the statements in this discussion and elsewhere in this report constitute forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. See "Cautionary Statement Regarding Forward-Looking Information" following the Table of Contents of this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.

Business Overview

We are a renewable energy company that offers an array of products and services to a network of biodiesel fuel producers. We also market and sell in the U.S. and Canada biodiesel fuel produced at our small-scale production and demonstration facility in Mississauga, Ontario, Canada, and have recently commissioned and are scaling-up biodiesel production at our new facility in Sombra, Ontario, Canada.

Among other services, we sell feedstock to our network of biodiesel producers, sell their output in the U.S. and Canada, provide them with proprietary software used to operate and control their processors, remotely monitor the quality and characteristics of their output, upgrade and repair their processors, and advise them on adjusting their processes to use varying feedstock and improve their output. Through the accumulation of production data from our network, we are equipped to provide consulting services to network members and other producers for operating their facilities, maintaining optimum production and solving production problems. For our network services and the license of our operating and communications software, we receive a royalty from network members based on the gallons of biodiesel produced.

Our revenue sources include the sale of biodiesel produced at our own facility, the sale of biodiesel that we purchase from network members and other third-party producers, the sale of biodiesel equipment, the sale of feedstock to network members and other third-party biodiesel producers, Canadian government incentive payments, royalties from our network members, and revenue from other services we provide related to the production of biodiesel.

As of November 30, 2012 due in large part to the funds we spent to develop and build our Sombra facility, we had a working capital deficiency of $2,860,019. In addition, during the fiscal year ended November 30, 2012, we incurred a loss of $3,966,765, and had negative cash flow from operations of $2,973,791. Our Sombra facility has recently been approved by the U.S. Environmental Protection Agency ("EPA") as a Foreign Renewable Fuel Producer and as a result the biodiesel produced at this facility became eligible for export to the United States. Obtaining this approval from the EPA enables us to sell our biodiesel into the U.S., and provides our U.S. importers the ability to generate Renewable Identification Numbers ("RINS"). RINS are used in the U.S. by obligated parties to comply with certain obligations under the Renewable Fuel Standard 2 ("RFS2"). We began commercial operation and formal training of our employees at the Sombra plant in November 2012.

On October 12, 2012, our registration statement on Form S-1 (File No. 333-182302) for our initial public offering ("IPO") was declared effective by the U.S. Securities and Exchange Commission ("SEC"). On October 30, 2012, we consummated our IPO pursuant to which we sold 560,000 units (each a "Unit") at a price $5.00 per Unit and raised net proceeds of approximately $1.8 million, after deducting the underwriting fees and offering expenses. Each Unit consists of (i) one share of common stock, $.001 par value ("Common Stock"), (ii) one Class A warrant, to purchase one share of Common Stock at an exercise price of $7.50 (each a "Class A Warrant"), and (iii) one Class B warrant, to purchase one share of Common Stock at an exercise price of $10.00).

The Units were listed on the NASDAQ Capital Market under the symbol "MEILU". Up to November 26, 2012, only the Units were traded. On November 26, 2012, the Common Stock and the Warrants began trading separately under the symbols MEIL, MEILW and MEILZ, respectively. Once separate trading in the Common Stock and Warrants commenced, the Units ceased trading and were delisted.

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries Methes Energies Canada Inc. ("Methes Canada") and Methes Energies USA Ltd. ("Methes USA"). All significant inter-company transactions and balances have been eliminated.

The principal factors affecting our results of operations are as follows:

Biodiesel and feedstock price fluctuations

Biodiesel is a low carbon, renewable alternative to petroleum-based diesel fuel and is primarily sold to the end user after it has been blended with petroleum-based diesel fuel. Biodiesel prices have historically been correlated to petroleum-based diesel fuel prices. Accordingly, biodiesel prices have generally been affected by the same factors that affect petroleum prices, such as worldwide economic conditions, wars and other political events, OPEC production quotas, changes in refining capacity and natural disasters. Recently enacted government requirements and incentive programs, such as RFS2 and the blenders' tax credit, which expired on December 31, 2011, have reduced this correlation, although it remains a significant factor in the market price of our product.

Our operating results also generally reflect the relationship between the price of biodiesel and the price of the feedstock used to produce biodiesel. Spot market prices for virgin vegetable oil or used vegetable oil or rendered animal fat may increase, which would adversely affect our gross margins. The price of vegetable oil, as with most other products made from crops, is affected by weather, disease, changes in government incentives, demand and other factors. A significant reduction in the supply of vegetable oil because of weather or disease, or increases in the demand for vegetable oil, could result in higher feedstock prices. The price of vegetable oil and other feedstock has fluctuated significantly in the past and may fluctuate significantly in the future.

Government programs related to biodiesel production and use

Biodiesel has been more expensive to produce than petroleum-based diesel fuel and as a result the industry depends on Canadian and U.S. federal and, to a lesser extent, provincial and state usage requirements and tax incentives.

On July 1, 2010, RFS2 was implemented, stipulating volume requirements for the amount of biomass-based diesel that must be utilized in the United States each year. Under RFS2, obligated parties, including petroleum refiners and fuel importers, must show compliance with these standards. The RFS2 program required the domestic use of 800 million gallons of biodiesel in 2011 and one billion gallons in 2012. The EPA recently mandated a requirement for domestic use of biodiesel by obligated parties of 1.28 billion gallons in 2013.

Seasonal fluctuations

Our operating results are influenced by seasonal fluctuations in the price of biodiesel. Our sales tend to decrease during the winter season due to perceptions that biodiesel will not perform adequately in colder weather. Colder seasonal temperatures can cause the higher cloud point biodiesel we make from inedible animal fats to become cloudy and eventually gel at a higher temperature than petroleum-based diesel or lower cloud point biodiesel made from soybean, canola or inedible corn oil. Reduced demand in the winter for our higher cloud point biodiesel may result in excess supply of such higher cloud point biodiesel or lower prices for such higher cloud point biodiesel. In addition, our production facilities are located in Canada and our costs of shipping biodiesel to warmer climates generally increase in cold weather months.

Dependence on significant customers

A large part of our revenue is generated from a few large customers. The sales to these customers are made at spot market prices, and we have no binding purchase agreements for our biodiesel, which could affect the consistency of our revenues. Potential customers for biodiesel regularly bid for biodiesel in the spot market at prices that are quoted on a daily basis. As a matter of convenience, we prefer to deal with customers with whom we have had a past relationship, although the specific customers to whom we sell have varied over time. The loss of one or more customers who have been among our largest customers historically would not have a material adverse effect on our business because we believe that a customer or customers could be replaced by one or more new customers regularly bidding for biodiesel, and we believe this will continue to be the case. For example, in the year ended November 30, 2012, one new major customer accounted for 26% of our total revenue and our largest customer in the year ended November 30, 2011 declined from 83% of total revenue in fiscal 2011 to 39% of total revenue in fiscal 2012.

Lengthy sales cycle

The sale of one of our Denami processors in a particular financial period would have a significant effect on our quarter-to-quarter and year-to-year results. The purchase of our Denami processors involves a significant commitment of capital by customers, with the attendant delays frequently associated with large capital expenditures. For these and other reasons, the sales cycle associated with our Denami processors is typically lengthy, varying from 6 to 18 months. The lengthy sales cycles of our equipment sales, as well as the size and timing of orders, make it difficult to forecast our future results of operations.

Components of Revenue and Expense

Revenue

We derive revenues primarily from the sale of biodiesel. We also derive revenue from several other related sources. The following table lists our revenue sources by amount and their respective percentages of total revenue for the years ended November 30, 2011 and 2012:

                          For the Year Ended          For the Year Ended
                             November 30,                 November 30,
                                 2011                        2012
                            $               %            $              %
Biodiesel sales
Resales                   6,256,000        53.1       3,232,000        49.3
Internal production       3,475,355        29.5       2,569,146        39.2
Feedstock sales             838,994         7.1         393,208         6.0
Glycerin sales              132,526         1.1          49,894         0.8
Equipment sales             256,342         2.2        (241,342 )      (3.7 )
Government incentive        518,872         4.4         299,540         4.6
Royalties                   107,148         0.9          66,445         1.0
Other                       200,616         1.7         180,857         2.8

                         11,785,853       100.0       6,549,748       100.0 %

The following factors may significantly affect our revenues in any fiscal period:

? Revenue from the sale of biodiesel, excluding government incentives, includes biodiesel purchased from third-party producers in Canada. The sale price of our biodiesel to our customers is influenced by several factors and is generally based upon the posted price for B100 biodiesel, including the value of the RINs, by companies such as The Jacobsen and Argus Media Ltd., providers of price assessments and business intelligence. Our sale price is also affected by the posted rates for NYMEX Heating Oil plus the value of the RINs and a negotiated premium or discount that reflects market conditions at the time of the transaction.

? Revenue from feedstock sales is derived from the sale of feedstock, methanol, catalyst, resin and shipping charges to third party biodiesel producers in Canada.

? Revenue from equipment sales includes sale of the Denami 600 biodiesel processors and other smaller equipment related to the production of biodiesel.

? We receive government incentive payments under Natural Resources Canada's ecoENERGY for Biofuels Program for qualified sales of biodiesel produced at our Mississauga, Ontario, facility. Our Sombra facility has also been approved to receive the government incentive, and we expect our revenue from the government incentive to increase as we increase production at our Sombra facility. Sales of biodiesel to the United States, Canada and elsewhere qualify under the program. For the years ended November 30, 2011 and 2012, we claimed $519,000 and $300,000, respectively, as an incentive from the Canadian Government for production at our facilities. The ecoENERGY incentive is recognized as revenue when the right to receive is established upon production and sale of the biodiesel.

? Revenue from royalties was derived from the two customers that purchased our Denami 600 processors in fiscal 2010. Royalties for the year ended November 30, 2011 and 2012 were $107,000 and $66,000, respectively. Royalties are recognized on an accrual basis in accordance with the Sales and Licensing Agreement for the biodiesel processing equipment. The royalty is charged on gallons of biodiesel produced by our customers using our biodiesel processing equipment.

? Other revenue includes sales of glycerin, a by-product of biodiesel production, consulting fees, rental income and miscellaneous other fees charged to our customers.

Cost of Goods Sold

Our cost of goods sold expense include the cost of feedstock, catalysts, methanol and other chemicals used in the production process; the purchase price of biodiesel acquired for resale from network members and others; the purchase price of feedstock and other items used in the production of biodiesel acquired for sale to network members and others; the purchase price of equipment sold to others; leases, utilities, depreciation, salaries and other indirect expenses related to the production process at our facilities; salaries and related expenses for employees involved in production or supplying services; and related expenses for transportation, storage, insurance, labor and other indirect expenses.

Results of Operations

Fiscal Year Ended November 30, 2011 and 2012

Set forth below is a summary of certain financial information for the periods
indicated:

                                                Fiscal Year        Fiscal Year
                                                   Ended              Ended
                                               November 30,       November 30,
                                                   2011               2012
Revenue
Biodiesel sales
Resales                                        $   6,256,000      $   3,232,000
Internal production                                3,475,355          2,569,146
Feedstock sales                                      838,994            393,208
Glycerin sales                                       132,526             49,894
Government incentive                                 518,872            299,540
Equipment sales                                      256,342           (241,342 )
Royalties                                            107,148             66,445
Other                                                200,616            180,857

                                                  11,785,853          6,549,748
Cost of goods sold                                10,120,570          5,998,728

Gross profit                                       1,665,283            551,020
Operating expenses
Selling, general and administrative expenses       2,436,615          4,270,773

Loss before interest and taxes                      (771,332 )       (3,719,753 )
Other income (expenses)
Interest expense                                     (39,750 )         (250,146 )
Interest income                                          132              3,134

Loss before income taxes                            (810,950 )       (3,966,765 )
Income taxes                                               -                  -

Net loss for the period                        $    (810,950 )    $  (3,966,765 )

Fiscal Year ended November 30, 2011 compared to fiscal year ended November 30, 2012

Revenue. Our total revenues for the fiscal year ended November 30, 2011 and 2012 were $11.8 million and $6.5 million, respectively, representing a decrease of $5.3 million, or 45%. The reasons for this decrease are outlined below.

Biodiesel. Biodiesel sales for the fiscal year ended November 30, 2011, excluding government incentives, were $9.73 million and decreased by $3.93 million, or 40%, to $5.80 million in the fiscal year ended November 30, 2012. For the fiscal year ended November 30, 2011 and 2012, our resales of biodiesel purchased from third party producers were $6.256 million and $3.232 million, respectively, a decrease of approximately $3.024 million, or 48%. This decrease in revenue was due to lower demand and overall decrease in sale price of biodiesel. Revenue from our internal production, excluding government incentives, for the fiscal year ended November 30, 2011 and 2012 was $ 3.475 million and $2.569 million, respectively, a decrease of approximately $ 906,000, or 26%. This decrease was due to a decrease in our production at Mississauga plant as management, in view of the Sombra plant construction and start-up, decided to conduct more research and development activities on the Denami 600 at Mississauga plant to purify glycerin stream. This testing was successful and currently we are designing the system to be used at our Sombra plant which is expected to result in cost savings. For the fiscal year ended November 30, 2011 and 2012, our average sales price per gallon for 100 percent biodiesel ("B100") was $5.00 and $4.54, respectively, a decrease of $0.46 per gallon, or 9%. Gallons sold for the fiscal year ended November 30, 2011 and 2012 were 1.947 million and 1.279 gallons, respectively, a decrease of 668,000 gallons, or 34%. The expiration of the blender's tax credit on December 31, 2011 and the uncertainty about the integrity of some RINS in the United States caused the demand for B100 to be lower than expected in fiscal 2012. The increased due diligence by buyers of biodiesel and RINS has created a decrease in the demand of biodiesel and especially for smaller producers.

Feedstock. For the fiscal year ended November 30, 2011 and 2012, feedstock sales were $839,000 and $393,000, respectively, a decrease of $446,000, or 53%. In the more recent period, with some variations in quantities, we were able to source additional feedstock as well as other products related to the production of biodiesel on the spot market that we resold immediately to our customers in Canada at a profit. We intend to continue with this strategy as opportunities arise to generate additional profit.

Glycerin. For the fiscal year ended November 30, 2011 and 2012, Glycerin sales were $132,500 and $50,000, respectively, a decrease of $82,500 or 62%. This decrease was as a result of the lower production of glycerin, which is a byproduct of our biodiesel production.

Government incentives. For the fiscal year ended November 30, 2011 and 2012 we received $518,900 and $299,500, respectively, as incentive payments from the Canadian Government. This decrease of $219,400 or 42% was due to the decrease in production of biodiesel and also, due to ecoENERGY audit adjustments for fiscal years 2010 and 2011 concluded in the quarter ended August 31, 2012.

Equipment sales. We generated $256,300 from equipment sales for the fiscal year ended November 30, 2011, which consisted primarily of the sale of an equipment kit. For the fiscal year ended November 30, 2012 we had negative revenues of $241,300 as an oil processing research and development related equipment sold in fiscal year 2011 was returned under the warranty.

Royalties. We received royalties of $107,100 during the fiscal year ended November 30, 2011 from two network members that purchased our Denami 600 processors late in fiscal 2010. Royalties for the fiscal year ended November 30, 2012 were $66,400, a decrease of $40,700. Our customers own the Denami 600 processors, but license the software and monitoring system from us in exchange for an ongoing royalty payment of $0.11 per gallon of biodiesel produced by their Denami 600 processors.

Other. Other revenue includes sales of consulting services, delivery charges, lab and shop supplies, storage and rental income. Other revenue for the fiscal year ended November 30, 2011 and 2012 was $200,600 and $180,900, respectively, a decrease of $19,700, or 10%.

Cost of goods sold. Our cost of goods sold for the fiscal year ended November 30, 2011 and 2012 were $10.12 million and $6.00 million, respectively, a decrease of $4.12 million, or 41%. This decrease was primarily due to decrease in costs associated with the decreased quantity of biodiesel sold in the fiscal year ended November 30, 2012.

Biodiesel cost of goods sold decreased 41% from the fiscal year ended November 30, 2011 compared to the same period in fiscal 2012, or from $9.27 million for the fiscal year ended November 30, 2011 to $5.5 million for the fiscal year ended November 30, 2012. If the average feedstock price and the price paid for biodiesel purchased from other biodiesel producers in Canada remained constant from the fiscal year ended November 30, 2011 to the end of the same period in 2012, the decrease in gallons of biodiesel sold would have resulted in a $3.182 million decrease in the related biodiesel cost of goods sold. The decrease in average feedstock prices from the fiscal year ended November 30, 2011 to the end of the same period in 2012 resulted in $228,000 of the decrease in biodiesel cost of goods sold and the lower price paid for biodiesel purchased from others resulted in $360,000 of this decrease.

All other costs of goods sold, excluding biodiesel cost of goods sold, for the fiscal year ended November 30, 2011 and November 30, 2012 were $846,000 and $497,000, respectively. The decrease was due to decrease in feedstock sales and due to the cost of return of an equipment kit sold in fiscal year 2011 and no significant equipment sold in the fiscal year ended November 30, 2012.

Selling, general and administrative expenses. Our selling, general and administrative expenses for the fiscal year ended November 30, 2011 and 2012 were $2.44 million and $4.27 million, respectively, an increase of $1.83 million, or 75%. The increase in the more recent period was mainly related to an increase in salaries and wages of $758,000, primarily related to increased manpower at our Sombra facility, stock option expense of $147,700, professional fees of $244,000, utilities of $109,700 and a one-time non-cash charge for penalty shares of $399,998 in the fiscal year ended November 30, 2012. Salary and wages, and utilities increases supported the higher level of operations, including expansion at our Sombra facility. Professional fees increases were related to increase in audit fees and consulting. The one-time charge related to a transfer of 52,151 shares of the Common Stock of the Company by Softdiffusion SA, a third party stockholder, to a new stockholder of shares owned by Softdiffusion SA pursuant to an agreement by the Company with the new stockholder. We recorded the estimated fair value of $399,998 for these shares as part of the general and administrative expenses in fiscal 2012.

Other income (expenses). Other expenses were $39,600 and $247,000 for the fiscal year ended November 30, 2011 and 2012, respectively. These amounts relate to accruals for interest expense associated with loans extended to us from two stockholders, one director and TCE Capital. The increase was due to increases in the principal balances of the loans.

Income taxes. No income tax expense or benefit was recorded during the fiscal year ended November 30, 2011 and November 30, 2012 due to ongoing taxable losses. As of November 30, 2012, we were not subject to any uncertain tax exposures.

Net loss. Our net loss for the fiscal year ended November 30, 2011 was $810,000 and increased $3.16 million to $3.97 million for the fiscal year ended November 30, 2012 due primarily to the $5.3 million decrease in revenues and resultant $1.12 million decrease in gross profit, and the $1.83 million increase in selling, general and administrative expenses to support our higher level of operations, which included development of our Sombra facility and a one-time non-cash charge for the penalty shares of $399,998.

Liquidity and Capital Resources

Sources of liquidity. Since inception, a significant portion of our operations was financed through the sale of our capital stock. At November 30, 2011 and November 30, 2012, we had cash and cash equivalents of $1.69 million and approximately $402,700, respectively.

Commencing in December 2011, we received cash proceeds of $1,985,051 from the private placement of shares of Common Stock. On March 12, 2012 and April 26, 2012, we borrowed a total of $1.0 million from one stockholder. These debts are unsecured, payable on demand and carry interest at 8% per annum.

On June 20, 2012, Methes Canada entered into a term loan facility agreement with a lender that allows Methes Canada to borrow up to $1.5 million (CAD). The term loan, which was drawn in late June 2012, is repayable in 12 months and bears interest at 23% per annum. The loan is prepayable by Methes Canada after six months upon payment of a penalty equal to one-month's interest. The facility is guaranteed by the Company and collateralized by a general security agreement from Methes Canada and a first collateral mortgage on certain assets located at our Sombra facility. The facility prohibits payment of debt in excess of $550,000 owed by the Company to certain of our stockholders and directors during the life of the facility and contains other customary debt covenants. The facility also provides that, beginning October 1, 2012, any additional operating losses incurred by Methes Canada must be financed by stockholders or new equity funding.

On October 30, 2012, we consummated our IPO pursuant to which we sold 560,000 Units at a price of $5.00 per Unit and raised net proceeds of approximately $1.8 million, after deducting the underwriting fees and offering expenses.

Cash flow. The following table presents information regarding our cash flows and cash and cash equivalents for the fiscal year ended November 30, 2011 and 2012:

                                                                 (Amounts rounded to nearest
                                                                         thousands)
                                                                      Fiscal Year Ended
. . .