If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ý

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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

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CALCULATION OF REGISTRATION FEE

(1)

We are registering 35,000,000 shares of our common stock (the “Put Shares”) that we will put to Southridge Partners II, LP (“Southridge”), pursuant to an amended and restated agreement (the “Agreement”) between the selling security holder and the registrant effective on March 31, 2011. In the event of stock splits, stock dividends, or similar transactions involving the common stock, the number of common shares registered shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). In the event that adjustment provisions of the Agreement require the registrant to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the registrant will file a new registration statement to register those additional shares.

(2)

The offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(c) of the Securities Act on the basis of the closing bid price of common stock of the registrant as reported on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “NPWZ” on August 17, 2011.

(3)

This amount represents the maximum aggregate value of common stock which may be put to Southridge by the registrant pursuant to the terms and conditions of the Agreement between Southridge and the registrant.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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The information in this prospectus is not complete and may be changed. The selling stockholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated August 19, 2011

Preliminary Prospectus

NEAH POWER SYSTEMS, INC.

35,000,000 shares of Common Stock

This prospectus relates to the resale of up to 35,000,000 shares of our common stock, par value $0.001 per share by the selling security holder (the “Selling Security Holder”), which are Put Shares that we will put to Southridge pursuant to the Agreement.

The Agreement with Southridge provides that Southridge is committed to purchase up to $10,000,000 of our common stock. We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Agreement.

Southridge is an “underwriter” within the meaning of the Securities Act in connection with the resale of our common stock under the Agreement. No other underwriter or person has been engaged to facilitate the sale of shares of our common stock in this offering. This offering will terminate twenty-four (24) months after the registration statement to which this prospectus is made a part is declared effective by the SEC. Southridge will pay us 94% of the average of the lowest closing bid price of our common stock reported by Bloomberg, LP in any two trading days, consecutive or inconsecutive, of the five consecutive trading day period commencing the date a put notice is delivered.

We will not receive any proceeds from the sale of these shares of common stock offered by the Selling Security Holder. However, we will receive proceeds from the sale of our Put Shares under the Agreement. The proceeds will be used for working capital or general corporate purposes. We will bear all costs associated with this registration.

Our common stock is quoted on the OTCBB under the trading symbol “NPWZ.” The shares of our common stock registered hereunder are being offered for sale by the Selling Security Holder at prices established on the OTCBB during the term of this offering. On August 17, 2011, the closing bid price of our common stock was $0.0089 per share. These prices will fluctuate based on the demand for our common stock.

This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss. See “Risk Factors” beginning on page 9.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is August   , 2011

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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that which is contained in this prospectus. This prospectus may be used only where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of securities. This prospectus contains important information about us that you should read and consider carefully before you decide whether to invest in our common stock. If you have any questions regarding the information in this prospectus, please contact Stephen M. Wilson, our Chief Financial Officer, at: 22118 20^th Avenue SE, Suite 142, Bothell, WA, or by phone at (425) 424-3324.

All dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters.

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PROSPECTUS SUMMARY

The following summary does not contain all the information that may be important to you in making a decision to acquire our securities. For a more complete understanding of our company, you should read the entire prospectus, including the risks described under “Risk Factors,” and the documents incorporated in this prospectus by reference.

Overview

We are engaged in the development and sale of renewable energy solutions. We have developed what we believe is a breakthrough, disruptive, direct methanol micro fuel cell which can serve as a replacement for batteries in a variety of products. Our fuel cells are designed to replace existing rechargeable battery technology in mobile electronic devices and small-scale transportation vehicles. Our long-lasting, efficient and safe power solutions for these devices, such as notebook PCs, military radios, and other power-hungry computer, entertainment and communications products, use our patented, silicon-based design. This fuel cell design creates higher power densities and enables lighter-weight, smaller form-factors, and will potentially create more cost effective, manufacturing and potentially lower product costs.

Based on the research and state of our technology, we believe our fuel cell will outperform lithium ion batteries and other batteries in terms of run time, recharge time, portability, and other measures of performance. We anticipate that our fuel cell solution will be particularly beneficial in applications requiring the use of more than one battery because the user will only need to use a single fuel cell with a supply of smaller fuel cartridges, which will result in reduced overall size and weight. Based on our eleven issued patents and 2 additional U.S. patent filings, we believe our technology is proprietary and can be protected.

We have won awards for our technology over the years, the most recent recognition being the Best of What’s New^TM 2010 award from the distinguished publication Popular Science^TM.

In 2010, we continued to advance the development and maturity of our systems. This included the completion of the fuel cell prototype and the subsequent completion of a system not requiring the availability of oxygen from the environment (“anaerobic” or “closed loop system”). We also demonstrated an air-breathing (“aerobic”) system. We believe that these technologies provide the foundation for products to be produced for sale over the next fiscal year.

In an initial effort to test prototypes of our technology and sell our products, we entered into non-binding letters of intent and other agreements beginning in 2009. We entered into non-binding letters of intent with EKO Vehicles of Bangalore (“EKO”), Hobie Cat Company (“Hobie Cat”), and a United States based large defense supplier. The agreements with EKO have expired and we intend to negotiate extensions or new agreements. Partnering with these companies, we anticipate that we will develop early production devices for evaluation by original equipment manufacturers (“OEM”) for the eventual deployment of our fuel cell products during 2012. We anticipate that we will ultimately sell or license our products for resale by distributors and OEM customers.

We also intend to design and distribute the fuel cartridges that these fuel cells require for refueling. We anticipate that we will generate future revenues from the sale and licensing of both fuel cartridges and the completed fuel cells. We contemplate that we will subcontract to third parties substantially all of the production and assembly of the fuel cells and fuel cartridges.

In May 2011, we announced that we had signed a non-binding memorandum of understanding to acquire privately-held Exigent Security Products which markets and develops advanced radiation sensors for use by medical, homeland security, defense and other industries. We believe that this business combination, if successfully consummated, will enable us to combine offerings of fuel cell and radiation detector products in order to provide power for remote and continuous sensor applications. We currently have an unsecured note receivable from Exigent Security Products, Inc. in the amount of $35,000 and bearing interest at 10% per annum, compounded monthly, and with all principal and interest due June 2012. No additional agreements have been entered into since the memorandum of understanding.

The delay in our ability to raise capital has led to postponement in the deployment of our business strategy. We intend to produce and deliver products in conjunction with the receipt of required financing.

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Recent Developments

Consent Solicitation

On February 23, 2011, we mailed a Consent Solicitation Statement to our stockholders regarding a proposal to increase our authorized common stock from 80 million shares to 500 million shares. A detailed description of this proposal is included in our definitive consent solicitation statement which we filed with the Securities and Exchange Commission on February 23, 2011. The votes consenting to the authorized common stock increase equaled 73% of the voting power authorized to vote on the proposal.

Recent Financing Transactions

Debt Paid in Common Stock

Subsequent to the filing of our June 30, 2011 Quarterly Report on Form 10-Q, we issued approximately 7.4 million shares of our common stock, valued at approximately $74,000, to an investor in payment of an outstanding debt balance of $50,000. This will result in an estimated loss on extinguishment of debt of approximately $24,000.

Series B Preferred Stock

On July 8, 2011, we filed with the State of Nevada a Certificate of Designation for 1,000,000 shares of our Series B Preferred Stock. In July 2011, we issued, under a Series B Preferred Stock Purchase Agreement, 322,904 shares of Series B to Summit Trading Limited at a price of $1.00 per share

Debentures

In July and August 2011, we entered into second and third amendments to a March 2011 debenture with an investor whereby we increased the face value of the debenture from $45,000 to $105,000 upon receipt additional investment proceeds of $60,000. The third amendment also extends the maturity date of the debenture to May 1, 2012. The debentures provide for conversion of the additional investment of 25,000 and 35,000 into common shares at a price equal to $0.00405 or $0.00567 per share, respectively, or 50% of the average closing price of our common stock for the five days prior to the date of any notice to convert.   

Other Investment

Subsequent to the filing of our June 30, 2011 Quarterly Report on Form 10-Q, we received approximately $50,000 from investors in advances for equity or for debt investment.

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The Offering

This offering relates to the resale of up to 35,000,000 shares of our common stock, par value $0.001 per share, by the Selling Security Holder, which are the Put Shares that we will put to Southridge pursuant to the Agreement. Assuming the resale of all of the shares being registered in this Registration Statement, such shares would constitute approximately 21.9% of the Company’s outstanding common stock.

On March 31, 2011, we entered into the Agreement with Southridge under which Southridge has committed to purchase up to $10 million of our common stock over a two year period commencing on the date the SEC first declares effective this registration statement to which this prospectus is made a part. For each share of our common stock purchased under the Agreement, Southridge will pay ninety-four percent (94%) of the average of two lowest closing bid price (the “Bid Price”) of any two applicable trading days, consecutive or inconsecutive, during the five (5) trading day period (the “Valuation Period”) commencing the date a put notice (the “Put Notice”) is delivered to Southridge (the “Put Date”) in a manner provided by the Agreement. Subject to the limitations outlined below, we may, at our sole discretion, issue a Put Notice to Southridge and Southridge will then be irrevocably bound to acquire such shares.

Furthermore, subject to the terms and conditions of the Agreement, at any time or from time to time after the effectiveness of this registration statement, we can notify Southridge in writing of the existence of a potential material event based upon the good faith determination of our board of directors (the “Blackout Notice”), and Southridge shall not offer or sell any of our securities acquired under the Agreement from the time the Blackout Notice was provided to Southridge until Southridge receives our written notice that such potential material event has either been disclosed to the public or no longer constitutes a potential material event. If we deliver a Blackout Notice within fifteen trading days commencing the sixth day following a Put Date (the “Closing Date”), and the Bid Price immediately preceding the applicable Blackout Period (the “Old Bid Price”) is greater than the Bid price on the first trading day immediately following such Blackout Period (the “New Bid Price”), then we are obligated to issue to Southridge a number of additional common shares (the “Blackout Shares”) equal to the difference between (i) the product of (X) the shares that were issued to Southridge on the most recent Closing Date and held by the Investor immediately prior to the Blackout Period (the “Remaining Put Shares”), multiplied by (Y) the Old Bid Price, and divided by (Z) the New Bid Price, and (ii) the Remaining Put Shares.

In connection with the Agreement, Southridge is owed a due diligence fee equal to $10,000 worth of the Company’s restricted common stock.

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We are relying on an exemption from the registration requirements of the Securities Act of 1933, as amended (the ‘Securities Act”) and/or Rule 506 of Regulation D promulgated thereunder. The transaction involves a private offering, Southridge is an “accredited investor” and/or qualified institutional buyer and Southridge has access to current information about us and its investment.

At the assumed offering price of $0.0089 per share, we will be able to receive up to approximately $365,000 in gross proceeds, assuming the sale of the entire 35,000,000 shares being registered hereunder pursuant to the Agreement. We would be required to register approximately 1,088,640,000 additional shares to obtain the balance of $10,000,000 under the Agreement at the assumed offering price of $0.0089. Neither the Agreement nor any rights or obligations of the parties under the Agreement may be assigned by either party to any other person.

There are substantial risks to investors as a result of the issuance of shares of our common stock under the Agreement. These risks include dilution of stockholders, significant decline in our stock price and our inability to draw sufficient funds when needed.

Southridge will periodically purchase our common stock under the Agreement and will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to Southridge to raise the same amount of funds, as our stock price declines.

RISK FACTORS

The shares of our Common Stock being offered for resale by the Selling Security Holder are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested therein. Before purchasing any of these securities, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our Common Stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

OUR AUDITORS HAVE ISSUED A “GOING CONCERN” MODIFICATION IN THEIR REPORT ON OUR CONSOLIDATED FINANCIAL STATEMENTS.

The auditors’ report on our consolidated financial statements as of September 30, 2009 and September 30, 2010 indicates that there is substantial doubt about our ability to continue as a going concern based upon our accumulated deficit and negative working capital at September 30, 2010, our recurring losses from operations, and the cash used in operations for the year ended September 30, 2010. We cannot assure you that we will be able to obtain sufficient funds from our operating or financing activities to support our continued operations. If we cannot continue as a going concern, we may need to substantially revise our business plan or cease operations, which may reduce or negate the value of your investment.

WE WILL NEED TO RAISE SIGNIFICANT ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS OPERATIONS.

Our current monthly cash operating expenses are approximately $95,000. In the event we are unable to obtain, on a timely basis, the additional financing required to meet our cash needs, we will have to reduce or curtail operations which would materially and adversely affect our development efforts. Even if such financing is obtained, it may not be on commercially acceptable terms or may otherwise substantially dilute the equity interests of current stockholders in our company.

WE HAVE A HISTORY OF LOSSES SINCE OUR INCEPTION, WE EXPECT FUTURE LOSSES AND WE MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY.

We have incurred net losses each year since our inception and had accumulated losses of approximately $56.4 million through June 30, 2011. We expect to continue to incur net losses at least through our fiscal year 2011 and these losses may be substantial. To implement our business strategy, we will continue to incur considerable research and development expenses and capital expenditures. Accordingly, if we are unable to generate substantial revenues and positive cash flows we will not achieve profitability.

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WE ARE DELINQUENT ON OUR RENT PAYMENTS TO OUR LANDLORD AND ARE SUBJECT TO A DEFAULT JUDGMENT IN FAVOR OF OUR LANDLORD.

On December 4, 2009, our landlord for the space we use as our principal offices and research plant in Bothell, Washington filed a lawsuit against us for unpaid rent in the amount of $76,069 in the Superior Court of the State of Washington, County of King. Our landlord was granted a default judgment in December 2009 in the amount of $81,106.11. In January 2010, in connection with the default judgment, we received a notice of eviction from our landlord because of the unpaid rent. Since the eviction notice, we have paid $145,000 against that balance.  The landlord has not taken any additional actions pertaining to eviction.  We currently owe approximately $339,000 as of the date of this registration statement.

OUR ABILITY TO GENERATE FUTURE REVENUES WILL DEPEND ON A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.

These factors include the rate of market acceptance of our products, regulatory developments and general economic trends. Due to these factors, we cannot anticipate with any degree of certainty what our revenues, if any, will be in future periods. You have limited historical financial data and operating results with which to evaluate our business and our prospects. As a result, you should consider our prospects in light of the early stage of our business in a new and rapidly evolving market.

WE HAVE HAD NO COMMERCIAL PRODUCT SALES. WE MAY NOT BE ABLE TO MANUFACTURE OR COMMERCIALIZE OUR PRODUCTS IN A COST-EFFECTIVE MANNER.

We have demonstrated prototypes which we expect to develop into commercial products. However, our activities have been limited to these prototype models and we may not be able to produce our products in a cost-effective manner.

MARKET ACCEPTANCE OF OUR FUEL CELL PRODUCTS MAY TAKE LONGER TO OCCUR THAN WE ANTICIPATE OR MAY NEVER OCCUR.

Our silicon-based fuel cell products represent a new technology and our success will depend on this technology achieving market acceptance. Because we design our products to capitalize on markets that presently utilize or are serviced by products from traditional and well-established battery manufacturers, we may face significant resistance from end-users to adopt a new and alternative power source technology.

Fuel cell products for defense, transportation, portable and mobile applications represent an emerging market and we do not know whether our targeted distributors, resellers or end-users will purchase our products. The development of a mass market for our portable and mobile products may be impacted by many factors, some of which are beyond our control, including:

·

cost competitiveness of portable and mobile products;

·

consumer reluctance to try our products;

·

consumer perception of our systems’ safety; and

·

emergence of newer, more competitive technologies and products.

CERTAIN CORROSIVE ACIDS USED IN OUR FUEL CELLS MAY LIMIT THEIR ACCEPTANCE.

The electrolyte and oxidant components of our fuel cells include a sulfuric and nitric acid base. Although we intend to manufacture our containers in a manner that we believe will virtually eliminate the risk of leakage, there can be no assurance that manufacturing or design defects will not cause leaking of these corrosive and toxic acids whose concentrations are comparable to levels in “wet” batteries. In addition, the very existence of this element of our products may cause OEM and other potential volume purchasers to be reluctant to replace existing PEM and other technologies with our fuel cell systems. In addition, we may be required to place warning labels on any consumer products we distribute.

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CONSUMERS MAY NOT CHOOSE TO ADOPT THE NOTION OF PURCHASING CARTRIDGES.

Even if we achieve the acceptance of our fuel cells by OEMs, consumers might buy substantially fewer cartridges than we anticipate. Since no portable fuel cell product has yet been successful in the market, consumer behavior and acceptance is unknown.

FAILURE OF OUR FIELD TESTS COULD NEGATIVELY IMPACT DEMAND FOR OUR PRODUCTS.

We have not yet begun field testing our products. We may encounter problems and delays during field tests for a number of reasons, including the failure of our technology or the technology of third parties, as well as our failure to maintain and service our prototypes properly. Many of these potential problems and delays are beyond our control. Any problem or perceived problem with our field tests could materially harm our reputation and impair market acceptance of, and demand for, our products.

WE DO NOT HAVE THE MANUFACTURING EXPERIENCE TO HANDLE LARGE COMMERCIAL REQUIREMENTS.

We may not be able to develop manufacturing technologies and processes or outsource adequate manufacturing capacity to the point where we are capable of satisfying large commercial orders, including the demand for both military and commercial fuel cell systems. The manufacturing partners we have identified may not be able to meet our cost as well as our volume requirements.

BECAUSE WE WILL DEPEND ON THIRD-PARTY SUPPLIERS, WE MAY EXPERIENCE DELAYS IN RECEIVING KEY MATERIALS AND COMPONENTS NECESSARY TO PRODUCE OUR FUEL CELL SYSTEMS.

If we successfully develop our fuel cell, we will depend on third parties for the manufacture and assembly of materials and components used to make our products. If any of our suppliers are unable or unwilling to provide us with materials and components on commercially reasonable terms, or at all, delays in identifying and contracting for alternative sources of supply would adversely affect our ability to develop, manufacture and market our products. In addition, some of these materials and components are purchased from a single or limited number of supply sources.

WE MAY BE SUBJECT TO SHORTAGES OF KEY MATERIALS IN THE GLOBAL MARKETPLACE.

Since we depend on certain raw materials like silicon wafers to make our fuel cells, we may become subject to either supply shortages or substantial price increases of silicon wafers in certain market conditions. We also use gold and platinum in our processes; these precious metals are commodities and subject to global market pressures and shortages. These shortages might hamper our ability to ship our products on time, might cause us to have to spend considerably more than budget to complete our projects, or might make our products prohibitively expensive.

WE MAY NOT BE ABLE TO SELL OUR FUEL CELL SYSTEMS IF THEY ARE NOT COMPATIBLE WITH THE PRODUCTS OF THIRD-PARTY MANUFACTURERS OR OUR POTENTIAL CUSTOMERS.

Our success will depend upon our ability to make our products compatible with the products of third-party manufacturers. In addition, our mobile and portable products will be successful only if our potential customers redesign or modify their existing products to fully incorporate our products and technologies. Our failure to make our products and technologies compatible with the products of third-party manufacturers or the failure of potential customers to redesign or make necessary modifications to their existing products to accommodate our products would cause our products to be significantly less attractive to customers.

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THE FUELS ON WHICH OUR FUEL CELL PRODUCTS RELY MAY NOT BE READILY AVAILABLE ON A COST-EFFECTIVE BASIS.

Our fuel cell products require methanol and oxygen to operate. While ambient air supplies the necessary oxygen for aerobic applications, and a nitric oxidant provides the oxygen for anaerobic applications, we obtain methanol from suppliers. Even if methanol is available to us, if our price is such that power produced by our systems would cost more than alternatives, potential users would have less of an economic incentive to purchase our units.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

Our ability to compete effectively will depend, in part, on our ability to maintain the exclusive ownership of our technology and manufacturing processes through a combination of patent and trade secret protection, non-disclosure agreements and other arrangements. Patents may not be issued under pending applications and any issued patents that we hold may not provide adequate protection for our products or processes. Moreover, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States and any resulting patents may be difficult to enforce.

There can be no assurance that our competitors will not either independently develop proprietary information that is the same or similar to ours or obtain access to our proprietary information. In addition, there can be no assurance that we would prevail if challenges to our intellectual property rights are asserted by third parties against us. We could incur substantial costs defending patent infringement suits brought by others and prosecuting patent infringement suits against third party infringers. Moreover, some foreign countries provide significantly less patent protection than the United States. Competitors’ products may infringe upon our patents and the cost of protecting our rights may be substantial, if not cost prohibitive, thereby undermining our ability to protect our products effectively.

We rely on confidentiality agreements with our employees and third parties to protect our unpatented proprietary information, know-how and trade secrets but we have no effective means to enforce compliance with the terms of these agreements.

THE U.S. GOVERNMENT MAY HAVE RIGHTS TO CERTAIN OF OUR TECHNOLOGY.

As a result of a government grant, the government will obtain rights in certain of our technology, including inventions, developed with their funding. In addition, the government may require us to grant to a third party an exclusive license to any inventions resulting from the grant if the government determines that we have not taken adequate steps to commercialize the inventions.

GOVERNMENT REGULATION COULD IMPOSE BURDENSOME REQUIREMENTS AND RESTRICTIONS THAT COULD IMPAIR DEMAND FOR OUR FUEL CELL PRODUCTS.

Government regulation of fuel cells and alternative fuels is evolving.  We do not know the extent to which any evolving regulations may impact our ability to distribute, market, or install our fuel cells or their cartridges. Once our fuel cell products reach the commercialization stage and we begin distributing our systems to our target early markets, federal, state or local government agencies may seek to impose regulations. Any government regulation of our fuel cell products, whether at the federal, state or local level, including any regulations relating to the use of these products, may increase our costs and the price of our fuel cells or cartridges, and may have a negative impact on our revenue and profitability. Furthermore, we expect that approval will be required to carry our fuel cell cartridges onto airplanes. These approvals have not yet been obtained nor have we determined the actual restriction or the specifics of what will be required.

ANY ACCIDENTS INVOLVING THE FLAMMABLE FUELS USED WITH OUR PRODUCTS COULD IMPAIR THEIR MARKET ACCEPTANCE.

Our fuel cells use methanol. While our fuel cells do not use these fuels in a combustion process, the methanol itself is flammable. Because our products have not yet gained widespread market acceptance, any accidents involving our systems or other fuel cell-based products could materially impede demand for our products. In addition, we may be held responsible for damages. We do not currently have any property or liability insurance to cover such damages.

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WE COULD BE LIABLE FOR ENVIRONMENTAL DAMAGES RESULTING FROM OUR RESEARCH, DEVELOPMENT AND MANUFACTURING OPERATIONS.

Our business exposes us to the risk of harmful substances escaping into the environment, resulting in personal injury or loss of life, damage to or destruction of property, and natural resource damage. Our business is subject to numerous federal, state and local laws, regulations and policies that govern environmental protection. These laws and regulations have changed frequently in the past and it is reasonable to expect additional changes in the future. Our operations may not comply with future laws and regulations and we may be required to make significant unanticipated capital and operating expenditures. If we fail to comply with applicable environmental laws and regulations, governmental authorities may seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits and private parties may seek damages from us. Under those circumstances, we might be required to curtail or cease operations, conduct site remediation or other corrective action, or pay substantial damage claims. We are not currently insured against such risks.

OUR SUCCESS DEPENDS ON ATTRACTING AND RETAINING KEY PERSONNEL.

The successful development, marketing and manufacturing of our products will depend upon the skills and efforts of a small group of management and technical personnel. The loss of any of our key personnel could adversely impact our ability to execute our business plan. Furthermore, recruiting and retaining qualified executive, technical, marketing, manufacturing and support personnel in our emerging industry in the future will be critical to our success and there can be no assurance that we will be able to do so. We do not maintain “key-man” life insurance policies on any of our key personnel. As we grow, we may need to recruit other key personnel and our ability to recruit such key personnel may be limited.

WE MAY BECOME SUBJECT TO RISKS INHERENT IN INTERNATIONAL OPERATIONS INCLUDING CURRENCY EXCHANGE RATE FLUCTUATIONS AND TARIFF REGULATIONS.

If we sell or license our products or technologies outside the United States, we will be subject to the risks associated with fluctuations in currency exchange rates. We do not intend to enter into any hedging or other similar agreements or arrangements to protect us against any of these currency risks. We also may be subject to tariff regulations and requirements for export licenses, particularly with respect to the export of certain technologies, unexpected changes in regulatory requirements, longer accounts receivable requirements and collections, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of earnings and the burdens of complying with a wide variety of foreign laws.

WE ARE DEPENDENT ON LETTERS OF INTENT AND SALES AGREEMENT TO GENERATE AND ADVANCE OUR BUSINESS

We are dependent on contracts and letters of intent (“LOIs”), licensing agreements and other contracts to test and evaluate prototypes of our technology and to sell our products. Our ability both to secure and maintain these LOIs and agreements is extremely difficult. Certain of the Company's key LOIs with partners and potential customers have expired.  There can be no assurance that the Company will be able to secure new LOIs and no assurance that an executed LOI will lead to an executed agreement or to increased revenues for the Company. Our inability to secure executed LOIs and contracts and secure the resultant revenues could have a substantial effect on our ability to continue as a going concern. 

OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO BE VOLATILE IN THE FUTURE.

Our quarterly operating results are likely to vary significantly in the future. Fluctuations in our quarterly financial performance may result from, for example:

·

unevenness in demand and orders for our products;

·

significant short-term capital expenses as we develop our manufacturing processes;

·

a shortage of the raw materials used in the production of our fuel cell systems; and

·

difficulties with outsourced manufacturing operations. 

Because of these anticipated fluctuations, our sales and operating results in any fiscal quarter are likely to be inconsistent, may not be indicative of our future performance and may be difficult for investors to properly evaluate.

Risks Related to Our Common Stock

WE COULD ISSUE A SIGNIFICANT AMOUNT OF COMMON STOCK OR A SERIES OF PREFERRED STOCK THAT MIGHT ADVERSELY AFFECT OUR EXISTING COMMON STOCKHOLDERS.

Our articles of incorporation authorize the issuance of 500,000,000 shares of common stock and 5,000,000 shares of “blank check” preferred stock, with designations, rights and preferences that may be determined from time to time by our board of directors, which may be superior to those attached to the common stock. As of the date of this report, we have 2,500,000 shares of preferred stock designated as Series A with 2,312,727 issued. These Series A Preferred shares (“Series A”) are convertible into 9,472,340 shares of our common stock. As of the date of this report, we also have 1,000,000 shares of preferred stock designated as Series B with 322,904 issued and are convertible into approximately 48,250,000 shares of our common stock (the exact number of which is not determinable at this time because the Series B are convertible into shares of our common stock based on the future trading price of our common stock). Issuance of additional common stock or preferred stock could result in substantial dilution to our existing stockholders. In the event of a preferred stock issuance, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company.

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WE INTEND TO SELL SHARES OF OUR COMMON STOCK UNDER AN EQUITY PURCHASE AGREEMENT SOUTHRIDGE WHICH MAY CAUSE THE VALUE OF OUR COMMON STOCK TO DECLINE AND DILUTE THE HOLDINGS OF OUR SHAREHOLDERS.

On March 31, 2011, we executed the Agreement with Southridge. Pursuant to the Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to Southridge at a price equal to 94% of the market price, based on the formula set forth in our agreement with Southridge. We may need capital in excess of the amounts available under the Agreement, and we may seek additional funding through public or private financing or collaborative, licensing and other arrangements with corporate partners. Under terms of the Agreement, our common stock will be purchased at a discount to the market price and this may cause dilution to existing shareholders. In addition, we may enter into other financing agreements which could result in future investors being granted rights superior to those of existing shareholders. 

WE HAVE INCREASED THE NUMBER OF OUR AUTHORIZED SHARES OF COMMON STOCK TO HAVE SUFFICIENT SHARES AVAILABLE TO RAISE CAPITAL FOR CONTINUING OPERATIONS AND STRATEGIC INITIATIVES WHICH MAY CAUSE THE VALUE OF OUR COMMON STOCK TO DECLINE AND DILUTE THE HOLDINGS OF OUR SHAREHOLDERS.

We now have issued and outstanding 124,779,825 shares of common stock out of 500,000,000 authorized shares. In addition, we have reserved 9,472,340 shares to cover the conversion of the shares of Series A Convertible Preferred Stock outstanding, 21,282,543 shares to cover outstanding options and 7,338,785 shares to cover outstanding warrants. We also have Series B Convertible Preferred Stock and debt convertible into approximately 48,250,000 and 52,788,000 shares of our common stock, respectively (the exact numbers of which are not determinable at this time because certain of the Series B Convertible Preferred Stock and certain debt instruments are convertible into shares of our common stock based on the future trading price of our common stock). As of the date of this prospectus, we would therefore have approximately 236,089,000 shares available to be sold to Southridge pursuant to our effective Registration Statement

THE SOUTHRIDGE AGREEMENT MAY NOT BE AVAILABLE WHEN WE NEED IT, THUS LIMITING OUR ABILITY TO FUND OPERATIONS.

The Agreement contains various conditions to our being able to use it, including effectiveness of the required registration statement and the absence of any material adverse change in our business or financial condition. Thus, we may be unable to sell shares under the agreement when we need the funds, and that could severely harm our business and financial condition.

WE RECENTLY FILED A CERTIFICATE OF CORRECTION WITH THE NEVADA SECRETARY OF STATE CORRECTING THE IMPLEMENTATION OF OUR AUGUST 2009 INCREASE IN AUTHORIZED COMMON STOCK FROM 20 MILLION SHARES TO 80 MILLION SHARES AND 6 FOR 1 FORWARD STOCK SPLIT.

We implemented our August 2009 authorized share increase from 20 million shares to 80 million shares and 6 for 1 forward stock split by, first, filing a certificate of amendment to the our articles of incorporation on August 3, 2009 to increase our authorized common stock and, then, effecting a forward split of 6 shares of common stock for every one share of common stock outstanding on August 14, 2009. We determined that we incorrectly filed a certificate of amendment pursuant to Nevada Revised Statutes § 78.390 instead of a certificate of change pursuant to Nevada Revised Statutes § 78.209. The certificate of change is the correct Nevada form for increasing authorized capital and effecting a corresponding stock split without stockholder approval. The certificate of correction that we filed with the Nevada Secretary of State corrects the implementation of the increase in authorized common stock and the forward stock split by (i) voiding the certificate of amendment that we filed on August 3, 2009 and (ii) replacing the certificate of amendment with a certificate of change. The certificate of change effects (i) as of August 3, 2009 an increase in our authorized common stock from 20 million shares to 80 million shares and (ii) as of August 14, 2009 a forward split of 4 shares of common stock for every one share of common stock outstanding. In addition, our board of directors also adopted resolutions to clarify that our board declared a share dividend of .5 shares of common stock for every one share of common stock outstanding which was effective immediately following the 4 for 1 forward split on August 14, 2009. Taken together, the 4 for 1 forward split and .5 for 1 share dividend resulted in the equivalent of a 6 for 1 forward stock split. We cannot provide assurance that the method of correcting the error in the implementation of our increase in authorized common stock and forward stock split will not be subject to challenge or that such challenge would not be successful.

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OUR STOCK PRICE MAY BE VOLATILE AND, AS A RESULT, YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.

There is a very limited public market for our common stock. We cannot predict the extent to which, or if, investor interest will lead to the development of an active and liquid trading market. If a market for our common stock develops, the price at which our common stock will trade may be highly volatile and may fluctuate as a result of a number of factors, including the following:

·

the number of shares available for sale in the market;

·

variations in our actual and anticipated operating results;

·

our failure to timely achieve technical milestones;

·

our failure to commercialize our fuel cell systems;

·

changes in technology or competitive fuel cell solutions;

·

our failure to meet analysts’ performance expectations; and

·

lack of liquidity. 

In addition, stock markets, particularly the OTCBB where our stock is currently traded, have experienced extreme price and volume fluctuations, and the market prices of securities of technology companies have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. As a result, investors may not be able to resell their shares on a timely basis if at all, and may lose their some or all of their investment.

BECAUSE WE DO NOT INTEND TO PAY ANY DIVIDENDS, STOCKHOLDERS MUST RELY ON STOCK APPRECIATION FOR ANY RETURN ON THEIR INVESTMENT IN OUR COMMON STOCK.

We have not paid any dividends on our common stock and we do not intend to declare and pay any dividends on our common stock. Earnings, if any, are expected to be retained by us to finance and expand our business. 

OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES.

Our common stock is subject to Rule 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 (exclusive of the value of their primary residence) or annual incomes exceeding $200,000 or $300,000 together with their spouse)). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of such common stock. Additionally, our common stock is subject to the SEC regulations for “penny stock.” Penny stock includes any non-NASDAQ or other exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock which disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

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FORWARD LOOKING STATEMENTS

Information included or incorporated by reference in this Prospectus may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

This Prospectus contains forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability, (b) our technology, (c) our manufacturing, (d) the regulations to which we are subject, (e) anticipated trends in our industry and (f) our needs for working capital. These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Description of Business,” as well as in this Prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact occur.

USE OF PROCEEDS

The Selling Security Holder is selling all of the shares of our common stock covered by this prospectus for the Selling Security Holder’s own account. Accordingly, we will not receive any proceeds from the resale of the common stock. However, we will receive proceeds from any sale of the common stock under the Agreement to Southridge. We intend to use the net proceeds received for working capital or general corporate needs.

DETERMINATION OF OFFERING PRICE

Our common stock currently trades on the OTCBB under the symbol “NPWZ.” The proposed offering price of the Put Shares is $0.0089, which is the closing bid price of our common stock on August 17, 2011, as reported by the OTCBB. The Selling Security Holder may sell shares in any manner at the current market price.

SELLING SECURITY HOLDER

We agreed to register for resale 35,000,000 shares of our common stock in this registration statement on behalf of the Selling Security Holder.

Security Holder Pursuant to the Agreement

Southridge is the potential purchaser of our common stock under the Agreement. The 35,000,000 Put Shares offered in this prospectus are based on the Agreement between Southridge and us. Southridge may from time to time offer and sell any or all of the Put Shares that are registered under this prospectus. The put option price is 94% of the average of the two lowest Bid Prices in the five trading days period immediately following the Put Date.

We are unable to determine the exact number of shares that will actually be sold by Southridge according to this

prospectus due to:

·

the ability of Southridge to determine when and whether it will sell any of the Put Shares under this prospectus; and

·

the uncertainty as to the number of Put Shares, which will be issued upon exercise of our put options under the Agreement.

16

The following information contains a description of how Southridge acquired (or shall acquire) the shares to be sold in this offering. Southridge has not held a position or office, or had any other material relationship with us, except as follows.

Southridge is a limited partnership organized and existing under the laws of Delaware. All investment decisions of, and control of, Southridge is held by its general partner Southridge Advisors, LLC. Stephen M. Hicks is the managing member of Southridge Advisors, LLC, and he has sole voting and investment power over the shares beneficially owned by Southridge Advisors, LLC. Southridge acquired, or will acquire, all shares being registered in this offering in the financing transactions with us.

Southridge intends to sell up to 35,000,000 shares of our common stock pursuant to the Agreement under this prospectus. On March 31, 2011, we entered into the Agreement with Southridge pursuant to which we have the opportunity, for a three-year period beginning on the date on which the SEC first declares effective this registration statement registering the resale of our shares by Southridge, to sell shares of our common stock for a total purchase price of $10,000,000. For each share of our common stock purchased under the Agreement, Southridge will pay 94% of the average lowest Bid Price of any two trading days, consecutive or inconsecutive during the Valuation Period.

Furthermore, subject to the terms and conditions of the Agreement, at any time or from time to time after the effectiveness of this registration statement, we can notify Southridge in a Blackout Notice the existence of a potential material event based upon the good faith determination of our board of directors, and Southridge shall not offer or sell any of our shares acquired under the Agreement, or engage in any transaction involving or relating to such shares from the time the Blackout Notice was provided to them until Southridge receives our written notice that such potential material event has either been disclosed to the public or no longer constitutes a potential material event. If we deliver a Blackout Notice within fifteen trading days commencing a Closing Date and the Old Bid Price on the day immediately preceding the applicable Blackout Period is greater than the New Bid price on the first trading day immediately following such Blackout Period, then we are obligated to issue to Southridge a number of Blackout Shares, equal to the difference between (i) the product of (X) the Remaining Put Shares that were issued to Southridge on the most recent Closing Date and held by Southridge immediately prior to the Blackout Period, multiplied by (Y) the Old Bid Price, and divided by (Z) the New Bid Price, and (ii) the Remaining Put Shares.

In connection with the Agreement, Southridge is owed a due diligence fee equal to $10,000 worth of the Company’s restricted common stock.

We are relying on an exemption from the registration requirements of the Act for the private placement of our securities under the Agreement pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder. The transaction does not involve a public offering, Southridge is an “accredited investor” and/or qualified institutional buyer and the Investor has access to information about us and its investment.

There are substantial risks to investors as a result of the issuance of shares of our common stock under the Agreement. These risks include dilution of stockholders, significant decline in our stock price and our ability to draw sufficient funds under the Agreement when needed.

Southridge will periodically purchase shares of our common stock under the Agreement and will in turn, sell such shares to investors in the market at the prevailing market price. This may cause our stock price to decline, which will require us to issue increasing numbers of shares to Southridge to raise the same amount of funds, as our stock price declines.

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Southridge and any participating broker-dealers are “underwriters” within the meaning of the Securities Act. All expenses incurred with respect to the registration of the common stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commission or other expenses incurred by the Selling Security Holder in connection with the sale of such shares.

Except as indicated below, neither the Selling Security Holder nor any of the Selling Security Holder’s associates or affiliates has held any position, office, or other material relationship with us in the past three years.

The following table sets forth the name of the Selling Security Holder, the number of shares of common stock beneficially owned by the Selling Security Holder as of the date hereof and the number of shares of common stock being offered by the Selling Security Holder. The shares being offered hereby are being registered to permit public secondary trading, and the Selling Security Holder may offer all or part of the shares for resale from time to time. However, Selling Security Holder is under no obligation to sell all or any portion of such shares nor is the the Selling Security Holder obligated to sell any shares immediately upon effectiveness of this prospectus. All information with respect to share ownership has been furnished by the Selling Security Holder. The “Amount Beneficially Owned After the Offering” column assumes the sale of all shares offered.

(1)

The number assumes the Selling Security Holder sells all of its shares being offered pursuant to this prospectus.

(2)

Southridge Partners II, LP is a limited partnership organized and exiting under the laws of Delaware. Southridge Advisors, LLC is the general partner of Southridge and has voting and investment power over the shares beneficially owned by Southridge. Stephen M. Hicks is the managing member of Southridge Advisors, LLC, and he has sole voting and investment power over the shares beneficially owned by Southridge Advisors, LLC.

The number assumes that Southridge purchase the maximum amount of registrable Put Shares in this registration statement.

PLAN OF DISTRIBUTION

This prospectus relates to the resale of up to 35,000,000 shares issued pursuant to the Agreement held by certain Selling Security Holder.

The Selling Security Holder and any of the Selling Security Holder’s respective pledges, donees, assignees and other successors-in-interest may, from time to time, sell any or all of their shares of our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Security Holder may use any one or more of the following methods when selling shares:

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

broker-dealers may agree with the Selling Security Holder to sell a specified number of such shares at a stipulated price per share;

·

through the writing of options on the shares;

·

a combination of any such methods of sale; and

·

any other method permitted pursuant to applicable law.

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To the extent permitted by law, the Selling Security Holder may also engage in short sales against the box after this registration statement becomes effective, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.

The Selling Security Holder's respective pledges, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Security Holder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that the Selling Security Holder will attempt to sell shares of Common Stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The Selling Security Holder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the Selling Security Holder. In addition, the other Selling Security Holder and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus are “underwriters” as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the Selling Security Holder. The Selling Security Holder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

The Selling Security Holder may from time to time pledge or grant a security interest in some or all of the shares of Common Stock owned by the Selling Security Holder’ and, if they default in the performance of their secured obligations, the pledgee or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or any other applicable provision of the Securities Act amending the list of Selling Security Holder to include the pledgee, transferee or other successors in interest as Selling Security Holder under this prospectus.

The Selling Security Holder also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of Selling Security Holder to include the pledgee, transferee or other successors in interest as Selling Security Holder under this prospectus.

We are required to pay all fees and expenses incident to the registration of the shares of common stock. Otherwise, all discounts, commissions or fees incurred in connection with the sale of our common stock offered hereby will be paid by the Selling Security Holder.

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The Selling Security Holder acquired the securities offered hereby in the ordinary course of business and has advised us that the Selling Security Holder has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by the Selling Security Holder. We will file a supplement to this prospectus if the Selling Security Holder enters into a material arrangement with a broker-dealer for sale of common stock being registered. If the Selling Security Holder uses this prospectus for any sale of the shares of common stock, the Selling Security Holder will be subject to the prospectus delivery requirements of the Securities Act.

Pursuant to a requirement by the Financial Industry Regulatory Authority, or FINRA, the maximum commission or discount to be received by any FINRA member or independent broker/dealer may not be greater than eight percent (8%) of the gross proceeds received by us for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act of 1933, as amended.

The anti-manipulation rules of Regulation M under the Exchange Act, may apply to sales of our common stock and activities of the Selling Security Holder. The Selling Security Holder will act independently of us in making decisions with respect to the timing, manner and size of each sale.

Southridge is an “underwriter” within the meaning of the Securities Act in connection with the sale of our common stock under the Agreement. For each share of common stock purchased under the Agreement, Southridge will pay 94% of the average of the two lowest Bid Prices during the Valuation Period.

We will pay all expenses incident to the registration, offering and sale of the shares of our common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. If any of these other expenses exists, we expect Southridge to pay these expenses. We have agreed to indemnify Southridge and its controlling persons against certain liabilities, including liabilities under the Securities Act. We estimate that the expenses of the offering to be borne by us will be approximately $18,000. We will not receive any proceeds from the resale of any of the shares of our common stock by Southridge. We may, however, receive proceeds from the sale of our common stock under the Agreement.

DESCRIPTION OF SECURITIES TO BE REGISTERED

Our authorized capital stock consists of:

·

500,000,000 shares of common stock, par value $0.001 per share, of which 124,779,825 shares were issued and outstanding on August 17, 2011; and

·

5,000,000 shares of preferred stock, par value $0.001 per share, of which 2,500,000 and 1,000,000 shares have been designated by our board of directors as Series A Preferred Stock and Series B Preferred Stock, respectively. As of August 17, 2011, 2,312,727 shares of Series A Preferred Stock were issued and outstanding and 322,904 shares of Series B Preferred Stock were issued and outstanding.

The following summary describes the material terms of our common and preferred stock. The description of common stock is qualified by reference to our Articles of Incorporation, as amended through the date of this prospectus, our bylaws, and the Certificate of Designation for our Series A Preferred Stock, which are incorporated by reference as exhibits into the registration statement of which this prospectus is a part.

Common Stock

All shares of common stock are of the same class and have equal rights and attributes. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders. All holders of our common stock are entitled to share equally in dividends, if any, as may be declared from time to time by the board of directors out of funds legally available. In the event of liquidation, the holders of our common stock are entitled to share ratably in all assets remaining after payment of all liabilities. Our stockholders do not have cumulative or preemptive rights.

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Series A Preferred Stock

In February 2011, we issued 2,312,727 shares of Series A Preferred Stock (“Series A”) at a purchase price of $0.055 per share for net proceeds of $127,200 to a Purchaser under a Series A Securities Purchase Agreement. In accordance with the terms of the Series A Preferred Stock, the Purchaser was entitled, after the issuance of the Series A Preferred Stock, to vote as a single class with the our outstanding Common Stock only with respect to any proposal to increase the our authorized Common Stock. With respect to such a proposal, Purchaser was entitled to forty votes per share of the Series A Preferred Stock. Accordingly, the Purchaser was entitled to 92,509,080 votes or 53% of the Company’s voting power with respect to the Consent Solicitation Statement proposal to increase our authorized Common Stock. Apart from this provision, the Purchaser is not entitled to vote with the Company’s Common Stock except as required by law.

Any shares of Series A Preferred Stock may, at any time, at the sole option of the Company, be converted into fully paid and non-assessable shares of Common Stock (a “Conversion”). The number of shares of Common Stock to be issued upon a Conversion is 9,472,340.

In July 2011, the Purchaser assigned to Southridge Series A Preferred Stock in the face amount of $51,300 of which the number of shares of Common Stock to be issued upon conversion is 3,820,213.

Series B Preferred Stock

On July 8, 2011, we filed a Certificate of Designation with the Nevada Secretary of State. The Certificate of Designation sets forth the rights, preferences and privileges of our Series B Preferred Stock ("Series B"). The Company may issue up to 1,000,000 of Series B.

The Series B ranks on parity with the Company’s common stock and any class or series of capital stock of the Company later created specifically ranking by its terms on parity with the Series B or Common Stock, in each case as to the distribution of the Company’s assets upon liquidation, dissolution or winding up of the Company.

The holder of each share of Series B shall be entitled to interest at a simple interest rate of 6% per annum. In the event the Company declares a dividend payable to holders of any class of stock, the holder of each share of the Series B will be entitled to receive a dividend equal to that payable to the holder of the number of shares of Common Stock that the Series B is convertible on the record date for the dividend.

The holders of the Series B are entitled to vote with the Company’s Common Stock with number of votes equal to the number of common shares available by conversion to the holders of the Series B.

The Series B are convertible into the Company’s Common Stock at the sole option of the Company at any time, except that the holders of the Series B, upon or after the resignation or termination of the Company CEO, Gerard C. D’Couto, may elect to convert the Series B into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock to be issued upon a conversion is calculated by (i) multiplying the number of Series B being converted by the per share purchase price received by the Company for such Series B, and then, multiplying such number by 130% and then dividing this calculated value by the average closing bid price of the Common Stock during the five (5) Trading Days prior to the date a notice to convert the Series A Preferred Stock into the Company’s Common Stock is delivered to the Company “Trading Day” means a day on which the OTCBB (or any of its successors) is open for trading, or by (ii) first, allocating the Series B proportionately according to the amounts by date of individual cash tranches received by the Company then, second, multiplying the number of Series B being converted, identified by tranche, by the per share purchase price received by the Company for such Series B, and then, multiplying such number or numbers by 130% and, finally, dividing the calculated value(s) by the average closing bid price of the Common Stock during the five (5) Trading Days prior to the date of the associated tranche or tranches. The summary of the rights, preferences and privileges of the Series B described above is qualified in its entirety by reference to the certificate of designation, a copy of which is attached as an exhibit to this report and is incorporated herein by reference.

21

In July 2011, we issued, under a Series B Preferred Stock Purchase Agreement, 322,904 shares of Series B to Summit Trading Limited at a price of $1.00 per share for $304,500 advanced to us plus $18,404 as payment of debt we owed to Summit Trading Limited. The number of shares of Common Stock to be issued upon conversion is approximately 48,249,884 (the exact number of which is not determinable at this time because the Series B are convertible into shares of our common stock based on the future trading price of our common stock).

Common Stock Purchase Warrants 

As of August 17, 2011, there were 7,338,785 outstanding warrants to purchase shares of our common stock which are held by multiple investors. The following table summarizes the terms of these warrants.

Options to Purchase Common Stock 

As of August 17, 2011, there are 21,282,543 outstanding options to purchase shares of our common stock which granted under our Long Term Incentive Plan. The following table summarizes the terms of these options.

22

INTERESTS OF NAMED EXPERTS AND COUNSEL

The consolidated financial statements of Neah Power Systems, Inc. appearing in Neah Power System, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2010 have been audited by Peterson Sullivan LLP, independent registered public accounting firm, as set forth in its report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern as described in Note 1 to the consolidated financial statements), and are included herein. Such consolidated financial statements are included herein in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

Gersten Savage LLP, 600 Lexington Avenue, New York, NY 10022-6018, will pass upon the validity of the Common Stock being offered hereby.

DESCRIPTION OF BUSINESS

Overview

We are engaged in the development and sale of renewable energy solutions. We have developed what we believe is a breakthrough, disruptive, direct methanol micro fuel cell which can serve as a replacement for batteries in a variety of products. Our fuel cells are designed to replace existing rechargeable battery technology in mobile electronic devices and small-scale transportation vehicles. Our long-lasting, efficient and safe power solutions for these devices, such as notebook PCs, military radios, and other power-hungry computer, entertainment and communications products, use our patented, silicon-based design. This fuel cell design creates higher power densities and enables lighter-weight, smaller form-factors, and will potentially create more cost effective, manufacturing and potentially lower product costs.

Based on the research and state of our technology, we believe our fuel cell will outperform lithium ion batteries and other batteries in terms of run time, recharge time, portability, and other measures of performance. We anticipate that our fuel cell solution will be particularly beneficial in applications requiring the use of more than one battery because the user will only need to use a single fuel cell with a supply of smaller fuel cartridges, which will result in reduced overall size and weight. Based on our eleven issued patents and 2 additional U.S. patent applications, we believe our technology is proprietary and can be protected.

We have won awards for our technology over the years, the most recent recognition being the Best of What’s New^TM 2010 award from the distinguished publication Popular Science^TM.

In 2010 we continued to advance the development and maturity of our systems. This included the completion of the fuel cell prototype and the subsequent completion of a system not requiring the availability of oxygen from the environment (“anaerobic” or “closed loop system”). We also demonstrated an air-breathing (“aerobic”) system. We believe that these technologies provide the foundation for products to be produced for sale over the next fiscal year. To date, we have not engaged in any field tests of the fuel cell prototype.

In furtherance of our efforts to gain commercial acceptance of our technology and products, we entered into non-binding letters of intent with EKO Vehicles of Bangalore (“EKO”), Hobie Cat Company (“Hobie Cat”), and a United States based large defense supplier. The agreements with EKO have expired and we intend to negotiate extensions or new agreements. Partnering with these companies, we anticipate that we will develop early production devices for evaluation by original equipment manufacturers (“OEM”) for the eventual deployment of our fuel cell products during 2012. We anticipate that we will ultimately sell or license our products for resale by distributors and OEM customers.

We also intend to design and distribute the fuel cartridges that these fuel cells require for refueling. We anticipate that we will generate future revenues from the sale and licensing of both fuel cartridges and the completed fuel cells. Our business plan contemplates that we will subcontract to third parties substantially all of the production and assembly of the fuel cells and fuel cartridges.

We announced in May 2011 a non-binding memorandum of understanding to acquire privately-held Exigent Security Products which markets and develops advanced radiation sensors for use by medical, homeland security, defense and other industries. We currently have an unsecured note receivable from Exigent Security Products, Inc. in the amount of $35,000 and bearing interest at 10% per annum, compounded monthly, and with all principal and interest due June 2012. No additional agreements have been entered into at this time.

The delay in our ability to acquire capital has led to postponement in the deployment of our business strategy. We intend to produce and deliver products in conjunction with the receipt of required financing.

Background

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Neah Power Systems, Inc. was incorporated in the State of Nevada on February 1, 2001 under the name Growth Mergers, Inc. Effective March 9, 2006, Growth Mergers, Inc. entered into an Agreement and Plan of Merger, as amended on April 10, 2006, whereby Growth Acquisitions, Inc., a Washington corporation and wholly-owned subsidiary of Growth Mergers, Inc., merged with and into Neah Power Washington. Following the merger, Growth Mergers, Inc. changed its corporate name from Growth Mergers, Inc. to Neah Power Systems, Inc. By virtue of this merger, Growth Mergers, Inc. (as Neah Power Systems, Inc.) became the parent corporation of Neah Power Washington.

The purpose of the merger was to enable Neah Power Washington, as Growth Mergers, Inc.’s subsidiary, to access the capital markets via a public company. Our Common Stock currently trades on the OTCBB under the symbol “NPWZ.”

Research and Development

We conduct our research and development, marketing and sales activities at our headquarters in Bothell, Washington. Contingent upon the receipt of adequate financing, we plan to continue investing in research and development, marketing, and sales. We anticipate that these efforts and resulting costs will increase in 2011 compared to prior years due to increased product development related to specific customer products and to additional improvements to our technology.

The Company’s Patented Technology

Rather than joining numerous other companies attempting to create Proton Exchange Membrane (“PEM”)-based direct methanol fuel cells (“DMFCs”), we felt an entirely new design approach was necessary to achieve the power density, manufacturability, cost and reliability, and the unique ability to operate in anaerobic (non-air breathing) environments required by portable electronic devices and transportation applications. Our unique fuel cell design utilizes a patented porous silicon electrode structure and circulating liquid streams of fuel, oxidant and electrolyte that produce the chemical reactions needed to generate power. We believe that our use of porous silicon and liquid oxidant is unique in the fuel cell industry. In final form, our products can be packaged in plastic casings to create self-contained systems that retain the excess water produced during operation and prevent contamination to the cathode as occurs in traditional PEM-based DMFCs. Furthermore, since our design is based largely on standard silicon wafer processing, we believe that it should have significant manufacturing advantages over traditional fuel cells. Compared to competing DMFC technologies that use carbon-based electrodes and solid PEM’s, we believe that our fuel cell’s silicon-based approach will deliver higher power output, lower cost for the equivalent size of fuel cell, a cost efficient manufacturing model that is used by the semiconductor industry, and aerobic and anaerobic operations. In addition, our fuel cell contains all chemical reactants within the fuel cell and/or cartridge. We believe these attributes will give Neah distinct competitive advantages.

Porous Silicon Electrodes

Our electrode architecture uses conductive porous silicon as the catalyst support structure rather than carbon typically used in fuel cells. We use silicon wafers that are commonly used in the semiconductor industry. As part of our patented technology, the wafers are patterned with millions of micron sized pores, which significantly increase the available active surface area of the silicon. A conductive film is then applied to the surface of the pore walls followed by a catalyst coating over the conductive film. The process can be used to produce either anode or cathode electrodes depending on the type of catalyst used. The final result is a porous electrode that enables a larger reactive surface area to generate more power per unit area.

While our focus has been on the closed loop non–air (“anaerobic”) systems in 2009 and 2010 we also demonstrated an aerobic system which could be used where the quality of the air is high and predictable. This would reduce the complexity of the system, as well as increase the energy density of the system.

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Comparison Between Porous Silicon Fuel Cells and PEM-Based Designs

We believe that the principal advantages of our approach over PEM-based designs include:

·

Our use of porous silicon electrodes and the liquid electrolyte eliminate a range of possible failure modes that have hampered introduction of PEM-based systems. These include degradation of the PEM membrane, crossover of methanol fuel and degradation of the cathode catalyst, damage to the cathode catalyst by exposure to airborne contaminants such as sulfur, and flooding or alternatively drying out of the cathode catalyst. We believe that these advantages will allow our fuel cells to operate in a broader range of environmental conditions, in all orientations, with high reliability.

·

The use of silicon technology allows us to make use of existing silicon production infrastructure, with reduced need to create specialized production facilities. We can also use standard silicon technology to optimize the dimension of the pores for high power, while optimizing the thickness to reduce cost and overall dimensions of the fuel cell.

·

The larger reaction area, coupled with the use of oxidizer at the cathode, leads to greater available power density, which reduces the size and cost of the fuel cell system.

·

Our technology allows us to create alternative product designs that do not require interactions with the environment for operation. This allows the use of our fuel cell products for applications like sensor networks that require operation without breathing air or expelling gases.

·

The design of the fuel cell avoids conflicts with numerous patents and is furthermore patented by Neah Power Systems.

·

Water created in the fuel cell reaction is retained in the fuel cartridge and not vented where it can damage the host device.

We believe that the principal disadvantages of our approach consist of the following factors:

·

Our approach requires both the fuel cell and the cartridge to contain acids at corrosive concentrations, but at concentrations lower than those extant in various liquid acid batteries. It is therefore important to ensure that users of the technology are safely separated from these acids.

·

The need to select materials compatible with the chemistry.

As an ongoing effort to increase the competitiveness of our product, we must focus on the following continuous improvement programs (CIP) that would further enhance the performance differentiation of our fuel cell, reduce the cost, and enhance manufacturability and increase lifetime and reliability:

·

Increase the volumetric power density over the power density currently available in our fuel cells - this will enable more compact solutions;

·

Continue development of manufacturing techniques for fuel cell and fuel cartridge assembly, allowing the unit to meet relevant specifications (such as those of the Underwriters’ Laboratories) that are required by many customers;

·

Further develop manufacturing techniques for key components of the fuel cells and locate suitable manufacturing partners or subcontractors;

·

Reduce the gold and platinum precious metal content of the fuel cells from present levels according to a staged program in order to meet and exceed our production cost objectives; and

·

Improve the aerobic solution that will provide higher energy density for aerobic applications, while leveraging other capabilities from our anaerobic system.

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Commercialization Strategy

We are focusing our initial strategy on markets requiring anaerobic or low oxygen content environments, such as underwater, transportation, aerospace and military applications. EKO and Hobie Cat currently have electric drive consumer products where power capacity is limited by the need for extensive battery re-charging. Implementation of a fuel cell into such electric vehicles could enable continuous operation of these electric drive vehicles by the use of fuels cells with supplies of fuel cartridges. We have a non-binding letter of intent with a large US defense supplier where we are exploring application for a variety of defense oriented applications. Also, competing PEM-based fuel cells could have significant operational limitations when environments contain diesel fumes or high or low humidity. We expect that the partnerships with these initial customers, and other potential customers, will enable us to validate our product, supply chain and overall product strategy. To date, we have not engaged in any field tests of any of our products.

Beyond these initial markets, we intend to pursue the military, industrial and consumer markets, since we believe that our product can also provide significant benefits to these business segments.

The Fuel Cell Market

Revenues generated in the global fuel cell portable power market is estimated to have been $177 million in 2009 and is expected to reach $1.3 billion per year by 2016, according to market research companies like Frost and Sullivan and from our own research. The market for batteries for transportation is expected to be in the $10 billion range by 2015. We believe that significant portions of the transportation market can be served either by a fuel cell replacement of, or complement to, the existing battery technology. Fuel cells can be categorized by the market applications they potentially serve and by their power output. We are focused on providing an alternative or a complementary technology to conventional batteries for portable electronic devices that typically operate in the 5-2000+ Watt range. Specifically, we are targeting small scale and two and four wheeler transportation vehicles, military, industrial and consumer markets with potential applications for computer, electronic media as well as products for military and homeland security electronic equipment.

These segments of the fuel cell market include low power systems (less than 10 Watts) for low power devices and trickle chargers, and higher power systems (greater than 100 Watt) typically aimed at stationary power generation or vehicle power plants. In particular, our technology may provide some unique advantages over batteries and other types of fuel cells in harsh environments or where access is limited or unavailable.

Our target market segment has a number of specific requirements and unique challenges. To succeed in this segment, fuel cells must have a high power density (high wattage for their size and weight), be relatively insensitive to the quality of the surrounding air and be cost effective. They must also be safe, easily portable, and long-lasting. The fuel cells must be transportable and operate reliably in a wide range of environmental conditions.

Within the 10-100 watt battery replacement space, the dominant technology direction over the last 30 years has been the ongoing development of fuel cells based on PEM. A PEM is usually a polymeric structure resembling a thin sheet of plastic that conducts protons, acting as a solid state electrolyte for electrochemical reactions. Typical PEM based fuel cells use this material as a basic building block of the electrochemical power generation unit. PEM -based solutions may use either the oxidation of hydrogen gas as the fuel source or the direct oxidation of liquid methanol in the DMFC configuration.

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The commercial development of PEM-based solutions has been hampered by a number of technical issues. Performance of these PEM membranes is highly dependent on maintaining tight environmental control of the operating conditions which has been difficult to achieve in product based designs. Longevity of the PEM based systems has also been a challenge with membrane and catalyst degradation issues limiting the operating life of the systems. Finally, PEMs are expensive to manufacture because they use costly proprietary materials and because the industry has not been able to develop the scalable low-cost manufacturing processes that are needed for the unique PEM fuel cell requirements.

Remote Area Power Supplies (“RAPS”) Market

We are pursuing the RAPS market which can provide 1kW to 10+ kW power systems that can operate off-the-grid. These systems would include a renewable, DC-based generation system (solar, wind, etc.), a power modulation system (DC-DC converter, DC-AC inverter) and storage systems. We expect increasing demand based on the current focus on renewable energy, and the need to reduce dependence on depleting fossil fuel resources. Based our internal marketing estimates and reports published by the marketing research firm of Frost and Sullivan, this global market was estimated to be approximately $500 million in 2009 and is expected to grow to $2.5 billion by 2016. In addition, RAPS products could provide backup power for critical infrastructure like cell phone towers, communication infrastructure and other command and control systems in developed and developing countries.

Market for Military Applications

Our R&D efforts to date have demonstrated the potential use of our fuel cells in a variety of military applications. The completion of our prototype and the extended testing has demonstrated that the technology has the potential to provide higher density power at longer durations in a more reliable fashion than PEM based fuel cell technologies. In addition, we believe our fuel cells will provide a more environmentally friendly solution compared with rechargeable or non-rechargeable batteries solutions as it relates to manufacturing processes and waste disposal. Our products particularly address anaerobic needs such as underwater, underground, close quarters and high altitude and no atmosphere applications specific to military needs.

We believe that the market for military applications will be a significant portion of the market, as reflected in market research by Frost and Sullivan, as well as our internal marketing estimates. This market includes battery replacement and new fuel cell alternatives for specialized applications such underwater and/or unmanned vehicles. Our product could also provide an effective backup power solution.

During the year ended September 30, 2009, we received payments of approximately $1,147,000 from the Office of Naval Research (“ONR”) pursuant to the terms of a grant providing expense reimbursement for continuing research and development having to do with certain technology. This contract included various technical developments, and the demonstration of a closed loop, self-contained, anaerobic system. This system was successfully developed and demonstrated to the ONR in September 2009.

Market for Industrial Applications, RAPS, and Transportation

We are currently developing RAPS that are renewable energy, fuel cell-based power generation and storage systems that can be used for distributed power applications where the quality of the electrical grid is non-existent or sub–par, or where back up power is needed.

In an initial effort to test prototypes of our technology and sell our products, we entered into non-binding letters of intent and other agreements beginning in 2009. In July 2009, we signed non-binding letters of intent with EKO, one of India’s larger manufacturers of electric two wheel vehicles, to develop fuel cell battery charging units for integration into their electric scooters, as well as RAPS to act as charging stations for the scooters and off -grid power sources. The agreements with EKO have expired and we intend to negotiate extensions or new agreements. With sufficient funding, we expect to deliver several beta prototype units in 2012 and, upon successful testing, we expect to sell several hundred additional units.

In July 2009, we signed a technology license agreement with Hobie Cat to explore the use of our proprietary fuel cells to power various recreational water craft products. Additionally, we signed a non-binding letter of intent with Hobie Cat to produce on-board fuel cell battery chargers for their line of electric kayaks. With sufficient funding, we anticipate delivery of several beta prototype systems in 2012, and several hundred systems on successful completion of the beta evaluations.

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In April 2010, we signed a non-binding letter of intent with a large U.S. defense supplier to provide our innovative fuel cell technology for a variety of defense applications. With sufficient funding, we anticipate delivery of several beta prototype systems in 2012, and additional business on successful completion of the beta evaluations.

Market for Consumer Mobile Electronics

Recent trends continue to demonstrate a clear need for better and longer-lasting power solutions to close the “power gap,” which is defined as the difference between the power capacity and the power need, thus enhancing mobility and productivity. Based on user demand, mobile electronics companies continue to add features for richer experiences. Notebook PC makers, for example, in recent years have enhanced their products with larger, more vivid color displays, faster processors, larger hard drives, DVD and/or CD drives, as well as multimedia and wireless networking capabilities. Each of these additions requires more power and, taken together, can be a significant drain on a PC’s limited battery capacity. Users are also more dependent on these mobile devices and are using them longer without access to outlet power. Sales of notebook PCs continue to grow faster than those of the overall PC market, and now represent more than half of all PCs sold. The size of the consumer market fuel cells as battery replacements is estimated to be between $6 billion and $8 billion per year, as reflected in market research by Frost and Sullivan and our internal marketing estimates. Moreover, with the growth and widespread availability of high-speed wireless connections (Wi-Fi) in corporate offices and public locations, “persistent” computing - constant connectivity to the Internet, e-mail and corporate files - is becoming commonplace, creating additional demand for longer-lasting power.

While this is a large, and growing, market, we believe that our fuel cells, when fully developed, will be capable of bridging the mobile electronics “power gap.” We expect to offer products that produce more power and last longer than battery or other power solutions can offer.

Proprietary Rights and Intellectual Property

We rely primarily on patents and contractual obligations with employees and third parties to protect our proprietary rights. We continue to seek appropriate patent protection for our proprietary technologies by filing patent applications in the U.S. and in certain foreign countries. As of August 17, 2011, we owned or controlled eleven issued or allowed U.S. patents and two pending U.S. patent applications, including provisional patent applications.

Our patents and patent applications are directed to the components and systems involved in our fuel cell design and the use of porous substrates coated with catalyst as fuel cell electrodes and electrode structures, cell bonding techniques, and cartridges Our financial success will depend in large part on our ability to:

·

obtain patent and other proprietary protection for our intellectual property;

·

enforce and defend patents and intellectual property once obtained;

·

operate without infringing on the patents and proprietary rights of third parties; and

·

preserve our trade secrets.

In addition, we believe our fuel cell design and technology are not in conflict with the U.S. patents covering PEM-based DMFCs held by several organizations.

Employees

As of August 17, 2011, we had four employees, including two executive officers, one administrative and one technical employee. We have previously reported that we had furloughed most of our employees. We intend to rehire personnel and hire additional staff after raising sufficient funds. We also expect to continue to using outside business development consultants, whose compensation will be based on revenue opportunities they create.

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Competition

The development and marketing of fuel cells and fuel cell systems is extremely competitive. In many cases, we may compete directly with alternative energy, fuel cell, and entrenched power-generation and power-storage technologies. In addition, a number of firms throughout the world have established fuel cell development programs, albeit most of them PEM-based. Competitors range from development stage companies to major domestic and international companies, many of which have:

·

substantially greater financial, technical, marketing and human resource capabilities;

·

established relationships with original equipment manufacturers;

·

name-brand recognition; and

·

established positions in the markets that we have targeted for penetration.

These or other companies may succeed in developing and bringing to market products or technologies that are more cost-effective than those we develop or that would render our products and technology obsolete or non-competitive in the marketplace.

Available Information

We are a public reporting company and file annual, quarterly and special reports, and other information with the SEC. You may read and copy these reports at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 or email the SEC at publicinfo@sec.gov for more information on the operation of the public reference room. Our SEC filings are also available at the SEC’s website at http://www.sec.gov.

DESCRIPTION OF PROPERTY

Our corporate offices and laboratory facilities are located at 22118 20th Ave SE, Suite 142, Bothell Washington, where we lease approximately 5,700 square feet of office space and 5,300 square feet of laboratory space. We currently lease on a month-to-month basis, and intend to negotiate with the landlord for a lease extension. The average monthly rental payment including utilities and operating expenses for the facility is approximately $19,000 per month. We believe that the leased facility is in good condition and adequate to meet our current and anticipated requirements. We are currently in arrears on rent payments and, in January 2010, we received a notice of eviction. The landlord has not taken any additional actions pertaining to eviction and we are currently negotiating with the landlord for a long-term extension on our lease.

LEGAL PROCEEDINGS

On September 11, 2009, a consultant of the Company filed a lawsuit in the Superior Court of California, County of Santa Clara, styled Novellus Systems, Inc. v. Neah Power Systems, Inc. alleging breach of contract due to unpaid vendor bills. The consultant obtained a default judgment in December 2009 in the amount of $62,524. In March 2011, Novellus sold the rights to this obligation to an investor. The obligation has since been paid and there remain no claims against the Company.

On December 4, 2009, our landlord filed a lawsuit against us for unpaid rent in the amount of $76,069 in the case styled Teachers Insurance & Annuity v. Neah Power Systems, Inc. in the Superior Court of the State of Washington, County of King (Case No. 09-2112914). Our landlord was granted a default judgment in December 2009 in the amount of $81,106.11. Pursuant to that judgment, in January 2010 we received a notice of eviction from our landlord because of the unpaid rent. Since the notice, we have paid $145,000 against that balance. The landlord has not taken any additional actions pertaining to eviction. We owe approximately $339,000 of rent to the landlord as of the date of this report. We are currently negotiating with the landlord for a long-term extension on our lease. The landlord has indicated the willingness to incorporate our past due rent into the terms of the new lease and forgive past due penalties and interest.

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On January 20, 2010, our former Chief Executive Officer, Paul Abramowitz, initiated a lawsuit against us in the Superior Court for the State of Washington styled Abramowitz v. Neah Power Systems, et al. (Case No. 10-2-3688-1 SEA) in which Mr. Abramowitz has sued for breach of his employment contract in the amount of $275,000, plus interest, and willful failure to pay wages for which he seeks double damages or twice the amount of the wages allegedly withheld, plus attorneys’ fees and interest. Other persons presently affiliated with the Company or affiliated with the Company in the past, including Gerard C. D’Couto, Stephen M. Wilson, Jon M. Garfield, Ed Cabrera, Michael Selsman, Paul Sidlo, James Smith and Robert J. McGovern, were also named as defendants in the Abramowitz lawsuit. During the quarter ended June 30, 2011, the Court dismissed the claims against all these persons with the exception of Dr. D’Couto, finding that they are not personally liable under Washington wage law. We have filed a third party complaint against the following former officers and directors who may be implicated by Abramowitz’s claims due to their presence on the Neah Power board of directors: Michael Solomon, Eugene “Buzz” Aldrin, Leroy Ohlsen and David Barnes. We have also filed counterclaims against Mr. Abramowitz for breach of fiduciary duties as a director and officer, conversion and violation of state and federal securities laws.

In connection with the Abramowitz lawsuit, our former director, James Smith, has filed a cross-complaint against the Company, the other defendants in the Abramowitz lawsuit, Michael Solomon, Leroy Olsen and Buzz Aldrin for breach of contract and unpaid wages related to Mr. Smith’s past service on our board of directors. Smith has also made a claim for indemnification for the defense of the Abramowitz action, which was granted by the Court. The amount to be assessed for this claim has not yet been determined.

On March 3, 2010, a complaint was filed by the Chapter 7 Trustee of the law firm Dreier Stein Kahan Browne Woods George LLP in the Superior Court of California, Los Angeles Central District (Case No. BC432899) alleging breach of contract for past legal services and seeking $66,000. Dreier Stein obtained a default judgment in November 2009 in the amount of approximately $63,000 which includes the unpaid legal fee amounts plus interest. The judgment remains unpaid.

In August 2010, Protingent Staffing, Inc. filed a lawsuit in the South District Court, County of Snohomish, State of Washington styled Protingent Staffing, Inc. v. Neah Power Systems, Inc. (Case No. 10-2-09637) alleging breach of contract due to unpaid vendor bills and seeking $35,382. Protingent obtained a default judgment on November 22, 2010 in the amount of $42,604 which includes the unpaid vendor bill amounts plus interests. The judgment remains unpaid.

Other than those matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock trades on the OTCBB under the symbol “NPWZ.”

Set forth below are the range of high and low bid quotations for the periods indicated as reported by the OTCBB. The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

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On July 27, 2009, we effected a 200:1 reverse stock split of all issued and outstanding shares of our common stock. On August 14, 2009, we effected a 4:1 forward split and a 0.5 for 1 share dividend of all issued and outstanding shares of our common stock resulting in the equivalent of a 6 for 1 forward stock split. This schedule reflects those changes to the historical prices.

The last sale price of our common stock on August 17, 2011, was $0.0089.

Holders

As of August 17, 2011, there were approximately 350 holders of record of our common stock. This number does not include beneficial owners of common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

Dividends

We have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by Nevada law.

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Selected Financial Data

Not applicable.

Supplementary Financial Information

Not applicable.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATION

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This registration statement and the documents incorporated herein by reference contain forward-looking statements. Specifically, all statements other than statements of historical facts included in this quarterly report regarding our financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of management, as well as assumptions made by and information currently available to management. When used in this annual report, the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “continue” and “intend,” and words or phrases of similar import, as they relate to our financial position, business strategy and plans, or objectives of management, are intended to identify forward-looking statements.

These statements reflect our current view with respect to future events and are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from those expressed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We have no duty to update or revise any forward-looking statements after the date of this Form S-1 and the documents incorporated herein by reference or to conform them to actual results, new information, future events or otherwise.

The following factors, among others, could cause our or the industry’s future results to differ materially from historical results or those anticipated:

our future capital needs and the ability to obtain financing;

our ability to obtain governmental approvals, including product and patent approvals;

the success or failure of our research and development programs, marketing, and sales efforts;  

the acceptance and success of our fuel cell products;

our ability to develop and commercialize products before our competitors; and  

our limited operating history, and current debt and working capital conditions

These factors are the important factors of which we are currently aware that could cause actual results, performance or achievements to differ materially from those expressed in any of the forward looking statements. We operate in a continually changing business environment and new risk factors emerge from time to time. Other unknown or unpredictable factors could have material adverse effects on our future results, performance or achievements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report may not occur.

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The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this report.

Background

We are engaged in the development and sale of renewable energy solutions. Our fuel cells are designed to replace existing rechargeable battery technology in mobile electronic devices and small-scale transportation vehicles. Our long-lasting, efficient and safe power solutions for these devices, such as notebook PCs, military radios, and other power-hungry computer, entertainment and communications products, use our patented, silicon-based design with higher power densities to enable lighter-weight, smaller form-factors, cost effective manufacturing, and potentially lower product costs. Based on our seven issued patents and 4 additional U.S. patent filings, we believe our technology is proprietary and protected. We have won awards for our technology, the most recent recognition being the Best of What’s New^TM 2010 award from the distinguished publication Popular Science.

We announced in May 2011 a non-binding memorandum of understanding to acquire privately-held Exigent Security Products, Inc. which markets and develops advanced radiation sensors for use by medical, homeland security, defense and other industries. We believe that this business combination will enable us to combine offerings of fuel cell and radiation detector products in order to provide power for remote and continuous sensor applications. We currently have an unsecured note receivable from Exigent Security Products, Inc. in the amount of $35,000 and bearing interest at 10% per annum, compounded monthly, and with all principal and interest due June 2012. No additional agreements have been entered into since the letter of intent.

In an initial effort to test prototypes of our technology and sell our product, we entered into non-binding letters of intent and other agreements beginning in 2009.  We have entered into non-binding letters of intent with EKO Vehicles of Bangalore (“EKO”), Hobie Cat Company (“Hobie Cat”), and a United States based large defense supplier. The agreements with EKO have expired and we intend to negotiate extensions or new agreements. Partnering with these companies, we anticipate that we will develop early production devices for evaluation by original equipment manufacturers (“OEM”) for the eventual deployment of our fuel cell products in 2012. We anticipate that we will ultimately sell or license our products for resale by distributors and OEM customers.

We also intend to design and distribute the fuel cartridges that these fuel cells require for refueling. We expect to generate future revenues from the sale and licensing of both fuel cartridges and the completed fuel cells. Our current business plan contemplates that we will subcontract to third parties substantially all of the production and assembly.

To attain profitable operations and generate cash flow, management’s plan is to execute our strategy of:

(i)

completing production prototypes for EKO vehicles, Hobie Cat, and other customers, and qualifying the product for high volume market acceptance; and

(ii)

Developing and deploying Remote Area Power Supply (RAPS) systems, and other energy generation and storage solutions.

 The delay in our ability to acquire capital has led to postponement in the deployment of our business strategy. We intend to produce and deliver products in conjunction with the receipt of required financing.

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Comparison of Quarterly and Year-to-date Results of Operations

June 30, 2011 as compared to June 30, 2010

The following table shows our revenue and expenses for the three and nine months ended June 30, 2011 and 2010:

Research and Development. Research and development expenses (“R&D”) consist primarily of salaries and other personnel-related expenses, consulting and other outside services, laboratory supplies, facilities costs and other costs and expense as incurred. Expense for the three and nine months ended June 30, 2011 decreased as compared to the three and nine months ended 2010, due to the following:

·

R&D salaries expense and stock compensation expense decreased by $37,000 to $16,000 from $53,000 recorded in the prior year’s three month period and decreased by $221,000 to $34,000 from $255,000 recorded in the prior year’s nine month period due to reductions in personnel.

·

Facilities expenses increased by $24,000, to $87,000 from $63,000 recorded in the prior year’s three month comparable period and increased by $29,000, to $223,000 from $194,000 recorded in the prior year’s nine month comparable period primarily due to the recording of additional late fees and interest charged by our landlord.

·

R&D project and operations expenses decreased from $7,000 to nil recorded in the prior year’s three month period and decreased from $37,000 to nil recorded in the prior year’s nine month period. These decreases were due to the reduction of operations to reduce expenses.

We anticipate that R&D expenditures will increase significantly as we obtain financing to support additional development efforts and the manufacture of our products.

General and Administrative. General and administrative expenses (“G&A”) consist primarily of salaries and other personnel related expenses to support our R&D activities, non-cash stock-based compensation for general and administrative personnel and non-employee members of our board of directors, professional fees, such as accounting and legal, corporate insurance and facilities costs. The significant decrease in G&A expense in the nine months ended June 30, 2011 as compared to the same period in 2010 was primarily due to decreased public relations and marketing. Public relations and marketing expenses decreased by $2,141,000 to $166,000 in the nine months ended June 30, 2011 from $2,307,000 in the same period in 2010, due to the non-cash expense we incurred in 2010 related to the shares issued pursuant to the advisory services agreements with Summit Trading Limited to identify, introduce, engage, and compensate investor relations and/or public relations firms on our behalf which we entered into in October 2009 and June 2010. These were partially offset in the nine months ended June 30, 2011 by non-cash expense of $92,000 incurred related to shares and warrants issued in payment of investment and public relations services and by cash expense of $70,000 in payment of investment and public relations services.

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G&A expenses also increased due to the following:

·

G&A salaries expense increased by $44,000, to $147,000 and by $87,000 to $424,000, respectively in the three and nine months ended June 30, 2011 from $103,000 and $337,000, respectively, recorded for the same periods in 2010, respectively. This was primarily due to the reestablishment of officer salaries to earlier levels from 2008. All additional salaries were approved by our board of directors and payments have been deferred until we receive adequate financing.

·

Non-director stock compensation for the three and nine month ended June 30, 2011 increased by $34,000, to $97,000 and by $101,000 to $253,000, respectively compared with $63,000 and $152,000 recorded for the same periods in 2010, respectively. This was due to stock options issued to management and employees in November 2010 and April 2011 to encourage retention and to compensate for salary reductions and deferrals. In addition, we recorded $7,000 and $39,000 in warrant compensation for warrants issued to Strategic Advisory Board members in the three and nine months ended June 30, 2011, compared with $41,000 and $48,000 in the same periods of 2010. Director stock based compensation increased in the three and nine months ended June 30, 2011 to $70,000 and $129,000 from $11,000 and $33,000, respectively, for the same periods in 2010.

·

Professional services expenses for the three and nine months ended June 30, 2011 increased by $148,000, to $210,000 and by $90,000 to $602,000, respectively, from $62,000 and $512,000, respectively, in the same periods in 2010 due to increased legal expenses in 2011 partially offset by decreases in non-cash consulting services compared with 2010.

·

Amortization expenses for the three and nine months ended June 30, 2011 were nil compared with $179,000 and $357,000 from the same periods in 2010 due to amortization recorded in the purchase of SolCool LLC in 2010. The purchase was unwound in August of 2010.

Financing costs. We incurred financing costs and fees related to our outstanding loans. Financing costs decreased by $116,000 for the nine months ended June 30, 2011 to $11,000 from $127,000 incurred in the same period in 2010 primarily due to non-interest expenses and fees associated with loans incurred in the 2010 period. Financing fees for the three months ended June 30, 2011 and June 30, 2010 were negligible in both periods.

Interest expense. We incurred interest expense on our outstanding loans. Interest expense increased by $192,000 for the three months ended June 30, 2011 to $262,000 from $70,000 incurred in the same period in 2010 primarily due to the beneficial conversion expenses charged for convertible debt during the 2011 period. Interest expense decreased for the nine months ended June 30, 2011 by 234,000 to $450,000 from $684,000 incurred in the same period in 2010. This was primarily due to the decreases in the principal balances of outstanding notes payable resulting from foreclosure of common shares held as collateral by the holders of the notes payable in 2010, partially offset by the beneficial conversion expenses charged in the same period in 2011.

Loss on extinguishment of debt. We have recorded losses pertaining to the extinguishment of debt in exchange for our common stock. For the three and nine months ended June 30, 2011, loss on extinguishment of debt increased by $88,000 and $347,000 to $204,000 and $463,000, respectively, compared with $116,000 in the same periods in 2010. The increases were due to increased activity in settling past due accounts payable and notes payable balances.

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September 30, 2010 as Compared to September 30, 2009

The following table shows our revenue and expenses for fiscal years 2010 and 2009:

Revenue. We had no revenues in the year ended September 30, 2010 as compared to $1.1 million due to the winding up of activity under our September 2008 contract with the Office of Naval Research that was completed in 2009.

Research and Development. Research and Development (“R&D”) expenses consist primarily of salaries and other personnel-related expenses, consulting and other outside services, laboratory supplies facilities costs and other costs. We expense all R&D costs as incurred. Total R&D expenses decreased significantly in the fiscal year ended September 30, 2010 due to the reduction in staff and operations caused by our financial condition. R&D expense for the year ended September 30, 2010 decreased as compared to the 2009 period, primarily due to the following:

·

R&D salaries expense for the year ended September 30, 2010 decreased by $560,000 to $277,000 from $837,000 recorded in the prior year due to the streamlining of operations and reductions in head count.

·

R&D project and laboratory expenses, including direct expenditures relating to the ONR contract decreased by $258,000, to $22,000 from $280,000 recorded in the prior year comparable period due to the reduction in R&D activities.

·

There was $34,000 in stock-based compensation expense incurred in the year ended September 30, 2010 compared with $74,000 in stock based compensation expense incurred in the prior year.

·

Facilities expenses increased by $17,000 to $251,000 from $234,000 recorded in the prior year period, primarily due to an increase in the cost of leased office space

·

Depreciation expense included in R&D expense was $21,000 in 2010 as compared to $28,000 in 2009, due to laboratory assets reaching the end of their accounting useful lives.

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Contingent on the receipt of adequate capital into the company, we expect our R&D expenses to increase in 2011 due to the anticipated increase in product development activities and the development of specific customer products.

General and Administrative. General and administrative expenses (“G&A”) consist primarily of salaries and other personnel related expenses to support our R&D activities, non-cash stock-based compensation for general and administrative personnel and non-employee members of our board of directors, professional fees, such as accounting and legal, corporate insurance and facilities costs. The decrease in total G&A expenses in 2010 was primarily due to the decrease in stock-based compensation in the current year. Non-director Stock compensation expense decreased to $176,000 in 2010 from $2,685,000 in 2009. That decrease in stock compensation expense was due to stock options issued to management and employees in September 2009. These expenses were partially offset by increased public relations and marketing and other administrative expenses. These expenses increased by $2,249,000 to $2,341,000 in the year ended September 30, 2010, from $92,000 in the same period in 2009, primarily due to non-cash expenses related to the shares pursuant to advisory services agreements with Summit Trading Limited to identify, introduce, engage, and compensate investor relations and/or public relations firms on our behalf which we entered into in October 2009 and June of 2010. G&A expenses also increased due to the following:

·

G&A salaries expense for year ended September 30, 2010 increased by $36,000 to $449,000 from $413,000 recorded in 2009. These increases were primarily due to furloughs of staff in 2009.

·

We recorded $62,000 in the year ended September 30, 2010 for warrants issued to Strategic Advisory Board members in the first quarter of 2010 compared with nil in the 2009.

·

Board Compensation expenses decreased by $588,000 to $47,000 in the year ended September 30, 2010 from $635,000 in 2009. Of these expenses, $47,000 and $485,000 were recorded for director stock based compensation in the years ended September 30, 2010 and 2009, respectively. The board of director’s compensation in 2009 was recorded based on the implementation of the compensation plan approved in February 2009 and effective as of June 2008 and the issuance of stock options to directors in September 2009.

·

Professional services expenses for the year ended September 30, 2010 increased by $149,000, to $591,000 from $442,000 recorded in 2009. This increase was primarily due to equity based compensation for consultants and increased accounting services expenditures.

Contingent upon receipt of adequate capital into the company, we expect general and administrative expenses to increase in fiscal 2011 in support of our expected increased R&D and product development activities.

SolCool. We incurred an operating loss from our SolCool subsidiary in the amount of $468,000 for the year ended September 30, 2010 compared with nil in 2009. These costs arose due to the acquisition of SolCool in January 2010. Included in these 2010 expenses are the amortization of identifiable intangible assets in the amount of $462,000.

Financing costs. We incurred financing costs and fees related to our outstanding loans. Financing costs decreased for the year ended September 30, 2010 $304,000 to $123,000 from $427,000 in the prior year’s period. The decreases in financing costs were primarily due to the higher non-interest expenses and fees associated with the Agile loans incurred in 2009.

Interest expense. We incurred interest expense on our outstanding loans. Interest expense decreased for the year ended September 30, 2010 $665,000 to $768,000 from $1,433,000 in the prior year. This decrease was primarily due to the $567,000 of forbearance fees pertaining to the CAMHZN loan charged to interest expense in 2009 and reduced recorded interest on Agile and Capitoline notes. These reductions were partially offset by increased interest from increased loan balances on Agile and Capitoline note balances in the earlier 2010 periods and the accrual of interest with loan default interest rates in 2010. We expect interest expense to decrease in 2011 as a result of the lower loan balances and interest resulting from payment of loan and accounts payable balances from funds received from anticipated long term funding efforts.

Gain on disposition of SolCool Subsidiary. We recorded a gain on the disposition of our SolCool subsidiary.

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Comparison of Annual Cash Flows

We used cash of approximately $1.2 million in our operating activities in 2010, compared to $1.0 million in 2009. Cash used in operating activities relates primarily to net losses offset partially by non-cash expenses such as share-based compensation and other items of net loss not requiring cash. We expect to use cash for operating activities in the foreseeable future as we continue our operating activities.

Our investing activities used cash of approximately $18,000 in 2010 compared to $16,000 in 2009.

Our financing activities provided cash of approximately $1.2 million in 2010 compared to $996,000 in 2009. Changes in cash from financing activities are primarily due to proceeds from sale of common stock and preferred stock, and net proceeds from notes payable, less principal payments

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates that affect the reported amounts of assets, liabilities and expenses. Our critical accounting policies include revenue recognition, accounting for research and development costs, accounting for contingencies, accounting for income taxes, and accounting for share-based compensation. Other key estimates and assumptions that affect reported amounts and disclosures include depreciation and amortization and expense accruals. We base our estimates on historical experience and on actual information and assumptions that are believed to be reasonable under the circumstances at that time. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following critical accounting policies affect our more significant estimates used in the preparation of our financial statements.

Revenue Recognition

We recognize revenue when we have persuasive evidence of an arrangement, the services have been provided to the customer, the price for services is fixed and determinable, no significant unfulfilled obligations exist, and collectability is reasonably assured.

Contract revenues consist of amounts recorded from services provided to customers. Revenues earned under such arrangements are recorded as earned as the services are provided. Upfront payments received under contractual arrangements are deferred and recognized as revenue over the service period.

Share Based Payments

We use the Black-Scholes option pricing model as our method of valuation for share-based awards. Share-based compensation expense is recorded over the requisite service period typically and based on the value of the portion of the stock-based award that will vest during the period, adjusted for expected forfeitures. Our determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, expected stock price volatility over the term of the award and historical and projected exercise behaviors. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual or updated results differ from our current estimates, such amounts will be recorded in the period estimates are revised. Although the fair value of share-based awards is determined in accordance with authoritative guidance, the Black-Scholes option pricing model requires the input of highly subjective assumptions and other reasonable assumptions could provide differing results. Non-cash compensation expense is recognized on a straight-line basis over the applicable vesting periods of one to ten years, based on the fair value of such share-based awards on the grant date.

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Income Taxes

We follow the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and on the expected future tax benefits to be derived from net operating loss carryforwards measured using current tax rates. A valuation allowance is established if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the nature of the reverse merger that occurred in 2006 and the resulting greater than 50% change in control, our ability of to utilize NOL carryforwards from NPSWA may be limited.

Liquidity and Capital Resources

We have prepared our condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At June 30, 2011, we have a working capital deficit (excess of current liabilities over current assets) of $5.1 million and an accumulated deficit of $56.4 million. Since our inception, we have reported net losses, including losses of approximately $2.9 million during the nine months ended June 30, 2011 and $5.2 million for our fiscal year ended September 30, 2010. We expect losses to continue in the foreseeable future as we grow and redeploy our operations. Net cash used by operating activities approximated $560,000 during the nine months ended June 30, 2011 and $1.2 million for our fiscal year ended September 30, 2010. We have funded our operations through sales of our common stock, advances on stock subscriptions and short-term borrowings. In this regard, during the nine months ended June 30, 2011, we raised approximately $304,000 in advances on stock subscriptions, $171,000 through note payable borrowings, and $127,000 in funding from Series A Preferred Stock (“Series A”) issued. Subsequent to June 30, 2011 we received $60,000 through an issuance of debentures from an investor. Subsequent to June 30, 2011 we also received from an investor approximately $50,000 in advances for equity or for debt investment.

We have limited capital resources and have sustained substantial losses, which raise substantial doubt about our ability to continue as a going concern. Investment funds received have not been sufficient to continue to support certain operating activities, which led to postponement in the deployment of our business strategy and curtailment of research and development activities during the fiscal year ended September 30, 2010. We continue to work with reduced staffing while we focus on raising capital. We must, therefore, raise sufficient capital to fund our overhead burden and our continuing research and development efforts going forward. Although we have received $110,000 subsequent to June 30, 2011, without additional funding, our current cash resources are expected to last only to the end of August 2011. Our operations are currently focused on raising capital, sales, and business development. We are dependent on existing cash resources and external sources of financing to meet our working capital needs. To satisfy our working capital requirements, we are currently seeking financing from the sale of debt or equity instruments to current investors and potential strategic investors. There is no assurance that we will be successful in raising this capital on a timely basis, if at all. The failure to obtain the necessary working capital would have a material adverse effect on the development program and business prospects and, depending upon the shortfall, we may have to curtail or cease our operations.

In addition to our common stock outstanding, as of August 17, 2011, we have potential stock equivalents outstanding including stock options, convertible debentures, warrants and preferred stock convertible into shares of our common stock. Included in these securities are Series A Preferred Stock convertible into 9,472,340 shares, options convertible into 21,282,543 shares, and warrants convertible into 7,338,785 shares. Also included in these securities are Series B Preferred Stock and notes payable convertible into approximately 48,250,000 and 52,788,000 shares of our common stock, respectively (the exact numbers of which are not determinable at this time because the Series B Preferred Stock and certain of the debt instruments are convertible into shares of our common stock based on the future trading price of our common stock). Also, in October and November 2010, and in January 2011, we issued 180 day debentures to an investor for total cash proceeds of $60,000. During the three months ended June 30, 2011, we paid $10,000, plus interest, in cash to the investor in payment of one of the debentures. The debentures with principal and interest are convertible into our common shares at our option or the option of the investor. The debentures plus accrued interest are convertible by the investor at a price per share equal to the lower of fifty percent of the average of the three lowest closing bid prices of our common stock for the thirty trading days immediately prior to the date that we receive notice of conversion or fifty percent of the lowest traded price for the twenty days trading prior to the closing of this agreement. We are entitled, until payment in full of the debentures, to convert the debentures at a price per share equal to fifty percent of the closing bid price of the common stock on the date that we issue such notice of conversion.

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In February 2011, we also issued 180 day debentures to an investor for cash proceeds of $30,000. The debentures with principal and interest are convertible into our common shares solely at the option of the investor. The debentures plus accrued interest are convertible by the investor at a price equal to $0.0035 per share. In March 2011, we issued additional 180 day debentures to this investor for additional cash proceeds of $30,000. These debentures, with principal and interest, are also convertible into our common shares solely at the option of the investor. The debentures are convertible at a price equal to $0.005 per share or 50% of the average closing price of our common stock for the five days prior to the date of the notice to convert. In June 2011, we issued a 180 day debenture to this investor for total cash proceeds of $30,000. The debenture agreement provides for, at the investor’s sole discretion, the conversion of the debenture into common shares at (i) the price per share equal to fifty percent (50%) of $0.01 or (ii) fifty percent (50%) of the lowest trading price of the Common Stock within the period ninety (90) days following the advancement date. Also in June 2011, we amended the March 2011 debenture with the same investor whereby the debenture was increased from $30,000 to $45,000 upon receipt of additional investment proceeds of $15,000. This additional portion of this debenture provides for conversion into common shares at a price equal to $0.0057 per share or 50% of the average closing price of our common stock for the five days prior to the date of the notice to convert. In July 2011, we entered into a second amendment to this debenture whereby we increased the face value of the debenture from $45,000 to $70,000 upon receipt additional investment proceeds of $25,000. This amendment provides for conversion of the additional investment into common shares at a price equal to $0.00405 per share or 50% of the average closing price of our common stock for the five days prior to the date of the notice to convert. In August 2011, we entered into a third amendment to this debenture whereby we increased the face value of the debenture from $70,000 to $105,000 upon receipt additional investment proceeds of $35,000. This amendment provides for conversion of the additional investment into common shares at a price equal to $0.00567 per share or 50% of the average closing price of our common stock for the five days prior to the date of the notice to convert. The third amendment also extends the maturity date of the amended debenture to May 1, 2012.

We will continue to be dependent on outside capital to fund our operations for the foreseeable future. We have relied primarily on sales of securities and proceeds from borrowings for operating capital. Any future financing we obtain may further dilute or otherwise impair the ownership interest of our current stockholders. If we fail to generate positive cash flows or obtain additional capital when required, we could modify, delay or abandon some or all of our plans. These factors, among others, raise substantial doubt about our ability to continue as a going concern.

Recent Financing Activities

Subsequent to June 30, 2011 we received $60,000 through an amended debenture and approximately $50,000 in advances for equity or for debt investment.

During the nine months ended June 30, 2011, we received $304,500 from Summit Trading Limited in advances toward equity purchases. We have recorded these advances as a liability as of June 30, 2011 which are included in Advances on Stock Subscriptions our condensed consolidated balance sheet. In July 2011, we issued, under a Series B Preferred Stock Purchase Agreement, 322,904 shares of Series B to Summit Trading Limited at a price of $1.00 per share for the $304,500 advanced to us plus $18,404 as payment of debt we owed to Summit Trading Limited.

 AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The following table and text sets forth the names and ages of all our directors and executive officers as of August 17, 2011. All of our directors serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of the board of directors, and are elected or appointed to serve until the next board of directors meeting following the annual meeting of stockholders. Also provided is a brief description of the business experience of each director and executive officer and the key management personnel and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws.

Set forth below is biographical information concerning our directors and executive officers.

Dr. Gerard C. (Chris) D’Couto has served as a member of our Board since January 28, 2008 and as our Chief Executive Officer and President since February 2008. Until such time, Dr. D’Couto served as our Chief Operating Officer and Executive Vice President since September 2007. Prior to joining us, Dr. D’Couto served as senior director of marketing at Form Factor Inc. from January 2006 until September 2007, where he headed the launch of NAND flash and DRAM sort probe cards. Prior to that, Dr. D’Couto had a nine year tenure at Novellus Systems, Inc., with positions of increasing responsibility ranging from product management to technology development and sales. Prior to that, Dr. D’Couto worked at Varian Associates and as a consultant to Intel Corporation. Dr. D’Couto received a bachelor’s degree in chemical engineering from the Coimbatore Institute of Technology in India and also received a master’s and a doctoral degree in chemical engineering from Clarkson University in New York. Dr. D’Couto also earned an MBA from the Haas School of Business at the University of California, Berkeley. Dr. D’Couto was chosen to serve on our Board because of his management and operational skills from his business school education and past management positions as well as his technical knowledge related to our fuel cell technology.

Jeffrey B. Sakaguchi has served on our board since November 2010. Mr. Sakaguchi has served since 2009 as the Chairman of the Board of Directors of the American Red Cross, Greater Los Angeles Chapter where he has been responsible for the financial and organizational turnaround of chapter performance. From 2004 until 2007, Mr. Sakaguchi served as the President and Chief Operating Officer of Evolution Robotics Retail, Inc. In that role, Mr. Sakaguchi co-led a spin-off of Evolution Robotics Retail, Inc. from its former parent company and developed and executed a commercialization strategy for a breakthrough visual scanning product targeted for the retail industry. From 1995 until 2003, Mr. Sakaguchi was a partner with the management and technology consulting firm of Accenture LLP based in Los Angeles, where he served as the Managing Partner for the North American Energy Strategy Practice. From 1989 until 1995, Mr. Sakaguchi was a consultant with McKinsey & Company, Inc. in Los Angeles, where he served as a Senior Engagement Manager. Mr. Sakaguchi earned his bachelors of science in chemical engineering from the Massachusetts Institute of Technology and his masters in business administration from the Wharton School of the University of Pennsylvania. Mr. Sakaguchi was chosen to serve on our Board because of his extensive business leadership experience with technology and emerging companies and his knowledge of the emerging fuel cell industry.

David Schmidt has served on our board since November 2010. Mr. Schmidt has served since 2008 as an independent consultant advising chemical, material and alternate energy spaces regarding strategic marketing and execution services. From 2004 until 2008, Mr. Schmidt served as the Manager of Commercial Excellence and the Strategic Marketing Business Development Manager at Honeywell International. From 2000 until 2003, Mr. Schmidt served as a Senior Director and Chief Operations Officer of Plasmion Corporation, Inc. Mr. Schmidt has also served in management positions at Film Specialties, Inc. from 1993 until 2000, Hydromer, Inc. from 1989 until 1992 and ROI Group, Inc. from 1986 until 1988. Mr. Schmidt earned his bachelor of science in business and economics from Lehigh University. Mr. Schmidt was chosen to serve on our Board because of his extensive executive and business development experience in technology industries.

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Jon M. Garfield has served on our Board since May 2008. Mr. Garfield served as Chief Executive Officer of technology company Clearant, Inc. (OTCBB: CLRA) from January 2007 until October 2010 and as Chief Financial Officer at Clearant, Inc. from September 2006 until January 2007. Mr. Garfield has served as a member of Clearant, Inc.’s board of directors since May 2007. From September 2001 through 2006, Mr. Garfield served as an independent financial consultant, including advising as to SEC reporting obligations and Sarbanes-Oxley compliance. From 1998 until 2001, he served as Chief Financial Officer of a telecom service provider and a software developer. From 1996 to 1998, he served as Vice President of Acquisitions for the formerly NYSE-listed ground transportation consolidator Coach USA, Inc. From 1991 to 1996, Mr. Garfield served as Corporate Assistant Controller of Maxxim Medical, Inc., a formerly New York Stock Exchange listed manufacturer and distributor. During 1986 to 1991, Mr. Garfield practiced public accounting with Arthur Andersen and PricewaterhouseCoopers. Mr. Garfield received a Bachelor of Business Administration in Accounting from University of Texas, Austin. Mr. Garfield was chosen to serve on our Board because of his past experience in chief executive officer and chief financial officer roles at public companies and because of his financial literacy.

Michael Selsman has served on our Board since September 2009. Mr. Selsman writes and edits financial analyses, annual reports, stockbroker-investor overviews, corporate presentations, speeches, books and media communications for public and private companies. He has an extensive background in marketing, public relations, fund raising, media relations, strategic planning, corporate identity/image, public policy advocacy, employee communications and advertising. Since 1992, Mr. Selsman has been a principal of Public Communications Co. of Beverly Hills, California. Mr. Selsman was chosen to serve on our Board because of public relations knowledge and experience advising public companies on strategic matters.

Stephen M. Wilson, CPA, CMA has served as our Chief Financial Officer since July 2008 and Corporate Secretary since June 2008. He also served as Controller from April 2008 and July 2008. From May 2007 until February 2008, he served as Chief Financial Officer of Impart Media Group, Inc., a publicly-held digital signage technology company. From July 2006 until his promotion to Chief Financial Officer of Impart, he served as its Vice President of Finance/Corporate Controller. Impart Media Group, Inc. consented to bankruptcy relief on May 21, 2008 following a petition for involuntary bankruptcy filed on February 14, 2008 in the United States Bankruptcy Court for the Southern District of New York. From 2004 to 2006, he served as Division Controller for Rabanco Companies, a division of Allied Waste. From 2000 to 2004, Mr. Wilson was owner and President of Strategic Finance & Accounting Services, Inc. He is a licensed Certified Public Accountant and is also a Certified Management Accountant. Mr. Wilson holds dual Bachelor of Arts degrees in Accounting and Business Administration from Western Washington University.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our securities, to file with the SEC reports of ownership of our securities and changes in reported ownership. Officers, directors and greater than ten percent stockholders are required by SEC rules to furnish us with copies of all Section 16(a) reports they file.

Based solely on a review of the reports furnished to us, or written representations from reporting persons that all reportable transaction were reported, we believe that during the fiscal year ended September 30, 2010 and the period October 1, 2010 through August 17, 2011 to the best of our knowledge each of the following persons was late in filing one Form 4: Gerard C. D’Couto, Stephen M. Wilson, Jeffrey Sakaguchi, Jon Garfield, David Schmidt, and Michael Selsman.

Code of Ethics

We have adopted a Code of Ethics and Business Conduct (the “Code of Ethics”) for our principal executive, financial and accounting officers. The Code of Ethics addresses inter alia such issues as conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of our assets, compliance with applicable laws (including insider trading laws) and reporting of illegal or unethical behavior. We are committed to ensuring transparent and good corporate governance in our dealings with all stakeholders. Our Code of Ethics is included as an exhibit to our annual report Form 10-K for the fiscal year ended September 30, 2010. Any person may obtain a copy of our Code of Ethics.

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Audit Committee of the Board of Directors

We have an Audit Committee of the Board consisting of three independent directors, Jon M. Garfield (Chair), David Schmidt and Michael Selsman. Our Board has determined that Mr. Garfield and Mr. Schmidt qualify as Audit Committee financial experts. In addition to being independent under Nasdaq Marketplace Rule 5605(a)(2), all members of the Audit Committee meet the additional independence and qualification standards for audit committee members set forth in Nasdaq Marketplace Rule 5605(c)(2)(A). The Audit Committee functions in part as an independent and objective party with oversight of our financial reporting process and internal controls.

Compensation Committee of the Board of Directors

The Compensation Committee consists of three independent directors Jeffrey B Sakaguchi (Chair), Jon M Garfield and Michael Selsman. The functions of the Compensation Committee are to review and approve the goals of the Chief Executive Officer, to review and approve salaries, bonuses and other benefits payable to our executive officers and to administer our Long Term Incentive Compensation Plan and Employee Stock Purchase Plan.

Nominating Committee of the Board of Directors

The Nominating Committee consists of David Schmidt (Chair), Jon M Garfield, and Gerard C D’Couto. The Nomination Committee is responsible for proposing a slate of directors for election by the stockholders at each annual stockholders meeting and for proposing candidates to fill any vacancies.

Financing Committee of the Board of Directors

The Financing Committee consists of Gerard C D’Couto (Chair), David Schmidt, and Jeffrey Sakaguchi. The Financing Committee is responsible for evaluating various financing options and recommending to the full Board various financing avenues.

Governance Committee of the Board of Directors

The Governance Committee consists of three independent directors David Schmidt (Chair), Jon M. Garfield and Jeffrey Sakaguchi. The Governance Committee is responsible for supervision and oversight of our general operations

Limitation of Liability

The Nevada Revised Statutes provide that a corporation may indemnify directors and officers as well as other employees and individuals against expenses including attorneys’ fees, judgments, fines and amounts paid in settlement in connection with various actions, suits or proceedings, whether civil, criminal, administrative or investigative other than an action by or in the right of the corporation, a derivative action, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses including attorneys’ fees incurred in connection with the defense or settlement of such actions and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation’s articles of incorporation, bylaws, agreement, a vote of stockholders or disinterested directors or otherwise.

Our Articles of Incorporation provide that we will indemnify and hold harmless, to the fullest extent permitted by the Nevada Revised Statutes, as amended from time to time, each person that such section grants us the power to indemnify.

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The Nevada Revised Statutes permit a corporation to provide in its articles of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for:

·

any breach of the director’s duty of loyalty to the corporation or its stockholders;

·

acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

·

payments of unlawful dividends or unlawful stock repurchases or redemptions; or

·

any transaction from which the director derived an improper personal benefit.

Our Articles of Incorporation provide that, to the fullest extent permitted by applicable law, none of our directors will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this provision will be prospective only and will not adversely affect any limitation, right or protection of our directors existing at the time of such repeal or modification.

Insofar as indemnification for liabilities under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or paid to our named executive officers during the fiscal year ended September 30, 2010. Individuals we refer to as our “named executive officers” include our chief executive officer (and any individual serving in that capacity during the last fiscal year) and our two most highly compensated executive officers other than our chief executive officer whose compensation exceeded $100,000 during the fiscal year ended September 30, 2010.

Summary Compensation Table

(1)

Salaries for officers include deferred salaries in the amount of $56,000 and $18,000 for Gerard C. D’Couto and Stephen M. Wilson, respectively.

(2)

This column represents the aggregate grant-date fair value of the awards computed in accordance with FASB ASC Topic 718. These amounts reflect our accounting value for these awards and do not necessarily correspond to the actual value that may be realized by the named executive officer. The assumptions used in the calculation of these amounts are described in note 6 to our consolidated financial statements filed with our annual report Form 10-K for the fiscal year ended September 30, 2010.

(3)

Consists of health related benefits provided to employees.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding the outstanding equity awards held by our Named Executive Officers as of September 30, 2010:

Outstanding Equity Awards at Fiscal Year-End

(1)

These options vests in equal monthly installments over a twelve month period following the grant date;

(2)

These options vests in equal monthly installments over a twelve month period following the grant date;

(3)

These options vests in equal yearly installments over a 4 year period following the grant date.

Stock Option Plan and Stock Options

In March 14, 2006, we adopted our Long Term Incentive Compensation Plan (the “Plan”). After giving effect for a reverse stock split, a forward stock split, and a stock dividend, we have since amended the Plan in August 2008 to increase the number of shares available for issuance under the plan to 6,000,000 shares and in April 2011 to increase the number of shares available for issuance under the plan to 25,000,000 shares. As of August 17, 2011, there were 21,282,543 stock options issued under the amended Plan. The Plan is to continue for a term of ten years from the date of its adoption. The Plan, as amended, has yet to be approved by the Company’s stockholders

The Plan seeks to promote our long-term success and our subsidiaries and to provide financial incentives to employees, members of the Board and advisors and consultants of our company and our subsidiaries to strive for long-term creation of stockholder value by providing stock options and other stock and cash incentive.

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Our Compensation Committee has the authority to make awards, construe and interpret the Plan and any awards granted thereunder, to establish and amend rules for Plan administration, to change the terms and conditions of options and other awards at or after grant, and to make all other determinations which it deems necessary or advisable for the administration of the Plan.

If we change the number of issued shares of common stock by stock dividend, stock split, spin-off, split-off, spin-out, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, the total number of shares reserved for issuance under the Plan, the maximum number of shares which may be made subject to an award or all awards in any calendar year, and the number of shares covered by each outstanding award and the price therefor, if any, may be equitably adjusted by the Committee, in its sole discretion.

The Board or the Committee may amend, suspend, terminate or reinstate the Plan from time to time or terminate the Plan at any time. However, no such action shall reduce the amount of any existing award (subject to the reservation of the authority of the Committee to reduce payments on awards) or change the terms and conditions thereof without the consent of any affected award recipient.

Employee Stock Purchase Plan

In August 2008, we adopted an Employee Stock Purchase Plan (the “Stock Purchase Plan”). The amount of shares of common stock that may be sold pursuant to the Stock Purchase Plan shall not exceed, in the aggregate, 900,000. As of August 17, 2011, no shares have been purchased under the Stock Purchase Plan.

Employment, Severance and Change in Control Agreements

Under the terms of the Offer Letter entered into between Dr. Gerard C. (Chris) D’Couto and the Company when Dr. D’Couto joined us as Chief Operating Officer, Dr. D’Couto receives a per annum base salary of $225,000 and a bonus equal to 50% of his base salary upon the completion of certain milestones. Due to our financial circumstances, Dr. D’Couto has taken reductions in salary and did not earn the base salary of $225,000 in the years ended September 30, 2010 or 2009. In the event Dr. D’Couto’s employment is terminated (i) for any reason other than for cause or a winding down of our operations or (ii) due to a change in control where he is not offered a comparable position at a similar compensation, Dr. D’Couto will be entitled to a severance payment equal to six months of his then current base salary.

Under the terms of the offer letter dated April 18, 2008, we entered into an “at-will” employment letter agreement with Mr. Wilson that provides for an annual base salary of $130,000 and an annual performance-based bonus of up to $26,000, or 20% of base salary. Due to our financial circumstances, Mr. Wilson has taken reductions in salary and did not earn the base salary of $130,000 in the years ended September 30, 2010 or 2009.

Compensation of Directors

We do not have any formal policy for the compensation of our non-employee directors. Our Board has made grants of stock options to our outside directors at various times as compensation for our director’s service on the Board. In the future, we anticipate adopting a policy of paying directors a fee for their attendance at board and committee meetings if the financial condition of our company improves.

The following table sets forth information regarding the compensation of directors during the fiscal year ended September 30, 2010:

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Director Compensation