UNITED STATES

Washington, D.C. 20549

FORM 10-K

(Mark One)

x            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: September 30, 2012

OR

¨             TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-49962

(425) 424-3324

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

 Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨    No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨   No x   

The aggregate market value of the Registrant’s common stock held by non-affiliates was approximately $2,097,953 as of March 31, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) based upon the closing price of common stock on that date of $0.01.

As of December 21, 2012 there were 529,681,022 shares of the Registrant’s $0.001 par value common stock issued and outstanding.

Documents Incorporated By Reference: None

EXPLANATORY NOTE

As used herein, the terms “Neah,” “Neah Power,” “Neah Power Systems,” “Company,” “we,” “our” and like references mean and include both Neah Power Systems, Inc., a Nevada corporation, and our wholly-owned subsidiary, Neah Power Systems, Inc., a Washington corporation.

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Specifically, all statements other than statements of historical facts included in this Annual Report on Form 10-K 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 on Form 10-K, 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 undertake no duty to update or revise any forward-looking statements after the date of this Annual Report on Form 10-K and the documents incorporated herein by reference or to conform them to actual results, new information, future events or otherwise, except as may be required by law.

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

·          our ability to obtain financing;
·          our future capital needs;
·          the acceptance and success of our fuel cell products, our ability to develop and commercialize products, and to enter into sales agreements with customers and generate revenue;
·          the success or failure of our research and development programs, marketing, and sales efforts;
·          resolution of outstanding lawsuits and default judgments against us, and our ability to settle disputes and negotiate with creditors for past due amounts; 
·          general market, labor and economic conditions and related uncertainties; 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 Annual Report on Form 10-K may not occur.

For a discussion of these and other factors that may affect our business, results and prospects, see “Item 1A – Risk Factors” beginning on page 6 . Readers are urged to carefully review and consider the various disclosures made by us in this Report and in our other reports previously filed with the Securities and Exchange Commission (the “SEC”), including our periodic reports on Forms 10-K, 10-Q and 8-K, and those described from time to time in our press releases and other communications, which attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

1

Our business model includes the potential to license the manufacturing of our fuel cells or to purchase product directly from the Company. Previously, our business plan contemplated an outsourced manufacturing business model, subcontracting to third parties substantially all of the production and assembly. The shift to emphasize a licensing strategy, while continuing an outsourced manufacturing model, is intended to further leverage existing third-party manufacturing capacity in the semiconductor industry. We believe that our licensing strategy will be particularly attractive to customers who have access to their own computer chip manufacturing capacity, because our products can be manufactured with existing equipment used in the semiconductor industry without significant capital outlays for new equipment.

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.

For the PowerChip™  technology, we are focusing our initial sales strategy on markets requiring anaerobic or low-oxygen content environments, such as underwater, transportation, aerospace and military applications. Our product focus for fiscal 2013 will be directed to our business with the aforementioned US defense supplier and the proposal to the commercial aviation provider, as well as fuel cell range extenders for electric and other recreational vehicles.

For the PowerChip™  and the PowerPlay™  product, we will also continue to pursue adoption in the consumer markets. While the size of the consumer markets is very significant, the adoption cycle can be much longer than the other markets that we are currently focused on. These longer adoption cycles are driven by longer lead times for product development, distribution, supply chain implementation, and consumer specific safety testing. We are in preliminary discussions with a large consumer company for consumer applications, which, if successful, is expected to take 24 to 36 months for product placement on store shelves.

The deployment of our business strategy has been delayed during 2011 and 2012 by the availability of capital and our inability to raise sufficient capital to fund ongoing operations, sales and marketing and production. Assuming we are able to continue to obtain sufficient financing, we intend to focus on production and delivery of products to customers and sales efforts. We intend to continue to develop business relationships and demonstrate our technology to potential leading edge adopters.

Our Patented PowerChip™  Technology

Our PowerChip™  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 Proton Exchange Membrane (“PEM”) based direct methanol fuel cells.

Our PowerPlay™  technology is targeted for low power applications and uses air from the surrounding ambient in its current implementation. We are also exploring the use of the PowerChip™  technology for these low power, consumer oriented applications. The PowerPlay™  product is based on an Anion Exchange Membrane, and uses some processing steps from the PowerChip™  technology to build a cost effective product for consumer oriented applications.  We intend to discuss our PowerPlay™  technology in more detail as we implement patent protection around this technology.

Our PowerChip™  technology was developed to address various issues seen with the incumbent PEM-based direct methanol fuel cells. We believed 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. 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 direct methanol fuel cell 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.

Comparison Between Porous Silicon Fuel Cells and PEM-Based Designs

We believe that the principal advantages of our PowerChip™  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.

·        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. While these acid concentrations are lower than those extant in various widely-used liquid acid batteries, it is nonetheless 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 are focused on the following continuous improvement programs that we believe will 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 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.

Our Industry

The Fuel Cell Market

Remote Area Power Supplies (“RAPS”) Market

We are pursuing the RAPS market, 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. Systems for this market 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 fuels resources. Based on our internal marketing estimates and reports published by the marketing research firm of Frost and Sullivan, this 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 research and development 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. In addition, we believe our fuel cells will provide a more environmentally-friendly solution compared with rechargeable or non-rechargeable batteries solutions as they relate 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 as underwater and unmanned vehicles. Our product could also provide an effective backup power solution.

Market for Industrial Applications and Transportation

We have a letter of interest with a large U.S.-based aerospace company, and we have provided a scope of work with detailed milestones and a commercial proposal for commercial aviation applications to provide fuel cells for ground- and altitude-based operations. Depending on the availability of funding, our plans for fiscal 2013 include progress on various milestones related to this scope of work. If we are successful with our proposal, this could be a multi-year effort to incorporate fuel cells into commercial aviation applications.

We have a commercial proposal into a company that is considering using our technology for underwater, seabed monitoring. Our unique non-air capability, and ability to increase the duration of operation by increasing the size of the fuel tank, and potential weight / volume reduction as compared to competing solutions, provide us some unique differentiation.

We are in discussions with a company in South Africa regarding the use of our fuel cells for off-grid power for lighting and other applications. We believe our highly-manufacturable technology; along with the ability to recharge quickly by replacing the spent fuel with fresh fuel give us a competitive position with this prospective customer.

Market for Consumer Mobile Electronics

Recent trends continue to demonstrate a need for better and longer lasting power solutions to close the “power gap” - the difference between power capacity and 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 for 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 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.

MobiThinking, which aggregates various market research, reported that in 2011, 1.8 billion phones were shipped worldwide, of which 491.5 million were smart phone shipments. These numbers do not include tablets and other forms of consumer products, which can benefit from the PowerPlay™  fuel cell. Of these smart phones, China constituted 22% and the United States 16%, or 78.6 million phones in the US. We believe that the PowerPlay™  product can very cost effectively serve this market by providing instant power for smart phones. The revenue opportunities for the fuel cell, and the recurring revenue stream for the fuel cell cartridges, can be very significant.

While this is a large, and growing, market, we believe that our PowerChip™  and PowerPlay™  fuel cells, when fully developed, will be capable of bridging the mobile electronics “power gap.” Depending on the availability of sufficient funding, we expect to pursue development of products for this market segment.  To this accord, the Company has developed PowerPlay ™; a consumer oriented passive fuel cell recharging solution slated for full release in the Spring of 2013.

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, although most of them are PEM-based. Competitors range from development stage companies to major domestic and international companies. Many of our competitors 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.

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 best known methods and trade secrets;

There are a number of existing U.S. patents covering PEM-based direct methanol fuel cells held by several organizations. We believe our fuel cell design and technology do not conflict with these patents and are independently protectable.

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 fiscal 2013 compared to prior years due to increased product development related to specific customer products and to additional improvements to our technology. For the years ended September 30, 2011 and 2012, our expenses related to research and development were $340,352 and $455,274, respectively.

Employees

As of September 30, 2012, we had 9 employees, including one executive officer, one administrative and seven technical employees.  We also had an additional executive officer who is a part time contractor and not an employee. We continue to use part-time staff composed of former full-time employees, and contractors for various technical and administrative services. We expect to continue to use outside business development consultants, whose compensation will be based on revenue opportunities they create.

History

Our Company was incorporated in the State of Nevada on February 1, 2001 under the name Growth Mergers, Inc. Effective March 9, 2006, we 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 Systems, Inc., a Washington corporation (“Neah Power Washington”). Following the merger, Growth Mergers, Inc. changed its corporate name to Neah Power Systems, Inc. By virtue of this merger, Neah Power Washington became our wholly-owned subsidiary.

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 offering. Our common stock currently trades on the OTC Bulletin Board under the symbol “NPWZ.”

Available Information

We are subject to the information requirements of the Exchange Act and file annual, quarterly and current reports, and other information with the SEC. You may read and copy these reports on our website, www.neahpower.com, and 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.  In addition, we make available, without charge, through our website (www.neahpower.com), electronic copies of our SEC filings, as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish information to, the SEC.

5

We need to raise significant additional capital to continue our business operations.

Our current monthly cash operating expenses are approximately $150,000. We have limited revenues and we expect that our current cash will last us only until December 2012. Accordingly, we need to raise financing to fund our operations. 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, and we may need to seek protection under the bankruptcy laws. Even if such financing is obtained, it may not be on commercially acceptable terms or may otherwise substantially dilute the equity interests of our current shareholders.

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, 2012 and 2011 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, 2012, our recurring net losses, and the cash used in operations for the year ended September 30, 2012. We may be unable to obtain sufficient funds from financing activities or our planned operations to support our continued business. If we cannot continue as a going concern, we may need to substantially revise our business plan, cease operations, sell or seek protection under the bankruptcy laws.

We have incurred net losses each year since our inception and had accumulated losses of approximately $56. 2 million through September 30, 2012. We expect to continue to incur net losses at least through our fiscal year 2013 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 to cover these expenses we will not achieve profitability.

We have entered into an amended lease agreement with our Landlord, which includes a Confession of Judgment, Order of Writ of Restitution which may be acted upon in case of our default.

In November 2011, we entered into an amended lease agreement with our landlord for our principal offices and research plant in Bothell, Washington. In conjunction with that agreement, the landlord agreed to release us from the obligation to pay all past due balances in excess of $195,000. To secure performance of our obligations under the lease and payment of the remaining past due balance, we executed a “Confession of Judgment, Order and Writ of Restitution” in favor of the landlord in the amount of $350,000. The landlord may file this Confession of Judgment with the Court to be enforced in the event we default under the lease. Should we default on the lease, the landlord will have the right to immediately obtain judgment for that amount.

Commercialization, market acceptance, and productization risks

We are transitioning from a developmental organization to a commercialization organization. Neah has traditionally focused on development of the PowerChip technology and has a pilot-scale facility in Bothell to manufacture units. As the Company transitions to commercialization of the technology, there are risks related to the Company’s ability to hire and retain the appropriate talent, ability to scale up the output using internal or outsourced manufacturing, ability of our suppliers to supply the needed quality and quantity of subcomponents, and other raw materials used in our fuel cells and to do it in a cost effective fashion. Fuel cells are a disruptive technology that requires customer and market acceptance.

The fuel cell market is an emerging market, and the adoption by defense, commercial and consumer markets is in the early stages. There is no guarantee of adoption, and further more, cost effectiveness, customer adoption, government regulation and other restrictions could inhibit the adoption of fuel cell technology. As the Company focuses on commercialization of the technology, our quarterly operating results are likely to fluctuate significantly in the future. Fluctuations in our quarterly financial performance may result from research and development costs, increased sales, general and administrative (SG&A) expenses, and the predictability will be very low of sales orders, contracts, and follow business and other commercial opportunities.

6

Intellectual property risks

The intellectual property is the primary asset of the Company. 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 were asserted by third parties against us.

As a result of a government grant, the U.S. government will obtain rights in certain of our technology, including inventions, developed with their funding. In addition, the U.S. 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. The rights of the U.S. government may adversely impact sales or license of our products.

Risks Related to Our Common Stock

We could issue a significant amount of common stock or a series of preferred stock that would dilute and adversely affect our shareholders.

Our amendment to the articles of incorporation authorize the issuance of 1,800,000,000 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 Annual Report on Form 10-K, we have the following designated classes of preferred stock:

·          2,500,000 shares of preferred stock designated as Series A with no shares issued and outstanding;

·          1,000,000 shares of preferred stock designated as Series B Preferred Stock, with 420,700 shares issued and outstanding and which are convertible into an estimated 55,000,000 shares of our common stock as of December 21, 2012 (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). The Series B shares can be converted to Common stock or redeemed in cash, solely at the discretion of the Company; and

·          1,000,000 shares of preferred stock designated as Series C Preferred Stock with no shares issued and outstanding as of December 21, 2012.

Our corporate filings with the Nevada Secretary of State may be subject to challenge.

We implemented our August 2009 authorized share increase from 20 million shares to 80 million shares and six for one 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 six 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 affecting 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 four 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 four for one forward split on August 14, 2009. Taken together, the four for one forward split and .5 for one share dividend resulted in the equivalent of a six for one forward stock split. Our legal counsel reviewed this issue and the foregoing approach was recommended to us as the effective way of resolving this issue. However, 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.

7

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 number of shares available for sale in the market, variations in our actual and anticipated operating results, our failure to timely achieve technical milestones or to commercialize our fuel cell systems, changes in technology or competitive fuel cell solutions, and our failure to meet analysts’ performance expectations.

We have not paid any cash dividends on our common stock and we do not intend to declare and pay any cash dividends on our common stock. 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 some or all of their investment.

A DTC “Chill” on the electronic clearing of trades in our common stock may affect the liquidity of our stock and our ability to raise capital.

On August 28, 2012 the Company was first informed that the Depositary Trust Company (DTC) placed a "chill" on the electronic clearing of trades in our shares which has led to some brokerage firms to be unwilling to accept certificates and/or electronic deposits of of our stock and also some will not accept trades in our shares altogether. We have sought advice from third parties on removal of the DTC chill and have initiated dialogue with the DTC in order to seek resolution, but can make no assurances when and/or if the “chill” we be lifted.

The DTC chill affects the liquidity of our shares that may make it difficult to purchase or sell shares in the open market. It may also have an adverse effect on our ability to raise capital since investors may be unable to resell shares into the market. Our inability to raise capital on terms acceptable to us, if at all, could have a material and adverse effect on our business and operation.

Our common stock is subject to penny stock rules.

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.

In addition, 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 individually, 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.

As of September 30, 2012 we had settled and paid in full the following legal proceedings:

·        Abramowitz v. Neah Power Systems . On January 20, 2010, our former Chief Executive Officer, Paul Abramowitz, initiated a lawsuit against us for breach of his employment contract. On March 7, 2012, we consummated settlement terms with Abramowitz. Under the terms of the Settlement, we agreed to pay Abramowitz an aggregate of $128,000, which was paid in full as of September 30, 2012.

·        Smith and McGovern litigation . In connection with the Abramowitz lawsuit, our former directors, James Smith and Robert McGovern, made a claim for indemnification for their defense of the Abramowitz action. On May 11, 2012, we agreed to pay to Smith and McGovern an aggregate of $67,000, which was paid in full as of September 30, 2012.

·        Senita Investments Ltd . In December 2011, Senita Investments Ltd. filed a lawsuit alleging breach of contract for failing to meet contractual obligations under certain outstanding debentures. In February 2012, we entered into a settlement agreement with Senita, pursuant to which Senita assigned the debentures to another investor, and Senita dismissed its lawsuit against us.

As of September 30, 2012 we remained a party to certain judgments and legal actions related to failure to pay outstanding invoices on Accounts Payable, representing a total liability of approximately $118,000 which is included in our financial statements as Accounts Payable. We continue to work with these vendors to negotiate and settle these debts, based on available cash resources.