UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-Q





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





For
the quarterly period ended.................................................June
30, 2009


or





 ̈   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period
from..........................to.............................





Commission
file number 001-32636





SULPHCO, INC.


(Exact
name of registrant as specified in its charter)





Nevada
                      (State
      or other jurisdiction of incorporation or organization)
                    
                    88-0224817
                      (I.R.S.
      Employer Identification
No.)





4333 W. Sam Houston Pkwy N., Suite
      190
                    Houston, TX
                    (Address
      of principal executive offices)
                  
                  77043
                    (Zip
      Code)




(713)
896-9100


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes þ  No  ̈





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





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.





Large
Accelerated Filer  ̈
Accelerated Filer þ   Non-accelerated
Filer  ̈
Smaller Reporting Company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes o  No
þ





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:





Class
                  
                  Outstanding at July 31,
  2009Common
      Stock, par value $.001
                  
                  89,944,029
      shares









SulphCo,
Inc.





PagePart
      I – Financial InformationItem
      1. Financial StatementsCondensed Balance Sheets (unaudited)
                
                3Condensed Statements of Operations (unaudited)
                
                4Condensed Statements of Cash Flows (unaudited)
                
                5Notes to Condensed Financial Statements
                
                6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                14Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                
                21Item
      4. Controls and Procedures
                
                21Part
      II – Other InformationItem
      1. Legal Proceedings
                
                22Item 4.  Submission of Matters to a Vote of Security
      Holders
                
                22Item
      6. Exhibits
                
                23




2




PART I. FINANCIAL
INFORMATION





Item
1.  Financial Statements.





SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED BALANCE
SHEETS


June 30,
2009 and December 31, 2008


(unaudited)




June 30,
                                                                                2009
                                                                              
                                                                              
                                                                              December 31,
                                                                                2008ASSETSCurrent AssetsCash
      and cash equivalents
                                                                              
                                                                              $
                                                                              10,931,967
                                                                              
                                                                              
                                                                              $
                                                                              17,567,848Prepaid
      expenses and other
                                                                              
                                                                              
                                                                              409,047
                                                                              
                                                                              
                                                                              
                                                                              546,239Total
      current assets
                                                                              
                                                                              
                                                                              11,341,014
                                                                              
                                                                              
                                                                              
                                                                              18,114,087Property and Equipment(net ofaccumulated
      depreciation of $1,120,822and
      $1,066,096, respectively)
                                                                              
                                                                              
                                                                              275,720
                                                                              
                                                                              
                                                                              
                                                                              294,522Other AssetsIntangible
      assets (net of accumulated amortization of $201,400and
      $159,971, respectively)
                                                                              
                                                                              
                                                                              985,174
                                                                              
                                                                              
                                                                              
                                                                              993,829Other
                                                                              
                                                                              
                                                                              30,785
                                                                              
                                                                              
                                                                              
                                                                              254,445Total
      other assets
                                                                              
                                                                              
                                                                              1,015,959
                                                                              
                                                                              
                                                                              
                                                                              1,248,274Total
      assets
                                                                              
                                                                              $
                                                                              12,632,693
                                                                              
                                                                              
                                                                              $
                                                                              19,656,883LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts
      payable and accrued expenses
                                                                              
                                                                              $
                                                                              797,586
                                                                              
                                                                              
                                                                              $
                                                                              1,823,033Refundable
      deposit
                                                                              
                                                                              
                                                                              550,000
                                                                              
                                                                              
                                                                              
                                                                              550,000Late
      registration penalty (including accrued interest)
                                                                              
                                                                              
                                                                              371,034
                                                                              
                                                                              
                                                                              
                                                                              624,811Convertible
      notes payable, net of discount
                                                                              
                                                                              
                                                                              4,343,825
                                                                              
                                                                              
                                                                              
                                                                              3,824,282Total
      current liabilities
                                                                              
                                                                              
                                                                              6,062,445
                                                                              
                                                                              
                                                                              
                                                                              6,822,126Long-term Liabilities
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -Total
      liabilities
                                                                              
                                                                              
                                                                              6,062,445
                                                                              
                                                                              
                                                                              
                                                                              6,822,126Commitments and Contingencies (see Note
      5)Stockholders' EquityPreferred
      stock: 10,000,000 shares authorized ($0.001 par value); none
      issued
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -Common
      stock: 150,000,000 shares authorized ($0.001 par value);89,944,029
      and 89,919,029 shares issued and outstanding, respectively
                                                                              
                                                                              
                                                                              89,944
                                                                              
                                                                              
                                                                              
                                                                              89,919Additional
      paid-in capital
                                                                              
                                                                              
                                                                              159,019,933
                                                                              
                                                                              
                                                                              
                                                                              157,992,101Deficit
      accumulated during the development stage
                                                                              
                                                                              
                                                                              (152,539,629
                                                                              )
                                                                              
                                                                              
                                                                              (145,247,263
                                                                              )Total
      stockholders' equity
                                                                              
                                                                              
                                                                              6,570,248
                                                                              
                                                                              
                                                                              
                                                                              12,834,757Total
      liabilities and stockholders' equity
                                                                              
                                                                              $
                                                                              12,632,693
                                                                              
                                                                              
                                                                              $
                                                                              19,656,883





The
Accompanying Notes are an Integral Part of the Financial
Statements.




3




SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED STATEMENTS OF
OPERATIONS


For the
Three and Six-Month Periods ended June 30, 2009 and 2008


and the
Period from Inception to June 30, 2009


(unaudited)





Three
      Months Ended
                                                            
                                                            
                                                            Six
      Months EndedJune
      30,
                                                            
                                                            
                                                            June
      30,
                                                            
                                                            
                                                            Inception
      to2009
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            2009
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            June
      30, 2009RevenueSales
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            42,967ExpensesSelling,
      general, and administrative expenses
                                                            
                                                            
                                                            (1,461,049
                                                            )
                                                            
                                                            
                                                            (3,597,938
                                                            )
                                                            
                                                            
                                                            (4,959,302
                                                            )
                                                            
                                                            
                                                            (9,227,306
                                                            )
                                                            
                                                            
                                                            (72,896,444
                                                            )Research
      and development expenses:Fujairah
      test facility
                                                            
                                                            
                                                            (54,348
                                                            )
                                                            
                                                            
                                                            (93,988
                                                            )
                                                            
                                                            
                                                            (162,932
                                                            )
                                                            
                                                            
                                                            (132,004
                                                            )
                                                            
                                                            
                                                            (23,695,474
                                                            )Other
                                                            
                                                            
                                                            (893,753
                                                            )
                                                            
                                                            
                                                            (946,106
                                                            )
                                                            
                                                            
                                                            (1,626,216
                                                            )
                                                            
                                                            
                                                            (1,882,863
                                                            )
                                                            
                                                            
                                                            (18,469,350
                                                            )Loss
      on joint venture
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (136,095
                                                            )Loss
      on disposal of asset
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (221,711
                                                            )Loss
      on impairment of asset
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (233,900
                                                            )Total
      operating expenses
                                                            
                                                            
                                                            (2,409,150
                                                            )
                                                            
                                                            
                                                            (4,638,032
                                                            )
                                                            
                                                            
                                                            (6,748,450
                                                            )
                                                            
                                                            
                                                            (11,242,173
                                                            )
                                                            
                                                            
                                                            (115,652,974
                                                            )Loss
      from operations
                                                            
                                                            
                                                            (2,409,150
                                                            )
                                                            
                                                            
                                                            (4,638,032
                                                            )
                                                            
                                                            
                                                            (6,748,450
                                                            )
                                                            
                                                            
                                                            (11,242,173
                                                            )
                                                            
                                                            
                                                            (115,610,007
                                                            )Other income (expense)Interest
      income
                                                            
                                                            
                                                            6,978
                                                            
                                                            
                                                            
                                                            21,598
                                                            
                                                            
                                                            
                                                            18,245
                                                            
                                                            
                                                            
                                                            62,569
                                                            
                                                            
                                                            
                                                            1,174,960Interest
      expense
                                                            
                                                            
                                                            (301,589
                                                            )
                                                            
                                                            
                                                            (268,460
                                                            )
                                                            
                                                            
                                                            (562,161
                                                            )
                                                            
                                                            
                                                            (579,075
                                                            )
                                                            
                                                            
                                                            (8,480,879
                                                            )Other
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (766,868
                                                            )Net loss
                                                            
                                                            
                                                            (2,703,761
                                                            )
                                                            
                                                            
                                                            (4,884,894
                                                            )
                                                            
                                                            
                                                            (7,292,366
                                                            )
                                                            
                                                            
                                                            (11,758,679
                                                            )
                                                            
                                                            
                                                            (123,682,794
                                                            )Deemed
      Dividend
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (4,087,887
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (4,087,887
                                                            )
                                                            
                                                            
                                                            (28,856,835
                                                            )Net
      loss attributable to common stockholders
                                                            
                                                            $
                                                            (2,703,761
                                                            )
                                                            
                                                            $
                                                            (8,972,781
                                                            )
                                                            
                                                            $
                                                            (7,292,366
                                                            )
                                                            
                                                            $
                                                            (15,846,566
                                                            )
                                                            
                                                            $
                                                            (152,539,629
                                                            )Loss per share - basic and
      diluted
                                                            
                                                            $
                                                            (0.03
                                                            )
                                                            
                                                            $
                                                            (0.11
                                                            )
                                                            
                                                            $
                                                            (0.08
                                                            )
                                                            
                                                            $
                                                            (0.19
                                                            )Weighted
      average shares - basic and diluted
                                                            
                                                            
                                                            89,944,029
                                                            
                                                            
                                                            
                                                            82,887,982
                                                            
                                                            
                                                            
                                                            89,939,471
                                                            
                                                            
                                                            
                                                            81,868,371




The
Accompanying Notes are an Integral Part of the Financial
Statements.




4




SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED STATEMENTS OF CASH
FLOWS


For the
Six-Month Periods Ended June 30, 2009 and 2008


and
for the Period from Inception to June 30, 2009


(unaudited)


Six
      months EndedJune
      30,
                                                      
                                                      
                                                      Inception
      to2009
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      June
      30, 2009Cash Flows From Operating
      ActivitiesNet
      loss
                                                      
                                                      $
                                                      (7,292,366
                                                      )
                                                      
                                                      $
                                                      (11,758,679
                                                      )
                                                      
                                                      $
                                                      (123,682,794
                                                      )Adjustments
      to reconcile net loss to cash usedin
      operating activities:Depreciation
      and amortization
                                                      
                                                      
                                                      117,228
                                                      
                                                      
                                                      
                                                      113,625
                                                      
                                                      
                                                      
                                                      1,525,073Accretion
      of convertible notes payable discount
                                                      
                                                      
                                                      519,543
                                                      
                                                      
                                                      
                                                      413,074
                                                      
                                                      
                                                      
                                                      6,400,331Stock-based
      compensation
                                                      
                                                      
                                                      1,027,857
                                                      
                                                      
                                                      
                                                      3,289,631
                                                      
                                                      
                                                      
                                                      20,738,592Other
                                                      
                                                      
                                                      875
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,359,181Changes
      in:Prepaid
      expenses and other
                                                      
                                                      
                                                      360,852
                                                      
                                                      
                                                      
                                                      (173,586
                                                      )
                                                      
                                                      
                                                      (439,832
                                                      )Accounts
      payable and accrued expenses
                                                      
                                                      
                                                      (1,025,447
                                                      )
                                                      
                                                      
                                                      1,071,002
                                                      
                                                      
                                                      
                                                      797,586Refundable
      deposit
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      550,000Late  registration
      penalty (including accrued interest)
                                                      
                                                      
                                                      (253,777
                                                      )
                                                      
                                                      
                                                      68,422
                                                      
                                                      
                                                      
                                                      371,034Net
      cash used in operating activities
                                                      
                                                      
                                                      (6,545,235
                                                      )
                                                      
                                                      
                                                      (6,976,511
                                                      )
                                                      
                                                      
                                                      (92,380,829
                                                      )Cash Flows From Investing
      ActivitiesPurchase
      of property and equipment
                                                      
                                                      
                                                      (57,872
                                                      )
                                                      
                                                      
                                                      (39,304
                                                      )
                                                      
                                                      
                                                      (1,451,205
                                                      )Investments
      in joint ventures and subsidiaries
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (361,261
                                                      )Investments
      in intangible assets
                                                      
                                                      
                                                      (32,774
                                                      )
                                                      
                                                      
                                                      (107,958
                                                      )
                                                      
                                                      
                                                      (1,202,415
                                                      )Net
      cash used in investing activities
                                                      
                                                      
                                                      (90,646
                                                      )
                                                      
                                                      
                                                      (147,262
                                                      )
                                                      
                                                      
                                                      (3,014,881
                                                      )Cash Flows from Financing
      ActivitiesProceeds
      from issuance of stock, net of offering costs
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      25,506,268
                                                      
                                                      
                                                      
                                                      99,409,777Proceeds
      from issuance of related party notes payable
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      11,000,000Proceeds
      from issuance of line of credit
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      750,000Principal
      payments on related party notes payable
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (5,441,285
                                                      )Decrease
      in related party receivable
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,359,185Principal
      payments on line of credit
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (750,000
                                                      )Net
      cash provided by financing activities
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      25,506,268
                                                      
                                                      
                                                      
                                                      106,327,677Net
      change in cash and cash equivalents
                                                      
                                                      
                                                      (6,635,881
                                                      )
                                                      
                                                      
                                                      18,382,495
                                                      
                                                      
                                                      
                                                      10,931,967Cash
      and cash equivalents at beginning of period
                                                      
                                                      
                                                      17,567,848
                                                      
                                                      
                                                      
                                                      7,430,138Cash
      and cash equivalents at end of period
                                                      
                                                      $
                                                      10,931,967
                                                      
                                                      
                                                      $
                                                      25,812,633
                                                      
                                                      
                                                      $
                                                      10,931,967Supplemental information and non-cash
      transactionsCash paid for
      interest
                                                      
                                                      $
                                                      97,596
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      1,483,029Cash
      paid for income taxes
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -The Company had the following
      non-cash investing and financing activities:Extinguishment
      of related party note payable
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      5,000,000Extinguishment
      of convertible notes payable
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      4,680,044Issuance
      of stock for convertible notes payable
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      319,956Non-cash
      deemed dividend
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      4,087,887
                                                      
                                                      
                                                      
                                                      28,856,835





The
Accompanying Notes are an Integral Part of the Financial
Statements.




5


SULPHCO,
INC.
 (A
Company in the Development Stage)
 NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS
 June 30,
2009
 (unaudited)
 
 1.
              Basis of
      Presentation
  The
accompanying unaudited condensed financial statements of SulphCo, Inc., (the
“Company” or “SulphCo”) were prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial statements, pursuant to the
rules and regulations of the Securities and Exchange
Commission.  Accordingly, they do not include all of the information
and footnotes required by GAAP for complete annual financial
statements.
 
 In the
opinion of management, the unaudited interim financial statements reflect all
normal and recurring adjustments necessary for a fair presentation of the
results of operations, financial position and cash flows for the interim
periods. The results of operations for any interim period are not necessarily
indicative of the results for a full year.  The accompanying condensed
financial statements are unaudited and should be read in conjunction with the
Company’s most recent annual report on Form 10-K.
 
 Use
of Estimates
  The preparation
of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements, and the related reported amounts of revenues and expenses
during the reporting period. The significant estimates made by management in the
accompanying financial statements include allowances for doubtful accounts,
determination of income taxes, contingent liabilities, useful lives used in
depreciation and amortization and the assumptions utilized to compute
stock-based compensation. Actual results could differ from those
estimates.
 
 Fair
Value of Financial Instruments
  The
carrying amounts of financial instruments held by the Company, which include
cash, accounts payable, and accrued liabilities, approximate fair values due to
their short maturity.  The carrying value of the convertible notes
payable reasonably approximates its fair value as it has a variable interest
rate that resets on a quarterly basis.
 
 2.
              Convertible Notes
      Payable
  At June
30, 2009 and December 31, 2008, the Company had outstanding convertible notes
payable of approximately $4.7 million (the “Convertible Notes
Payable”).  The Convertible Notes Payable are presented net of the
unamortized discount related to a beneficial conversion feature present in the
terms of the note.  The discount is being accreted into the statement
of operations as incremental interest expense using the effective interest
method through July 31, 2009, after which time the note holders have the ability
to require payment of any outstanding principal and accrued interest by opting
to accelerate the maturity of the Convertible Notes Payable.
  6
 
 As of
June 30, 2009, the net balance of the Note Payable is:
 
 June 30, 2009Assumed
      proceeds from modified Convertible Notes Payable
                          
                          $
                          4,680,044Less:Discount
      related to beneficial conversion feature
                          
                          
                          (1,736,550
                          )Net
      Convertible Notes Payable balance
                          
                          
                          2,943,494Add:Discount
      accretion through June 30, 2009
                          
                          
                          1,400,331Net
      Convertible Notes Payable balance at June 30, 2009
                          
                          $
                          4,343,825
  The
Convertible Notes Payable represent an unsecured obligation of the
Company.
 
 Interest
on the Convertible Notes Payable is adjusted quarterly based on a London
Inter-Bank Offering Rate (“LIBOR”) plus 0.5% per annum, with interest only
payments due on December 31st of each
year during the remaining term of the Convertible Notes Payable that extends
through December 31, 2011 when the notes mature (unless maturity is otherwise
accelerated by the note holders to any date after July 31, 2009). For the
three and six-month periods ended June 30, 2009 and 2008, the Company recognized
total interest expense of approximately $0.3 million, $0.3 million, $0.6 million
and $0.6 million, respectively.  For the three and six-month periods
ended June 30, 2009 and 2008, total interest expense recognized by the Company
included incremental interest expense associated with discount accretion of
approximately $0.3 million, $0.2 million, $0.5 million and $0.4 million,
respectively. On July 14, 2009, the Company gave notice to the holders of
its Convertible Notes Payable of its intention to prepay in full the outstanding
Convertible Notes Payable with a total principal balance of approximately $4.7
million.  On July 29, 2009, the Company paid the outstanding principal
balance and all accrued but unpaid interest thereon.
 
 3.
              Loss Per
      Share
  The
computations of basic and diluted loss per common share are based upon the
weighted average number of common shares outstanding and potentially dilutive
securities.  Potentially dilutive securities include options and
warrants to acquire the Company’s common stock and convertible
debt.  As of June 30, 2009, there were approximately 12.3 million
shares issuable in connection with these potentially dilutive
securities.  These potentially dilutive securities were disregarded in
the computations of diluted net loss per share for the three and six-month
periods ended June 30, 2009 and 2008, because inclusion of such potentially
dilutive securities would have been anti-dilutive.
 
 4.
              Stock Plans and
      Stock-Based Compensation
  In
accordance with the provisions of SFAS 123R, the Company records stock-based
compensation expense for all share-based payment arrangements, including stock
options, warrants and restricted stock grants.  The fair value of each
option award granted is estimated on the date of grant using a Black-Scholes
option valuation model. Expected volatilities are based on the historical
volatility of the Company’s stock. The expected term of options granted to
employees is derived utilizing the simplified method referred to in SEC’s Staff
Accounting Bulletin No. 107, “Share-Based Payment” (“SAB No. 107”) which
represents the period of time that options granted are expected to be
outstanding. The Company utilizes the simplified method because it does not
have historical exercise data which is sufficient to provide a reasonable basis
to estimate the expected term. The Company expects to continue utilizing the
simplified method to determine the expected term until such time as it
accumulates historical exercise data that will provide a sufficient basis for
the Company to begin estimating the expected term for option
exercises.  The risk-free rate for periods within the contractual life
of the option is based on the U.S. Treasury yield curve at the time of
grant.
  7
  During
the three and six-month periods ended June 30, 2009 and 2008, the Company
granted 968,541, 758,500, 1,418,541, and 1,736,034 stock options, respectively,
to its directors, officers and employees.  The stock-based
compensation expense for these stock options for the three and six-month periods
ended June 30, 2009 and 2008 was approximately $0.2 million, $0.5 million, $1.0
million and $3.3 million, respectively. The fair value of these stock options
was estimated using the Black-Scholes options pricing model with the following
assumptions:
 
 Six
      Months Ended June 30, 2009 and 2008
                                                                              
                                                                              2009
                                                                              
                                                                              
                                                                              2008Valuation
      Assumptions:Expected
      Term (years)
                                                                              
                                                                              5.0
      - 6.5
                                                                              
                                                                              
                                                                              1.5
      - 6.5Expected
      Volatility
                                                                              
                                                                              126%
      - 143%
                                                                              
                                                                              
                                                                              93%
      - 151%Expected
      Dividend Rate
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              -Risk
      Free Interest Rate
                                                                              
                                                                              1.45%
      - 2.75%
                                                                              
                                                                              
                                                                              1.6%
      - 3.57%Grant
      Date Fair Value
                                                                              
                                                                              $
      0.52
      - $0.99
                                                                              
                                                                              
                                                                              $1.60
      – $3.69Three
      Months Ended June 30, 2009 and 2008
                                                                              
                                                                              2009
                                                                              
                                                                              
                                                                              2008Valuation
      Assumptions:Expected
      Term (years)
                                                                              
                                                                              5.0
      - 5.5
                                                                              
                                                                              
                                                                              1.5
      – 6.5Expected
      Volatility
                                                                              
                                                                              126%
      -138%
                                                                              
                                                                              
                                                                              93%
      - 151%Expected
      Dividend Rate
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              -Risk
      Free Interest Rate
                                                                              
                                                                              1.87%
      - 2.75%
                                                                              
                                                                              
                                                                              2.22%
      - 3.57%Grant
      Date Fair Value
                                                                              
                                                                              $
      0.71
      - $0.99
                                                                              
                                                                              
                                                                              $1.60
      - $3.48
 
 5.
              Commitments and
      Contingencies
 
 Concentrations of Credit
Risk
 
 Substantially
all of the Company’s cash and cash equivalents are maintained with two major
U.S. financial institutions.  The majority of the Company’s cash
equivalents are invested in a money market fund that invests primarily in U.S.
Treasury securities and repurchase agreements relating to those instruments.
Investments in this fund are not insured by or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.  Generally,
these deposits may be redeemed upon demand and therefore, management believes
that they bear minimal risks.  The Company has not experienced any
losses in such accounts, nor does management believe it is exposed to any
significant credit risk.
  8
  Litigation
Contingencies
 
 There are
various claims and lawsuits pending against the Company arising in the ordinary
course of the Company’s business. Although the amount of liability, if any,
against the Company is not reasonably estimable, the Company is of the opinion
that these claims and lawsuits will not materially affect the Company’s
financial position. We have and will continue to devote significant resources to
our defense as necessary.
 
 The
following paragraphs set forth the status of litigation as of June 30,
2009.
 
 Clean Fuels
Litigation
 In Clean
Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc. and SulphCo,
Inc., Case No. CV05-01346 (Second Judicial District, County of Washoe) the
Company, Rudolf W. Gunnerman, Peter Gunnerman, and RWG, Inc., were named as
defendants in a legal action commenced in Reno, Nevada (the “Clean Fuels
Litigation”).  The plaintiff, Clean Fuels Technology later assigned its
claims in the lawsuit to EcoEnergy Solutions, Inc., which entity was substituted
as the plaintiff.  In general, the plaintiff’s alleged claims relate to
ownership of the “sulfur removal technology” originally developed by Professor
Teh Fu Yen and Rudolf Gunnerman with financial assistance provided by Rudolf.
Gunnerman, and subsequently assigned to the Company.  On September 14,
2007, after a jury trial and extensive post-trial proceedings, the trial court
entered final judgment against the plaintiff EcoEnergy Solutions, Inc. on all of
its claims.  As per the final judgment, all of the plaintiff’s claims were
resolved against the plaintiff and were dismissed with prejudice.  In
addition, the trial court entered judgment in favor of the Company and against
the plaintiff for reimbursement of legal fees and costs of approximately
$124,000, with post-judgment interest.  The plaintiff appealed the judgment
on October 5, 2007. On July 31, 2009, The Supreme Court of the State of
Nevada issued an Order of Affirmance finding that the plaintiff’s arguments were
without merit and affirmed the District Court’s Judgment in favor of the
Company. No asset or liability has been accrued relative to this
action.
 
 Talisman
Litigation
 In
Talisman Capital Talon Fund, Ltd. v. Rudolf W. Gunnerman and SulphCo, Inc., Case
No. 05-CV-N-0354-BES-RAM, the Company and Rudolf W. Gunnerman were named as
defendants in a legal action commenced in federal court in Reno, Nevada. The
plaintiff’s claims relate to the Company's ownership and rights to develop its
"sulfur removal technology." The Company regards these claims as without merit.
Discovery in this case formally concluded on May 24, 2006. On September 28,
2007, the court granted, in part, the defendants' motion for summary judgment
and dismissed the plaintiff's claims for bad faith breach of contract and unjust
enrichment that had been asserted against Rudolf Gunnerman. The court denied the
plaintiff's motion for partial summary judgment. The trial for this matter
commenced on December 1, 2008 and continued through December 12,
2008.  The court recessed the trial on December 12, 2008 prior to
hearing closing arguments.  Post trial briefs were filed with the
court on February 20, 2009, and closing arguments were heard on March 3, 2009.
On May 14, 2009, the court entered a judgment in favor of the Company and
dismissed all claims with prejudice. The plaintiff appealed the judgment on June
11, 2009. No liability has been accrued relative to this action.
 
 Hendrickson Derivative
Litigation
 On
January 26, 2007, Thomas Hendrickson filed a shareholder derivative claim
against certain current and former officers and directors of the Company in the
Second Judicial District Court of the State of Nevada, in and for the County of
Washoe. The case is known as Thomas Hendrickson, Derivatively on Behalf of
SulphCo, Inc. v. Rudolf W. Gunnerman, Peter W. Gunnerman, Loren J. Kalmen,
Richard L. Masica, Robert Henri Charles Van Maasdijk, Hannes Farnleitner,
Michael T. Heffner, Edward E. Urquhart, Lawrence G. Schafran, Alan L. Austin,
Jr., Raad Alkadiri and Christoph Henkel, Case No. CV07-00187, Dept. No.
B6.  The complaint alleges, among other things, that the defendants
breached their fiduciary duty to the Company by failing to act in good faith and
diligence in the administration of the affairs of the Company and in the use and
preservation of its property and assets, including the Company’s credibility and
reputation.  On April 12, 2007 the Company and individual defendants
filed a motion to dismiss, based upon the plaintiff’s failure to make a demand
upon the Board and failure to state a claim.  On July 3, 2007, the
parties filed a Stipulation of Voluntary Dismissal Without Prejudice (the
“Stipulation”).  The Stipulation provides that in
connection with the dismissal of this action each of the parties will bear their
own costs and attorney fees and thereby waive their rights, if any, to seek
costs and attorney fees from the opposing party.  Further, neither the
plaintiff nor his counsel has received any consideration for the dismissal of
this action.
  9
  In
September of 2007, the Company’s Board of Directors received a demand letter
(the “Hendrickson Demand Letter”) from Mr. Hendrickson’s attorney reasserting
the allegations contained in the original derivative claim and requesting that
the Board of Directors conduct an investigation of these matters in response
thereto.  In response to the Hendrickson Demand Letter, the Company’s
Board of Directors formed a committee comprised of three independent directors
(the “Committee”) to evaluate the Hendrickson Demand Letter and to determine
what action, if any, should be taken. The Committee retained independent counsel
to advise it.
 
 On
September 2, 2008, the Company’s Board of Directors held a special meeting for
the purpose of hearing and considering the Committee’s report and
recommendation.  At that meeting, the Committee reported on its
investigation and presented the Committee’s unanimous recommendation that no
actions be brought by the Company based upon the matters identified in the
Hendrickson Demand Letter.  The Board of Directors unanimously adopted
the Committee’s recommendation. SulphCo communicated this conclusion to Mr.
Hendrickson’s counsel in mid-September 2008.
 
 On
November 6, 2008, Mr. Hendrickson re-filed the shareholder derivative claim in
the 127th Judicial District Court of Harris County, Texas. The case is known as
Thomas Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf W.
Gunnerman, Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert Henri
Charles Van Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E.
Urquhart, Lawrence G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
Henkel, (No. 200866743).  The Company has responded to this litigation
by moving to dismiss and the individual defendants have responded by moving to
dismiss for lack of personal jurisdiction.  No relief is sought
against the Company and no liability has been accrued relative to this
action.
 
 Nevada Heat Treating
Litigation
 On
November 29, 2007, Nevada Heat Treating, Inc. (“NHT”) filed a lawsuit against
the Company, Nevada Heat Treating, Inc., d/b/a California Brazing, in the Second
Judicial District Court of the State of Nevada, in and for the County of Washoe,
Case No. CV07-02729.  In its complaint, NHT alleges trade secret
misappropriation and breach of contract relative to certain information alleged
to have been disclosed to the Company beginning in late 2006 and continuing
through early 2007 pursuant to a consulting engagement with
NHT.  Among other things, NHT is asserting that certain information,
alleged to have been disclosed to the Company during the term of the consulting
engagement, is the subject of a non-disclosure/confidentiality agreement
executed at the inception of the consulting engagement.  NHT is
contending that this certain information represents a trade secret that should
no longer be available for use by the Company following the termination of the
consulting engagement with NHT in the spring of 2007.  In connection
with filing this action, NHT also filed a motion for preliminary injunction
against the Company seeking to enjoin it from using certain information until
the matter can be resolved through the courts. Hearings on the preliminary
injunction motion took place on March 24 and 25, 2008, and May 8,
2008.  On May 8, 2008, the court ruled from the bench, at the
conclusion of the hearing on the motion for preliminary
injunction.  The court denied the plaintiff’s motion on grounds that
the plaintiff had failed to demonstrate a probability of success on the merits
of its claims.  On November 18, 2008, the Company accepted a formal
settlement offer from NHT wherein it was agreed that NHT would dismiss its
claims and each party would bear its own costs and fees, but that NHT would
preserve any claims that it might have in the future relating to its patent
application.  On March 2, 2009, the Company filed notice with the Court
that it had accepted the formal settlement offer.  On April 1, 2009, the
Court entered a judgment consistent with the terms of the formal settlement
offer and the matter has been concluded.  No liability was accrued relative
to this action.
  10
  Securities and Exchange
Commission Subpoena
 On
February 25, 2008, the Company received a subpoena from the Denver office of the
Securities and Exchange Commission (the “SEC”).  The subpoena
formalizes virtually identical requests the Company received in May, June and
August 2007 to which the Company responded to the request for voluntary
production of documents and information, including financial, corporate, and
accounting information related to the following subject
matters:  Fujairah Oil Technology LLC, the Company’s restatements for
the first three quarterly periods of 2006 and the non-cash deemed dividend for
the quarter ended March 31, 2007, and information and documents related to
certain members of former management, none of whom have been employed by the
Company since March 2007.  On June 15, 2009, the Company was advised
by the SEC that this investigation has been completed as to SulphCo, against
which the SEC does not intend to recommend any enforcement action.
 
 6.
              Related Party
      Transactions
  During
the three and six-month periods ended June 30, 2009 and 2008, the Company made
payments of approximately $0.3 million, $0.2 million, $0.6 million and $0.5
million, respectively, to Märkisches Werk Halver, GmbH (“MWH”) in connection
with ongoing probe development activities under an existing
agreement.  Edward E. Urquhart, Chief Executive Officer of MWH since
July 2003, was a member of the Company’s Board of Directors from August 2006 to
April 2009.
 
 The
Company had a consulting contract with Vincent van Maasdijk, the son of Robert
van Maasdijk who has been a member of the Company’s Board of Directors since
April 2005 and Chairman of the Board from January 2007 to April 2009, to serve
as a project manager. As a project manager, Mr. van Maasdijk’s responsibilities
included overseeing the installation and testing of commercial SonocrackingTM
units at various locations assigned by the Company.  Under the terms
of the contract, Mr. van Maasdijk received a monthly payment of approximately
$7,000 plus reimbursement of all reasonable out-of-pocket expenses, in
accordance with the Company’s applicable policies and procedures.  For
the three and six-month periods ended June 30, 2009 and 2008, the total expense
recognized by the Company under this arrangement was approximately $8,000,
$30,000, $30,000 and $40,000, respectively. In April of 2009, both parties
mutually agreed not to renew the contract.
 
 7.
              New Accounting
      Pronouncements
 
 Recently
Adopted Accounting Standards
 
 In June
2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force
(“EITF”) Issue No. 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities (“FSP EITF
03-6-1”). FSP EITF 03-6-1 requires that unvested stock-based compensation awards
that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) should be classified as participating securities and
should be included in the computation of earnings per share pursuant to the
two-class method as described by SFAS No. 128, Earnings per Share. The
provisions of FSP EITF 03-6-1 are required for fiscal years beginning after
December 15, 2008. The adoption of FSP EITF 03-6-1 in the first quarter of
2009 did not have a material impact on the Company’s computation of earnings per
share.
  11
  In June
2008, the FASB issued EITF Issue No. 07-5, Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF
07-5”). EITF 07-5 addresses the determination of whether provisions that
introduce adjustment features (including contingent adjustment features) would
prevent treating a derivative contract or an embedded derivative on a company’s
own stock as indexed solely to the company’s stock. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The adoption of EITF 07-5
in the first quarter of 2009 did not have a material impact on the Company’s
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141R, Business Combinations
(revised 2007) (“SFAS 141R”). SFAS 141R replaces SFAS 141 and requires the
acquirer of a business to recognize and measure the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree at fair value. SFAS 141R also requires transaction costs related to the
business combination to be expensed as incurred. SFAS 141R is effective for
business combinations for which the acquisition date is on or after fiscal years
beginning after December 15, 2008. The adoption of SFAS 141R will not have
a material impact on the Company’s financial statements unless the Company makes
an acquisition of a business.
 
 In April
2009, the FASB issued three concurrent Staff Positions, which included: (i)
Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,” or FSP FAS 115-2, (ii) Staff Position No. FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for an
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly,” or FSP FAS 157-4, and (iii) Staff Position No. FAS 107-1
and APB 28-1, “Interim Disclosures About Fair Value of Financial Instruments, or
FSP FAS 107-1. All three of these FASB Staff Positions are effective for periods
ending after June 15, 2009, with earlier adoption permitted for periods ending
after March 15, 2009. The adoption of FSP FAS 115-2, FSP FAS 157-4 and FSP FAS
107-1 is required to occur concurrently. The adoption of all three of these
standards in the second quarter of 2009 did not have a material impact on the
Company’s financial statements.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. SFAS 165 is effective for interim or annual
financial periods ending after June 15, 2009. The adoption of SFAS 165 in the
second quarter of 2009 did not materially impact the Company’s financial
statements.
 
 Recently
Issued Accounting Standards
 
 In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles – a replacement of
FASB Statement No. 162” (“SFAS 168”). SFAS 168 provides for the FASB Accounting
Standards Codification (the “Codification”) to become the single official source
of authoritative GAAP. The Codification did not change GAAP but reorganizes the
literature. SFAS 168 is effective for interim and annual periods ending after
September 15, 2009.
  12
  8.
              Subsequent
      Events
  On July
14, 2009, the Company gave notice to the holders of its Convertible Notes
Payable of its intention to prepay in full the outstanding Convertible Notes
Payable with a total principal balance of approximately $4.7 million. On July
29, 2009, the Company paid the outstanding principal balance and all accrued but
unpaid interest thereon.
 
 On July
31, 2009, The Supreme Court of the State of Nevada issued an Order of Affirmance
in the Clean Fuels Litigation, finding that the plaintiff’s arguments were
without merit and affirmed the District Court’s Judgment in favor of the
Company. No asset or liability was accrued relative to this action at June 30,
2009. See “Commitments and Contingencies” above for complete details of the
Clean Fuels Litigation.
 
 The
Company evaluated subsequent events through the date the accompanying financial
statements were issued, which was August 4, 2009
  13
  Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
 
 Results of
Operations
  As a development stage company, we have
not generated any material revenues since we commenced our current line of
business in 1999.  When we emerge from the development stage, our
reporting will change to reflect costs of sales against revenues.
 
 Research
and Development Activities Update
 
 SulphCo’s SonocrackingTM technology
employs high power ultrasound to accelerate oxidative desulfurization (“ODS”),
an attractive alternative to hydrodesulfurization (“HDS”), the currently
practiced method of desulfurization.  In order to meet stringent legal
limits, HDS suffers from high hydrogen and energy consumption since severe
operating conditions have to be employed to treat the most refractory sulfur
compounds. In contrast, the ultrasound-assisted ODS process allows comparably
mild reaction conditions such as ambient temperatures and mild
pressures.  Ultrasound accelerates chemical reactions by inducing
cavitation, which results in strong mixing, high shear and mass transport.
SulphCo’s ultrasound assisted ODS SonocrackingTM technology is a potentially more
cost effective and energy efficient alternative to HDS.  The lower
capital cost and small equipment footprint suggest a multitude of potential
placement options in a refinery setting.  The most attractive
deployment of the SonocrackingTM technology exploits the advantages of both
processes due to the fact that ODS technology works efficiently on the most
refractory sulfur compounds.  The following is an update of the
Company’s more significant research and development activities conducted during
2009.
  Ultrasound Probe, Reactor
and Control Systems
 During the first half of 2009, SulphCo
and MWH developed a simplified control panel system more conducive to continuous
commercial operation.  It incorporates an operator interface to the
ultrasound system with real-time process data updating and automatic probe
control.  It is intended to become the primary interface for operators
in a commercial setting, with the ability to integrate into existing plant
control systems.  Several enhancements have been made to the
transducer, probe and reactor assemblies on both laboratory and commercial scale
systems including an updated amplitude measurement device as well as an improved
probe mounting assembly.  The new ultrasound probe mounting assembly
simplifies field replacement of probes during commercial
operation.  Our current state-of-the-art ultrasound probe, reactor and
control system technology is well suited for laboratory, pilot and commercial
use and only minor modifications are expected for the future.
  Construction of Mobile
Units
 In the
second quarter of 2009, we started a project to update the second generation
5,000 barrels per day (“Bpd”) mobile unit in preparation for use by operators in
a refinery plant environment. One aspect of the project involved adding an
additional 5,000 Bpd reactor line to increase the total nameplate capacity of
the mobile unit to 10,000 Bpd. In order to facilitate this upgrade, the Company
decommissioned the first generation 5,000 Bpd mobile unit so that its 5,000 Bpd
reactor line could be integrated into the second generation mobile unit. Other
improvements include simplified instrumentation and piping, and implementation
of all the major ultrasound component upgrades developed in 2009.  The
new 10,000 Bpd mobile unit is slated to be complete in August 2009.
  14




Laboratory and Field Testing
Activities


In
January 2009 we conducted a series of seminal experiments at OMV Refining and
Marketing GmbH (“OMV”) in Schwechat, Austria, to test and demonstrate SulphCo’s
SonocrackingTM technology with a variety of crude oils and petroleum product
streams.  The testing included variation of additive and process
parameters.  The test results including sulfur speciation of the test
samples showed the broad applicability of the technology from middle distillate
to light, medium and heavy crude oils.  After further processing,
sulfur reductions of 40-50% for medium and heavy crude oils, approximately 60%
for light crude oils and 70% and more for middle distillate streams were
realized.  Based on the results, OMV and SulphCo executed a technology
agreement (the “Technology Agreement”) to focus on the technical and economic
analysis of SulphCo’s process for OMV’s middle distillate streams.  In
April 2009, we employed our improved continuous flow laboratory unit at OMV’s
facilities to sonocrack a representative straight run diesel
stream.  The sonocracked diesel, as well as the original feed diesel
streams was hydrotreated in the OMV pilot plant under a variety of
conditions.  In parallel, comparable testing employing a different
feed diesel was conducted at an independent facility.  The testing at
the independent facility and OMV both showed that up to 40% of the hydrogen is
consumed to remove the last 1% of sulfur necessary to meet regulatory
limits.  In addition, the sonocracked sulfur compounds show an
increased propensity towards hydrotreating manifesting itself in lower
temperatures and higher throughputs for the sonocracked stream to get to certain
sulfur levels compared to the original feed diesel.  The data support
a clear business case towards the removal of the most refractory sulfur
compounds using our SonocrackingTM technology after a stream has experienced mild
hydrotreating.  In addition, we continued to perform several series of
tests in the laboratory on diesel fuels and other distillate streams from a
variety of sources.  We have achieved sulfur level reductions of 80%
and more. We will continue conducting extensive laboratory testing on potential
customers’ crude oils and products during the third quarter of 2009 and
beyond.





Business
Development Activities Update




The
following is an update on the more significant business development activities
the Company has been pursuing.




With
respect to the Company’s ongoing commercial efforts, we continue to see a high
level of interest in the SonocrackingTM process as potential customers see the
value that can be driven by the technology.  We are pursuing what we
believe are opportunities presenting the highest likelihood of success for the
technology (i.e., crude oil product streams such as diesel fuel, gasoline, and
bunker fuels as well as low to moderate sulfur-containing crude oils) and are
working with several potential customers to achieve that goal.




OMV


We met
with OMV in November 2008 and provided a detailed presentation of our
SonocrackingTM technology to its technical team. We have conducted several trials
with OMV over the course of the past 21 months, but we were previously unable to
provide OMV with a clear and detailed demonstration of our technology. This
time, however, by using much of the sulfur speciation data generated from our
laboratory and field trials in the Southeastern United States, we were able to
successfully demonstrate to OMV the clear benefits of our process in terms of 1)
immediate sulfur reduction in the crude oil, 2) reducing the sulfur content of
the lower boiling and higher value fractions of the crude oil (e.g., naphtha,
kerosene, diesel), 3) reducing the severity of the hydrotreating process and 4)
potentially reducing the carbon footprint of the downstream process. At this
technical meeting we immediately agreed to work on parallel paths in the
laboratory and back in the field at OMV’s facility. In late December 2008, the
Company shipped a laboratory scale SonocrackingTM unit from Houston to OMV’s
facilities, where laboratory scale trials were conducted during the week of
January 12, 2009 on a variety of crude oils and crude oil products under the
supervision of Dr. Florian J. Schattenmann, SulphCo’s CTO, and a SulphCo senior
chemist. The purpose of the laboratory trials was to define the relevant process
parameters and appropriate operating conditions for the field trials that were
conducted during the week of January 26, 2009.  Based on the promising
results of these recent laboratory and field trials, SulphCo and OMV entered
into the Technology Agreement to jointly evaluate our SonocrackingTM technology
in several of OMV’s refining applications.  In early July 2009 we
completed the first series of detailed technology trials contemplated under the
Technology Agreement in which various petroleum products and crude oil streams
were treated using our SonocrackingTM technology in OMV’s pilot plant facilities
located in Schwechat, Austria. Based on the results of this first series of
technology trials, SulphCo and OMV have agreed to move forward with further
technical and economic evaluations for a select group of specific applications,
focusing on the most compelling economic cases. This additional analysis
includes OMV using its linear program refining model to help determine detailed
and specific application economics. Once those evaluations are completed we
expect to make a decision on where to implement the SonocrackingTM technology in
OMV’s system. While the Company is encouraged by this recent progress, there can
be no assurance that the Company will be successful in implementing any
commercial agreements.




15




North
America


We
continue to be in discussions with potential North American
customers.  We have presented our laboratory and external data to an
independent refiner located in the United States.  Based on those
presentations and discussions, we have sent a collaboration proposal to this
potential customer and are awaiting feedback. It is anticipated these proposals
may lead to collaboration on application specific technology developments and
commercial scale demonstrations.  Additionally, we are pursuing an
application with an integrated crude oil company for a specific application
located in Canada. We have performed several lab-scale trials to demonstrate the
effectiveness of our technology in this particular
application.  Technical representatives from the integrated oil
company visited our Houston offices in June 2009 to evaluate those lab-scale
results.  Initial feedback was positive and we are awaiting additional
feedback and a proposal for proceeding forward on a commercially relevant scale.
We expect to receive that feedback and proposal sometime in the third quarter of
2009.  If successful, we would expect this application to ultimately
lead to a commercial agreement. While the Company is encouraged by this recent
progress, there can be no assurance that the Company will be successful in
implementing any commercial agreements.




South
America


Testing on crude oil and petroleum
product streams provided by companies in South America is ongoing in SulphCo’s
Houston, Texas facility. Initial observations are consistent with results
achieved in diesel fuels and oils originating from other areas of the world.
These results have created interest from integrated crude oil companies and
crude oil refiners.  During the first quarter of 2009, SulphCo’s
distributor in Colombia, Ecuador, and Peru, J.W. Tecnologia Servicios Petroleros
S.A.C., arranged meetings with petroleum producers and refiners in that region
to discuss testing results in greater detail. Based on positive feedback from
these meetings, a proposal for collaboration was sent to one potential customer
in the first quarter of 2009 and during the second quarter two more proposals
were sent out to potential customers in South America (excluding Brazil). It is
anticipated these proposals may lead to collaboration on application specific
technology developments and commercial scale demonstrations. Further, as a
result of laboratory tests on samples provided by a large producer/refiner in
Brazil, similar detailed technology meetings were held in that country. A
proposal for collaboration has been sent to the potential customer in Brazil and
we have received initial feedback.  We have subsequently sent a
response with suggested amendments to our proposal and are awaiting feedback. As
is the case with other potential customers in South America, it is anticipated
these proposals will lead to collaboration on application specific technology
developments and commercial scale demonstrations. There can be no assurance that
the Company will enter into any such agreements.




Middle
East


On July 10, 2008, we announced an
agreement with Amira Group Company LLC (“Amira”), a U.S.-based oil and gas
services company, granting Amira an exclusive distributorship in certain regions
of the Middle East and North Africa and certain customer specific opportunities
(the "Amira Sales Territories"). The Company and Amira personnel have made
formal presentations to several prospective customers within the Amira Sales
Territories, providing technical and commercial information on the SonocrackingTM
process.  During the third and fourth quarters of 2008, SulphCo and
Amira personnel narrowed these discussions to key, strategic potential
customers, and those discussions have focused primarily on issues relating to
proposed installation of SonocrackingTM units at customer sites. Currently, the
Company has not entered into any customer agreements and there can be no
assurance that the Company will enter into such agreements.


16




Southeast
Asia


On
February 11, 2008, we announced an agreement with Pt. Isis Megah (“Isis”), an
Indonesian oil and gas services company, granting Isis an exclusive
distributorship in the sales territories of India, Malaysia, Singapore and
Indonesia (the “Isis Sales Territories”). We concurrently announced a customer
order procured through Isis, conditioned upon the execution of an operating
agreement, for SonocrackingTM units having at least 30,000 Bpd of processing
capacity to be shipped at our expense from Fujairah to a designated port within
the Isis Sales Territories. Subsequently, the Company shipped 90,000 Bpd of
processing capacity from our facility in Fujairah, UAE, to Singapore in April
2008.




During
the week of March 31, 2008, SulphCo personnel conducted joint site inspections
with the potential customer at two of its Southeast Asian refineries to evaluate
their suitability for the proposed SonocrackingTM unit installations. Following
these inspections the parties reached a preliminary understanding as to the
placement of the Company’s first 30,000 Bpd commercial scale SonocrackingTM unit
within the potential customer’s refinery (the “Placement
Agreement”).




Subsequent
to the initial discussions with the potential customer, unanticipated events
occurred which led to delays in reaching a final Placement Agreement. The
potential customer experienced a turnover in key management and operating
personnel, leading to a decision that a further review be conducted prior to
implementing SulphCo’s technology within its refineries. That review would
require the potential customer’s personnel first witness testing of a relevant
crude oil at either the Company’s Houston or Fujairah facilities and based on
those results, the customer would determine how the implementation of the
SonocrackingTM process at its refinery sites would proceed.  In
furtherance of this process, the Company conducted testing at its Houston
facility on relevant crude oils during the third quarter of 2008 and has,
through Isis, delivered the test results to the potential customer. In addition,
because some of the relevant crude oils are of Middle Eastern origin, the
Company has advised the potential customer that the Company is prepared to
conduct additional testing in Fujairah, provided, the potential customer is able
to supply the crude oil to the facility in Fujairah. Alternatively, the Company
has invited the potential customer’s personnel to observe the testing of
relevant crude oil at the Company’s Houston location. We understand, through
Isis, that the customer has agreed to deliver samples to our Houston facility
where they will witness testing. To date, those samples have not been procured
and a date has not been set for testing in Houston. Once the samples have been
obtained, we will schedule the appropriate testing in Houston.  The
SonocrackingTM units shipped to Singapore in April 2008 remain in storage there
pending a final outcome.




Fujairah


The
Company had originally scheduled additional rounds of testing at the Fujairah
facility during the second quarter of 2008 for the benefit of potential
customers to allow them to observe the SonocrackingTM technology first
hand.  However, at the request of the potential customers the
scheduled tests were put on hold. The Company is now prepared to conduct a new
round of validation testing at the Fujairah facility during 2009 utilizing the
latest generation probe technology and employing the newly developed catalyst
and additive packages. The ultimate timing of those trials depends entirely on
the requirements of the potential customers.


17




South
Korea


The
SulphCo KorAsia project has experienced delays due to unanticipated equipment
problems that occurred during the testing conducted in the first quarter of
2008. During the course of the limited trials, issues arose with a certain
switching component of an electrical driver for the ultrasound probes. Those
issues were ultimately attributed to factors related to the original electrical
equipment supplied with the earlier generation 2,000 Bpd SonocrackingTM unit in
2005. Given the limited resources of the Company and the higher priority
attached to more immediate opportunities that have presented themselves
elsewhere, the Company has been proceeding in South Korea at a more measured
pace than originally anticipated.  Once the technical updates are
completed and several outstanding business issues are resolved we intend to
resume testing utilizing Khafji crude oil (sulfur content ~2.9%). Once a full
set of trials have been performed and the data analyzed, we will determine, in
conjunction with SulphCo KorAsia, the appropriate technical and commercial paths
forward.  During the third and fourth quarters of 2008, several
attempts were made to resolve the outstanding business issues between the
parties, but those issues have not been resolved satisfactorily at this point.
We expect to continue our efforts to resolve those issues in 2009. However,
there can be no assurance that the technical updates or outstanding business
issues will be resolved favorably.





Three
and six-months ended June 30, 2009 compared to the three and six-months ended
June 30, 2008





Research and Development
Expenses




For the
three and six-month periods ended June 30, 2009, we incurred expenses of
approximately $0.9 million and $1.6 million, respectively, related to research
and development of our SonocrackingTM technology.  This compares to
expenses of approximately $0.9 million and $1.9 million for the comparable
periods in 2008.  The decrease of $0.3 million in the first half of
2009 as compared to the first half of 2008 is primarily due to a reduction in
expenditures related to the development of the ultra-sonic probe and reactor
assemblies in the first quarter of 2009. The ultrasonic-probes and reactor
assemblies have been developed to a point suitable for their expected
application and the Company does not expect to incur significant expenses on
further development of the ultrasonic-probes and reactor assemblies through the
end of 2009.





During
the three and six-month periods ended June 30, 2009, we incurred expenses of
approximately $54,000 and $163,000, respectively, related to the test facility
in Fujairah, UAE.  This compares to expenses of approximately $94,000
and $132,000, respectively, for the comparable periods in 2008.




Selling,
General and Administrative Expenses





For the
three and six-month periods ended June 30, 2009, we incurred expenses of
approximately $1.5 million and $5.0 million, respectively, in selling, general
and administrative expenses. This compares to expenses of approximately $3.6
million and $9.2 million, respectively, for the comparable periods in
2008.





Stock-based
compensation was approximately $0.2 million and $1.0 million, for the three and
six-month periods ended June 30, 2009, respectively. This compares to
stock-based compensation of approximately $0.5 million and $3.3 million,
respectively, for the comparable periods in 2008.





Legal
fees were approximately $0.2 million and $0.7 million, respectively, for the
three and six-month periods ended June 30, 2009.  This compares to
expenses of approximately $0.9 million and $1.8 million, respectively, for the
comparable periods in 2008. This represents decreases of $0.7 million and $1.1
million, respectively, relative to comparable periods in 2008. The decreases in
legal fees over the first half of 2009 were primarily attributable to the
resolution of outstanding litigation matters that gave rise to significant legal
fees for the three and six-month periods ended June 30, 2008. We are not
expecting any significant litigation fees for the remainder of
2009.





Consulting,
payroll and related expenses were approximately $0.5 million and $1.5 million,
respectively, for the three and six-month periods ended June 30,
2009.  This compares to expenses of approximately $1.5 million and
$2.6 million, respectively, for the comparable periods in 2008.  This
represents decreases of $1.0 million and 1.1 million, respectively, relative to
comparable periods in 2008. The decreases were primarily attributable to the
reduction in the number of outside consultants engaged during the first half of
2009 and additional expenses recognized in the second quarter of 2008 related to
a settlement agreement with a former consultant.


18





The
remainder of the amounts incurred relate to normal recurring operating expenses
such as lease expense, utilities, marketing, and investor
relations.





Interest
Expense




For the
three and six-month periods ended June 30, 2009 and 2008, the Company recognized
total interest expense of approximately $0.3 million, $0.3 million, $0.6 million
and $0.6 million, respectively. For the three and six-month periods ended June
30, 2009 and 2008, total interest expense recognized by the Company included
incremental interest expense associated with discount accretion of approximately
$0.3 million, $0.2 million, $0.5 million and $0.4 million,
respectively.





Deemed
Dividend




For the
three and six-month periods ended June 30, 2009 and 2008, the Company recognized
non-cash deemed dividends of approximately zero, $4.1 million, zero and $4.1
million, respectively.





On
November 28, 2007, the Company executed Amendment No. 2 to Securities Purchase
Agreements and Warrants (“Amendment No. 2”) with certain of the warrant holders
(the “Warrant Holders”) holding approximately 3.95 million of warrants issued on
March 12, 2007 (“March 2007 Warrants”) wherein the Warrant Holders agreed to
exercise up to 50% of their March 2007 Warrants.  In exchange, SulphCo
agreed to issue the Warrant Holders additional warrants (the “November 2007
Warrants”) on a one-to-one basis with an exercise price of $7.00 per share and a
term of three years.  In addition, the Warrant Holders were granted an
option to exercise the remaining 50% of their March 2007 Warrants on the later
of April 15, 2008, or 30 days following the 2008 Annual Meeting of Stockholders
in which SulphCo’s stockholders approved an increase of 10 million authorized
common shares.  If this option were exercised, then SulphCo would
issue the Warrant Holders additional Warrants on a one-to-one basis with an
exercise price of $7.00 a share and a term of three years.  As a
result of the inducement described above, 1,953,088 of the March 2007 Warrants
held by the Warrant Holders were exercised during the quarter ended June 30,
2008, resulting in the grant of 1,953,088 additional warrants (the “May 2008
Warrants”).  Based on its analysis, the Company concluded that a
deemed dividend should be recorded to account for the fair value of the
inducement that was transferred to the Warrant Holders computed as the fair
value of the 1,953,088 May 2008 Warrants issued to the Warrant
Holders.  Based on the Black-Scholes valuation prepared for this
transaction, the Company has determined that the amount of the non-cash deemed
dividend was approximately $4.1 million.


19





Liquidity
and Capital Resources





As of
June 30, 2009, we had approximately $10.9 million in available cash reserves and
approximately $4.7 million of convertible notes payable. On July 29, 2009, the
Company prepaid in full the $4.7 million outstanding principal balance of the
convertible notes payable and all accrued but unpaid interest thereon. Based on
the cash reserves at July 31, 2009 and expected decreases in monthly cash burn
rate resulting from recently enacted cost control measures, we anticipate that
our cash reserves will be sufficient to fund our cash requirements into the
latter part of the first quarter of 2010.  The Company is also
evaluating various equity financing alternatives that may include, among other
things, additional equity issuances, the proceeds of which would be used to
replace cash reserves used to repay the convertible notes.  There can
be no assurance that the Company will be successful in raising such financing,
if it decides to pursue such an alternative.





In
addition, we have historically been able to raise capital to continue with our
research and development and it is likely that we will need to raise additional
funds before we can generate enough revenue to become profitable. There can be
no assurance that the Company will be able to raise additional
funds.





Forward-Looking
Statements





This
report contains forward-looking statements within the meaning of the federal
securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology, such as "may," "will," "should," "could," "expect," "plan,"
"anticipate," "believe," "estimate," "project," "predict," "intend," "potential"
or "continue" or the negative of such terms or other comparable terminology,
although not all forward-looking statements contain such terms.





In
addition, these forward-looking statements include, but are not limited to,
statements regarding implementing our business strategy; development,
commercialization and marketing of our products; our intellectual property; our
estimates of future revenue and profitability; our estimates or expectations of
continued losses; our expectations regarding future expenses, including research
and development, sales and marketing, manufacturing and general and
administrative expenses; difficulty or inability to raise additional financing,
if needed, on terms acceptable to us; our estimates regarding our capital
requirements and our needs for additional financing; attracting and retaining
customers and employees; sources of revenue and anticipated revenue; and
competition in our market.





Forward-looking
statements are only predictions.  Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.  All of our forward-looking information is subject to
risks and uncertainties that could cause actual results to differ materially
from the results expected. Although it is not possible to identify all factors,
these risks and uncertainties include the risk factors and the timing of any of
those risk factors identified in “Item 1A. Risk Factors” section contained
herein, as well as the risk factors and those set forth from time to time in our
filings with the Securities and Exchange Commission (“SEC”).  These
documents are available through our website, http://www.sulphco.com, or through
the SEC’s Electronic Data Gathering and Analysis Retrieval System (“EDGAR”) at
http://www.sec.gov.





References
in this report to “we,” us,” “our company,” and “SulphCo” refer to SulphCo,
Inc., a Nevada corporation.


20





Item
3. Quantitative and Qualitative Disclosures About Market Risk.





Interest
Rates





As of
June 30, 2009, the Company had variable rate debt aggregating approximately $4.7
million. The variable rate debt exposes the Company to the risk of increased
interest expense in the event of increases in short-term interest rates. If the
variable interest rate were to increase by 1% from June 2009 levels,
interest expense would increase by approximately $47,000 annually. The carrying
value of the variable interest rate debt approximates fair value as it bears
interest at current market rates.





Item
4. Controls and Procedures.





Evaluation of Disclosure
Controls and Procedures





Our
management, with the participation of the Company’s chief executive officer and
chief financial officer, have evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the “1934 Act”)) as of June 30, 2009,
the end of the period covered by this Form 10-Q.  Based on this evaluation,
our chief executive officer and chief financial officer concluded that, as of
June 30, 2009, the Company’s disclosure controls and procedures were
effective.




Changes in Internal
Controls





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the period ended June
30, 2009, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


21


PART
II. OTHER INFORMATION





Item
1.  Legal Proceedings





See Note
5 of the Notes to the Financial Statements – Commitments and Contingencies (Part
I, Item 1) for information regarding legal proceedings involving the
Company.





Item
1A.  Risk Factors





As of the date of this filing, there
have been no material changes from the risk factors previously disclosed in our
“Risk Factors” in the Form 10-K for the period ended December 31, 2008. An
investment in our common stock involves various risks. When considering an
investment in our common stock, you should consider carefully all of the risk
factors described in our most recent Form 10-K. These risks and uncertainties
are not the only ones facing us and there may be additional matters that we are
unaware of or that we currently consider immaterial. All of these could
adversely affect our business, financial condition, results of operations and
cash flows and, thus, the value of an investment in our company.





Items
2 and 3 are not applicable and have been omitted.





Item
4.  Submission of Matters to a Vote of Security Holders.





Our 2009
Annual Meeting of Stockholders was held on June 17, 2009.  At the
Annual Meeting, (i) each of the four nominees was elected to serve as a director
until the end of their respective terms, (ii) the proposed amendment to the
Company’s Articles of Incorporation to increase the number of authorized shares
of the Company’s common stock, par value $0.001, from 110,000,000 shares to
150,000,000 shares was approved by the stockholders, (iii) the proposed
amendment to the Company’s 2008 Omnibus Long-Term Incentive Plan to increase the
number of shares available for issuance thereunder from 2,250,000 shares to
7,250,000 shares was approved by the stockholders and (iv) the appointment of
Hein & Associates LLP as the Company’s independent registered public
accountants for the fiscal year 2009 was ratified by the
stockholders. The election results are as follows:





Election of Four Directors
(Proposal No. 1):


Name
              
              For
              
              WithheldDr.
      Larry D. Ryan
              
              85,581,473
              
              1,026,239Fred
      S. Zeidman
              
              85,685,927
              
              921,785Robert
      J. Hassler
              
              85,783,464
              
              824,248Orri
      Hauksson
              
              85,504,475
              
              1,103,237





Amendment
to the Company’s Articles of Incorporation (Proposal No. 2):


Total
                        
                        For
                        
                        Against
                        
                        Abstain51,943,763
                        
                        50,936,667
                        
                        971,538
                        
                        35,558





Amendment
to the Company’s 2008 Omnibus Long-Term Incentive Plan (Proposal No.
3):


Total
                        
                        For
                        
                        Against
                        
                        Abstain51,943,763
                        
                        46,172,601
                        
                        4,937,869
                        
                        833,293





Ratification
of Appointment of Independent Registered Public Accountants (Proposal No.
4):


Total
                        
                        For
                        
                        Against
                        
                        Abstain86,607,711
                        
                        86,204,107
                        
                        195,286
                        
                        208,318




22




Item 5.   Other
Information. -None.





Item
6.      Exhibits


31.1
            Certifications
      pursuant to Rule 13a-14 under the Securities Exchange Act of
      1934.


31.2
            Certifications
      pursuant to Rule 13a-14 under the Securities Exchange Act of
      1934.


32.1
            Certifications
      of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant
      to§
      906 of the Sarbanes-Oxley Act of
2002.


23


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





SULPHCO,
      INC.(Registrant)Date:        August
      4, 2009
                /s/ Larry D. RyanBy:
                Larry
      D. RyanChief
      Executive Officer(Principal
      Executive Officer)Date:        August
      4, 2009
                /s/ Stanley W. FarmerBy:
                Stanley
      W. FarmerVice
      President, Chief Financial Officer,Treasurer
      and Corporate Secretary(Principal
      Financial and Accounting
Officer)




24