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.................................................March
31, 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 o  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  ̈  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 April 30,
    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
                7Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                14Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                20Item
      4.
                Controls
      and Procedures
                20Part
      II – Other InformationItem
      1.
                Legal
      Proceedings
                21Item
      6.
                Exhibits
                21




2


PART I. FINANCIAL
INFORMATION





Item
1.  Financial Statements.





SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED BALANCE
SHEETS


March 31,
2009 and December 31, 2008


(unaudited)




March 31,
                                                      2009
                                                    
                                                    
                                                    December 31,
                                                      2008ASSETSCurrent AssetsCash
      and cash equivalents
                                                    
                                                    $
                                                    13,828,261
                                                    
                                                    
                                                    $
                                                    17,567,848Prepaid
      expenses and other
                                                    
                                                    
                                                    420,502
                                                    
                                                    
                                                    
                                                    546,239Total
      current assets
                                                    
                                                    
                                                    14,248,763
                                                    
                                                    
                                                    
                                                    18,114,087Property and Equipment(net ofaccumulated
      depreciation of $1,102,919and
      $1,066,096, respectively)
                                                    
                                                    
                                                    300,905
                                                    
                                                    
                                                    
                                                    294,522Other AssetsIntangible
      assets (net of accumulated amortization of $180,465and
      $159,971, respectively)
                                                    
                                                    
                                                    1,004,937
                                                    
                                                    
                                                    
                                                    993,829Other
                                                    
                                                    
                                                    254,445
                                                    
                                                    
                                                    
                                                    254,445Total
      other assets
                                                    
                                                    
                                                    1,259,382
                                                    
                                                    
                                                    
                                                    1,248,274Total
      assets
                                                    
                                                    $
                                                    15,809,050
                                                    
                                                    
                                                    $
                                                    19,656,883LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts
      payable and accrued expenses
                                                    
                                                    $
                                                    1,712,674
                                                    
                                                    
                                                    $
                                                    1,823,033Refundable
      deposit
                                                    
                                                    
                                                    550,000
                                                    
                                                    
                                                    
                                                    550,000Late
      registration penalty (including accrued interest)
                                                    
                                                    
                                                    373,870
                                                    
                                                    
                                                    
                                                    624,811Convertible
      notes payable, net of discount
                                                    
                                                    
                                                    4,073,768
                                                    
                                                    
                                                    
                                                    3,824,282Total
      current liabilities
                                                    
                                                    
                                                    6,710,312
                                                    
                                                    
                                                    
                                                    6,822,126Long-term Liabilities
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Total
      liabilities
                                                    
                                                    
                                                    6,710,312
                                                    
                                                    
                                                    
                                                    6,822,126Commitments and Contingencies (see Note
      5)Stockholders' EquityPreferred
      stock: 10,000,000 shares authorized ($0.001 par value); none
      issued
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Common
      stock: 110,000,000 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
                                                    
                                                    
                                                    158,844,662
                                                    
                                                    
                                                    
                                                    157,992,101Deficit
      accumulated during the development stage
                                                    
                                                    
                                                    (149,835,868
                                                    )
                                                    
                                                    
                                                    (145,247,263
                                                    )Total
      stockholders' equity
                                                    
                                                    
                                                    9,098,738
                                                    
                                                    
                                                    
                                                    12,834,757Total
      liabilities and stockholders' equity
                                                    
                                                    $
                                                    15,809,050
                                                    
                                                    
                                                    $
                                                    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 month Periods ended March 31, 2009 and 2008


and the
Period from Inception to March 31, 2009


(unaudited)




Three
      monthsEnded
                                    March
      31,
                                  
                                  
                                  Inception
      to2009
                                  
                                  
                                  2008
                                  
                                  
                                  March 31, 2009RevenueSales
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  42,967ExpensesSelling,
      general, and administrative expenses
                                  
                                  
                                  (3,498,253
                                  )
                                  
                                  
                                  (5,629,368
                                  )
                                  
                                  
                                  (71,435,395
                                  )Research
      and development expenses:Fujairah
      test facility
                                  
                                  
                                  (108,584
                                  )
                                  
                                  
                                  (38,016
                                  )
                                  
                                  
                                  (23,641,126
                                  )Other
                                  
                                  
                                  (732,463
                                  )
                                  
                                  
                                  (936,757
                                  )
                                  
                                  
                                  (17,575,597
                                  )Loss
      on joint venture
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (136,095
                                  )Loss
      on disposal of asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (221,711
                                  )Loss
      on impairment of asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (233,900
                                  )Total
      operating expenses
                                  
                                  
                                  (4,339,300
                                  )
                                  
                                  
                                  (6,604,141
                                  )
                                  
                                  
                                  (113,243,824
                                  )Loss
      from operations
                                  
                                  
                                  (4,339,300
                                  )
                                  
                                  
                                  (6,604,141
                                  )
                                  
                                  
                                  (113,200,857
                                  )Other income (expense)Interest
      income
                                  
                                  
                                  11,267
                                  
                                  
                                  
                                  40,971
                                  
                                  
                                  
                                  1,167,982Interest
      expense
                                  
                                  
                                  (260,572
                                  )
                                  
                                  
                                  (310,615
                                  )
                                  
                                  
                                  (8,179,290
                                  )Other
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (766,868
                                  )Net
      loss
                                  
                                  
                                  (4,588,605
                                  )
                                  
                                  
                                  (6,873,785
                                  )
                                  
                                  
                                  (120,979,033
                                  )Deemed
      Dividend
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (28,856,835
                                  )Net
      loss attributable to common stockholders
                                  
                                  $
                                  (4,588,605
                                  )
                                  
                                  $
                                  (6,873,785
                                  )
                                  
                                  $
                                  (149,835,868
                                  )Loss
      per share - basic and diluted
                                  
                                  $
                                  (0.05
                                  )
                                  
                                  $
                                  (0.09
                                  )Weighted
      average shares - basic and diluted
                                  
                                  
                                  89,934,862
                                  
                                  
                                  
                                  80,848,759





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
Three month Periods Ended March 31, 2009 and 2008


and
for the Period from Inception to March 31, 2009


(unaudited)




Three
      months EndedMarch 31,
                        
                        
                        Inception
      to2009
                        
                        
                        2008
                        
                        
                        March 31, 2009Cash Flows From Operating
      ActivitiesNet
      loss
                        
                        $
                        (4,588,605
                        )
                        
                        $
                        (6,873,785
                        )
                        
                        $
                        (120,979,033
                        )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
                        
                        
                        57,318
                        
                        
                        
                        59,117
                        
                        
                        
                        1,465,163Accretion
      of note payable discount
                        
                        
                        249,486
                        
                        
                        
                        216,368
                        
                        
                        
                        6,130,274Stock-based
      compensation
                        
                        
                        852,586
                        
                        
                        
                        2,786,210
                        
                        
                        
                        20,563,321Other
                        
                        
                        3,622
                        
                        
                        
                        -
                        
                        
                        
                        2,273,315Changes
      in:Receivables
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (118,657
                        )Prepaid
      expenses and other
                        
                        
                        122,115
                        
                        
                        
                        (366,597
                        )
                        
                        
                        (358,774
                        )Accounts
      payable and accrued expenses
                        
                        
                        (110,359
                        )
                        
                        
                        621,948
                        
                        
                        
                        1,634,864Refundable
      deposit
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        333,353Accrued
      fees and interest
                        
                        
                        (250,941
                        )
                        
                        
                        94,247
                        
                        
                        
                        (38,949
                        )Net
      cash used in operating activities
                        
                        
                        (3,664,778
                        )
                        
                        
                        (3,462,492
                        )
                        
                        
                        (89,095,123
                        )Cash Flows From Investing
      ActivitiesPurchase
      of property and equipment
                        
                        
                        (43,206
                        )
                        
                        
                        (11,091
                        )
                        
                        
                        (1,436,539
                        )Investments
      in joint ventures and subsidiaries
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (361,261
                        )Payment
      of deposits
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (36,822
                        )Investments
      in intangible assets
                        
                        
                        (31,603
                        )
                        
                        
                        (71,367
                        )
                        
                        
                        (1,201,244
                        )Net
      cash used in investing activities
                        
                        
                        (74,809
                        )
                        
                        
                        (82,458
                        )
                        
                        
                        (3,035,866
                        )Cash Flows from Financing
      ActivitiesProceeds
      from issuance of stock, net of offering costs
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        95,168,890Proceeds
      from issuance of related party notes payable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        11,000,000Proceeds
      from stock subscriptions
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,240,887Proceeds
      from issuance of line of credit
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        750,000Return
      on capital
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (118,427
                        )Principal
      payments on related party notes payable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (3,250,000
                        )Decrease
      in related party receivable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,359,185Payments
      on contract payable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (250,000
                        )Principal
      payments on line of credit
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (750,000
                        )Principal
      payments on advance from related party
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,191,285
                        )Net
      cash provided by financing activities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        105,959,250Net
      change in cash and cash equivalents
                        
                        
                        (3,739,587
                        )
                        
                        
                        (3,544,950
                        )
                        
                        
                        13,828,261Cash
      and cash equivalents at beginning of period
                        
                        
                        17,567,848
                        
                        
                        
                        7,430,138
                        
                        
                        
                        -Cash
      and cash equivalents at end of period
                        
                        $
                        13,828,261
                        
                        
                        $
                        3,885,188
                        
                        
                        $
                        13,828,261





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


5





SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED STATEMENTS OF CASH
FLOWS - Continued


For the
Three month Periods Ended March 31, 2009 and 2008


and for
the Period from Inception to March 31, 2009


(unaudited)





Supplemental information and non-cash
      transactionsCash
      paid for interest
                      
                      $
                      92,407
                      
                      
                      $
                      -
                      
                      
                      $
                      1,477,840Cash
      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
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      28,856,835





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


6




SULPHCO,
INC.


(A Company in the Development
Stage)


NOTES TO THE
INTERIMCONDENSEDFINANCIAL
STATEMENTS


March 31, 2009


(unaudited)





1.
            Basis
      of Presentation




The accompanying unauditedcondensedfinancial statements of
SulphCo, Inc., (the “Company”or “SulphCo”)wereprepared in accordance with generally
accepted accounting principles for interim financial statements in the United
States of America(“GAAP”), pursuant to therules and regulations of
theSecurities and Exchange
Commission.Accordingly, they do not include all of
the information and footnotes required by GAAP for complete annual financial
statements.





Intheopinionof management,the unaudited interim financial
statements reflectallnormal and recurringadjustments necessary for a
fair presentation of the resultsof operations, financial position and
cash flowsfor 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 most recent annual report on Form 10-K.





UseofEstimates




Thepreparation 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.





2.
            ConvertibleNotesPayable





At March
31, 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 is 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 incrementalinterest 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.





As of
March 31, 2009, the net balance of the Note Payable is:





March 31, 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 March 31, 2009
                    
                    
                    1,130,274Net
      Convertible Notes Payable balance at March 31, 2009
                    
                    $
                    4,073,768




7




The Convertible Notes Payable represents
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
31stof each year during the remaining term
of the Convertible Notes Payable that extends through December 31, 2011 when the
notesmature (unless maturity is otherwise
accelerated by thenote
holdersto any date after
July 31, 2009).Forthethree monthsendedMarch31, 2009 and 2008, the Company recognized totaldiscount
accretionexpense of
approximately$0.2 millionand $0.2million, respectively.





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 includeoptions
and warrants to acquire the Company’s commonstock andconvertible debt.As of March 31, 2009, there were
approximately11.4 million
shares issuable in connection with these potentially dilutive
securities.  These potentially dilutive securitiesweredisregardedin the computations of diluted net loss
per sharefor the three
month periods ended March 31, 2009 and 2008, because inclusion of suchpotentially dilutive
securitieswould havebeenanti-dilutive.





4.
            Stock
      Plans andStock-Based
      Compensation





In accordance with the provisions of
SFAS 123R, the Company recordsstock-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 expected term of options granted to
non-employees is equal to the contractual term of the option.  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.





Total
stock-based compensation for the three month periods ended March 31, 2009 and
2008, was approximately $0.8 million and $2.8 million,
respectively.


8


Stock Option Grants – Directors,
Officers and Employees





During
the three month periods ended March 31, 2009 and 2008, the Company granted
450,000 and 977,534 stock options, respectively, to its directors, officers and
employees.  The stock-based compensation expense for these stock
options for the three month periods ended March 31, 2009 and 2008 was
approximately $0.2 million and $2.5 million.  The fair value of these
stock options was estimated using the Black-Scholes options pricing model with
the following assumptions:





ThreeMonths EndedMarch31, 2009and 2008
                    
                    2009
                    
                    
                    2008Valuation
      Assumptions:Expected Term
      (years)
                    
                    
                    5
                    
                    
                    
                    1.5 – 6.5Expected
      Volatility
                    
                    
                    127.9% - 157.2%
                    
                    
                    
                    93.5% -
    150.8%Expected Dividend
      Rate
                    
                    
                    -
                    
                    
                    
                    -Risk Free Interest
      Rate
                    
                    
                    1.45% - 2.16%
                    
                    
                    
                    1.6% -
3.16%Weighted Average Grant Date Fair
      Value
                    
                    
                    $0.52- $0.81
                    
                    
                    
                    $2.18- $3.69





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.





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 March 31,
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 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 Dr.
Gunnerman with financial assistance provided by Dr. 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 December 19, 2007, and as required by Nevada statute, the Company
participated in a mandatory settlement conference at which time a settlement was
not reached.  The appeal has been fully briefed, but no date has been
set for oral arguments. No asset or liability has been accrued relative to this
action.


9


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, closing arguments were heard on March 3, 2009, and
the matter has been submitted for decision.  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. CV07-00137, 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 10, 2007, the
Company received notice that a stipulation (the “Stipulation”) of voluntary
dismissal without prejudice had been entered, with an effective date of July 3,
2007, regarding this action.  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.





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.


10





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 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.





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.  We have been advised by the SEC that,
despite the subpoena and formal order of investigation authorizing its issuance,
neither the SEC nor its staff has determined whether the Company or any person
has committed any violation of law.  The Company intends to continue
to fully cooperate with the SEC in connection with its requests for documents
and information.


11





6.
            Related
      Party Transactions





During the three month periods endedMarch31, 2009 and 2008, the Company made paymentsofapproximately $21,000 and $0.3 million,respectively,toMärkischesWerk Halver, GmbH (“MWH”) in connection
with ongoing probe development activities under an existing
agreement.Edward E. Urquhart, a member of the
Company’s Board of Directors since August 2006,
has been the Chief ExecutiveOfficer of MWH since July
2003.





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 month periods ended
March 31, 2009 and 2008, the total expense recognized by the Company under this
arrangement was approximately$22,000 and $20,000, respectively. In
April of 2009, both parties mutually agreed not to renew the
contract.





7.
            New
      Accounting Pronouncements





RecentlyAdoptedAccounting
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
December15, 2008. The adoption of FSP EITF
03-6-1in the first quarter
of 2009 did nothave a
material impact onthe
Company’scomputation of
earnings per share.





In June 2008, the FASB issued EITF Issue
No.07-5, Determining Whether an Instrument
(or an Embedded Feature)IsIndexed 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 December15, 2008. The adoption of EITF 07-5in the first quarter of
2009 did nothave a
material impact onthe
Company’sfinancial
statements.





In December2007, 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 December15, 2008. The adoption of SFAS 141R willnothave a material impact onthe Company’sfinancial statementsunless it makes an acquisition of a
business.


12





Recently Issued Accounting
Standards





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 will not have a material impact on the Company’s
financial statements.


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.





Business
Development Activities Update





The following is an update on the more
significant 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.




Houston,
Texas




We
continue to be in discussions with potential North American
customers.  In anticipation of the need for processing capacity in
North America, we shipped a 15,000 barrel per day (“Bpd”) SonocrackingTM unit
from Europe to Houston. The SonocrackingTM unit arrived in Houston during May
2008.  That unit remains available for installation at a facility upon
execution of appropriate customer agreements. There can be no assurance that the
Company will enter into any such agreements.




Research
and development activities in SulphCo’s Houston facility have been centered
around five principal areas: 1) the refinement of catalyst and additive packages
for the SonocrackingTM process to ensure consistent and reproducible results both
in the laboratory and in field testing, 2) the generation of detailed data
packages for customer applications, 3) the building and performance validation
of a laboratory pilot scale unit (with flow rates of 1 – 15 gallons per minute)
which will provide potential customers with laboratory scale data replicating
the performance of a commercial scale SonocrackingTM unit, 4) the building and
commissioning of two mobile units capable of processing up to 5,000 Bpd of crude
oil and petroleum products that can quickly be installed at a potential
customer’s site, and 5) the testing and evaluation of current and
next-generation ultrasound probe, reactor, and control systems developed and
supplied by MärkischesWerk
Halver, GmbH (“MWH”).




We have
developed a pilot scale continuous flow laboratory unit for our SonocrackingTM
process. During the third quarter of 2008, we conducted extensive testing with
this unit as well as in a batch reactor environment. These trials incorporated
new probe and reactor technology along with different catalysts and additives
designed to provide consistent and reproducible results from the SonocrackingTM
process. Potential customers have supplied a variety of crudes in various
quantities for laboratory testing. During October of 2008, we conducted a series
of focused trials on a potential customer’s crude oil for which we had conducted
field trials in May and June of 2008. In these
laboratory trials, we were able to consistently produce a 25%-30% sulfur
reduction with this customer’s crude oil. Furthermore, we were also able to
demonstrate clearly the chemical conversion of several sulfur compounds from the
thiophenic form to the sulfone form. This conversion was borne out by further
processing, through which we were able to consistently and reliably produce more
than a 50% sulfur reduction in this crude oil. We extended the series of tests
to several other crude oils and observed in most streams the same level of
sulfur reduction as described above. We have also produced American Petroleum
Institute (“API”) gravity shifts of up to 3 – 4 points in some crude oils which
indicates a shift towards lighter, more valuable streams.  Although
those improvements represent an incremental economic benefit to the overall
process, that is not the primary focus of our current efforts.Additionally,
we have performed several series of tests in the laboratory on diesel fuels from
a variety of crude oils and sources. In this testing we observed significant
conversion of sulfur compounds to an oxidized form and with complete treatment
attained sulfur reductions in a typical range of 75% or more.  For
example, in one diesel fuel with a starting sulfur value of 3,160 parts per
million (“ppm”), after treatment the fuel contained only 800 ppm sulfur. We also
measured a 1-2 point shift upwards in the API gravity of those streams.We will
continue conducting extensive laboratory testing on potential customers’ crude
oils and products during the second quarter of 2009 and beyond. If such tests
are successful on a laboratory scale, we anticipate moving to field testing
and/or commercial operating agreements with such potential
customers.


14




Construction and commissioning of the
first 5,000 Bpd mobile unit was completed in the first quarter of 2008 and that
unit was evaluated in field validation tests at a potential customer’s site in
May and June of 2008. Given the increased interest in the first 5,000 Bpd mobile
unit, the Company constructed a second 5,000 Bpd mobile unit. The construction
and commissioning of the second 5,000 Bpd mobile unit was completed in the third
quarter of 2008. The second 5,000 Bpd unit is outfitted with the latest
generation of the ultrasound probe, reactor, and control systems supplied by
MWH, and employs the newly developed catalyst and additive packages described
above.




In
October 2008, the second unit was deployed at a potential customer’s facility in
the Southeastern United States for a series of field trials. These trials were a
continuation of the field validation tests conducted in May and June of 2008.
Operationally, the unit performed very well and during these recent trials the
Company successfully duplicated, on a commercial scale, the positive results
produced in its Houston laboratory. While these field trials are a crucial step
in the overall technology validation process, additional technical iterations
and analysis are continuing as we identify, execute, and evaluate the multiple
processes necessary to comply with future customer requirements.  In
addition to process optimization, we continue to focus on minimizing costs
associated with the chemical package and the overall material and mass balance
to achieve the economics as highlighted in our business plan. There can be no
assurance that the Company will be successful in achieving such
goals.




European Testing
Activities




We met with our European testing
partner in November 2008 and provided a detailed presentation of our
SonocrackingTM technology to its technical team. We have conducted several trials
with this partner over the course of the past 18 months, but we were previously
unable to provide the partner 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 our testing partner the
positive effects of our process on the properties of the sulfur compounds in
crude oil. The focus is now centered around the effect of the changes on the
downstream processing in the testing partner’s refineries. We were able to
successfully present clear benefits 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 hydro-treating 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 the testing partner’s site. In late December 2008, the Company shipped
a laboratory scale SonocrackingTM unit from Houston to the facilities of the
European testing partner, 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, we have
turned our focus on developing application specific data with our European
testing partner.  A series of detailed technology trials has been
scheduled with our European testing partner and we expect that those trials will
be completed in the second quarter of 2009. The technical results from those
trials will be used to evaluate the economics and commercial impact of the
SonocrackingTM technology in several specific applications.  Once those
evaluations are completed we expect to make a decision on where to implement the
SonocrackingTM technology in the European testing partners’ 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




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.




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, which arrived in
Singapore during the week of April 14, 2008. The SonocrackingTM units have
remained in storage there pending finalization of a refinery placement
agreement.  There can be no assurance that the Company will enter into
any such agreements.




During
the week of March 31, 2008, SulphCo personnel conducted joint site inspections
with the 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
customer’s refinery (the “Placement Agreement”). It was anticipated that upon
execution of the Placement Agreement among Isis, the customer, and SulphCo, the
30,000 Bpd SonocrackingTM unit would be shipped by barge from Singapore to
the customer’s refinery site. An operating agreement cannot be signed
before finalization of the Placement Agreement, since the character
of the crude oil or fractions to be processed are dependent
upon both the selection of and location within the
refinery where the SonocrackingTM unit is to be
installed.


16




Subsequent
to the initial discussions with the customer, an unanticipated event occurred
which has led to delays in reaching a final Placement Agreement. The 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 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
customer. In addition, because some of the relevant crude oils are of Middle
Eastern origin, the Company has advised the customer that the Company is
prepared to conduct additional testing in Fujairah, provided, the customer is
able to supply the crude oil to the facility in Fujairah. Alternatively, the
Company has invited the 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 and expect testing to occur
sometime in 2009.




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. In addition, the Company is
currently in the process of securing sufficient crude oil and residual fuel oil
for independent validation testing in Fujairah.




South
America




Testing on crude oil and petroleum
product streams provided by companies in South America is ongoing in SulphCo’s
Houston, Texas facilities. Initial observations are consistent with results
achieved in oils originating from other areas of the world. These results have
created interest from refiners and producers.  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 has been sent to one potential customer and it is anticipated that
at least one more proposal will be sent out to another potential customer in
South America (excluding Brazil) within the next quarter. It is anticipated
these proposals will 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 are
waiting for initial 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.




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, 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.


17





Three
months ended March 31, 2009 compared to the three months ended March 31,
2008





Research and Development
Expenses




For the
three month period ended March 31, 2009, we incurred expenses of approximately
$0.7 million, related to research and development of our SonocrackingTM
technology.  This compares to expenses of approximately $0.9 million
for the comparable period in 2008.  The decrease of $0.2 million in
the most recent quarter relative to the prior year quarter 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 month period ended March 31, 2009, we incurred expenses of
approximately $109,000, related to the test facility in Fujairah,
UAE.  This compares to expenses of approximately $38,000 for the
comparable period in 2008.




Selling,
General and Administrative Expenses





For the
three month period ended March 31, 2009, we incurred approximately $3.5 million
in selling, general and administrative expenses.  This compares to
expenses of approximately $5.6 million for the comparable period in
2008.





Stock-based
compensation was approximately $0.8 million for the three month period ended
March 31, 2009. This compares to stock-based compensation of approximately of
$2.8 million for the comparable period in 2008.





Legal
fees were approximately $0.6 million for the three month period ended March 31,
2009.  This compares to expenses of approximately $0.9 million for the
comparable period in 2008. We expect to continue to incur litigation fees
through the end of 2009.





Consulting
fees, payroll and related expenses were approximately $1.0 million for the three
month period ended March 31, 2009.  This compares to expenses of
approximately $1.0 million for the comparable period in 2008.





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





Interest
Expense




Interest
expense was approximately $0.3 million for the three month period ended March
31, 2009, reflecting decreases of approximately 16% over comparable periods in
2008.  The 16% period over period reduction is primarily attributable
to a reduction of the interest bearing principal portion of the late
registration fees over the last two quarters offset by an increase in discount
accretion compared to the prior period.


18





Liquidity
and Capital Resources





As of
March 31, 2009, we had approximately $13.8 million in available cash reserves,
approximately $4.7 million of convertible notes payable, and a historical
average monthly cash burn rate of approximately $1.3 million over the past 15
months.  The convertible notes have a stated maturity date of December
31, 2011, except the note holders have the right to accelerate the maturity date
to any date after July 31, 2009.  In response to the deteriorating
capital markets and in an effort to extend the Company’s cash reserves as far
into the future as reasonably possible, the Company enacted strict cost control
measures in March 2009. These cost control measures are expected to decrease the
monthly cash burn rate by up to 30%. Based on the decrease in the projected
monthly cash burn rate, we anticipate that our cash reserves will be sufficient
to fund our cash requirements into the middle to latter part of 2010, unless the
maturity date of the convertible notes is accelerated by the note holders. If
the maturity of the convertible notes is accelerated by the note holders, we
anticipate our cash reserves will only be sufficient to fund our cash
requirements into the early part of 2010. The Company has engaged and will
continue to engage in discussions with the various convertible note holders
about not exercising their right to accelerate the maturity date of the
convertible notes.  There can be no assurance, however, that the
convertible notes will not be accelerated.  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 if the maturity date
is accelerated by the note holders.  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.


19


Item
3. Quantitative and Qualitative Disclosures About Market Risk.





Interest Rates





As of
March 31, 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 March 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 Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this report. Based on this evaluation, these officers
have concluded that, as of the end of such period, our disclosure controls and
procedures are effective in alerting them on a timely basis to material
information required to be included in our reports filed or submitted under the
Securities Exchange Act of 1934, as amended.




Changes in Internal Control
Over Financial Reporting




In
connection with the evaluation described above, we identified no change in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)
during the period ended March 31, 2009, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


20


PART
II. OTHER INFORMATION





Item
1.  Legal Proceedings





See Note
5 of the Notes to the Condensed 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 company, 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, 3, 4 and 5 are not applicable and have been omitted.





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.


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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: May 7,
      2009
              /s/ Larry D. RyanBy:
              Larry
      D. RyanChief
      Executive Officer(Principal
      Executive Officer)Date:
      May 7, 2009
              /s/ Stanley W. FarmerBy:
              Stanley
      W. FarmerVice
      President, Chief Financial Officer,Treasurer
      and Corporate Secretary(Principal
      Financial and Accounting
Officer)


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