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, 2010


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  ̈  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 15,
  2010Common
      Stock, par value $.001
                101,708,741
      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
                11Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                17Item
      4. Controls and Procedures
                17Part
      II – Other InformationItem
      1. Legal Proceedings
                17Item
      1A. Risk Factors
                17Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                18Item
      6. Exhibits
                18Signatures
                19


2


PART I. FINANCIAL
INFORMATION





Item
1.  Financial Statements.





SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED BALANCE
SHEETS


June 30,
2010 and December 31, 2009


(unaudited)





June 30,
                                          2010
                                        
                                        
                                        December 31,
                                          2009ASSETSCurrent AssetsCash
      and cash equivalents
                                        
                                        $
                                        3,443,877
                                        
                                        
                                        $
                                        1,658,823Prepaid
      expenses and other
                                        
                                        
                                        370,820
                                        
                                        
                                        
                                        688,008Total
      current assets
                                        
                                        
                                        3,814,697
                                        
                                        
                                        
                                        2,346,831Property and Equipment(net of accumulated depreciation
      of  $1,286,888  and $1,205,050,
      respectively)
                                        
                                        
                                        216,709
                                        
                                        
                                        
                                        263,995Other AssetsIntangible
      assets (net of accumulated amortization of $311,308 and $244,608,
      respectively)
                                        
                                        
                                        844,040
                                        
                                        
                                        
                                        986,124Other
                                        
                                        
                                        20,600
                                        
                                        
                                        
                                        20,600Total
      other assets
                                        
                                        
                                        864,640
                                        
                                        
                                        
                                        1,006,724Total
      assets
                                        
                                        $
                                        4,896,046
                                        
                                        
                                        $
                                        3,617,550LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts
      payable and accrued expenses
                                        
                                        $
                                        685,587
                                        
                                        
                                        $
                                        552,496Refundable
      deposit
                                        
                                        
                                        550,000
                                        
                                        
                                        
                                        550,000Late
      registration penalty (including accrued interest)
                                        
                                        
                                        400,955
                                        
                                        
                                        
                                        389,836Total
      current liabilities
                                        
                                        
                                        1,636,542
                                        
                                        
                                        
                                        1,492,332Long-Term Liabilities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Total
      liabilities
                                        
                                        
                                        1,636,542
                                        
                                        
                                        
                                        1,492,332Commitments and Contingencies (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)101,708,741
      and 89,944,029 shares issued and outstanding, respectively
                                        
                                        
                                        101,709
                                        
                                        
                                        
                                        89,944Additional
      paid-in capital
                                        
                                        
                                        164,906,640
                                        
                                        
                                        
                                        159,298,891Deficit
      accumulated during the development stage
                                        
                                        
                                        (161,748,845
                                        )
                                        
                                        
                                        (157,263,617
                                        )Total
      stockholders' equity
                                        
                                        
                                        3,259,504
                                        
                                        
                                        
                                        2,125,218Total
      liabilities and stockholders' equity
                                        
                                        $
                                        4,896,046
                                        
                                        
                                        $
                                        3,617,550





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, 2010 and 2009


and for
the Period from Inception to June 30, 2010


(unaudited)





Three Months Ended
                                June 30,
                              
                              
                              Six Months Ended
                                June 30,
                              
                              
                              Inception to2010
                              
                              
                              2009
                              
                              
                              2010
                              
                              
                              2009
                              
                              
                              June 30, 2010RevenueSales
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              42,967ExpensesSelling,
      general, and administrative expenses
                              
                              
                              (1,407,527
                              )
                              
                              
                              (1,461,049
                              )
                              
                              
                              (3,022,625
                              )
                              
                              
                              (4,959,302
                              )
                              
                              
                              (78,429,898
                              )Research
      and development expenses:Fujairah
      facility
                              
                              
                              (7,421
                              )
                              
                              
                              (54,348
                              )
                              
                              
                              (23,773
                              )
                              
                              
                              (162,932
                              )
                              
                              
                              (23,873,677
                              )Other
      research and development
                              
                              
                              (694,813
                              )
                              
                              
                              (893,753
                              )
                              
                              
                              (1,421,507
                              )
                              
                              
                              (1,626,216
                              )
                              
                              
                              (21,617,573
                              )Other
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (591,706
                              )Total
      operating expenses
                              
                              
                              (2,109,761
                              )
                              
                              
                              (2,409,150
                              )
                              
                              
                              (4,467,905
                              )
                              
                              
                              (6,748,450
                              )
                              
                              
                              (124,512,854
                              )Loss
      from operations
                              
                              
                              (2,109,761
                              )
                              
                              
                              (2,409,150
                              )
                              
                              
                              (4,467,905
                              )
                              
                              
                              (6,748,450
                              )
                              
                              
                              (124,469,887
                              )Other income (expense)Interest
      income
                              
                              
                              661
                              
                              
                              
                              6,978
                              
                              
                              
                              1,158
                              
                              
                              
                              18,245
                              
                              
                              
                              1,202,849Interest
      expense
                              
                              
                              (9,284
                              )
                              
                              
                              (301,589
                              )
                              
                              
                              (18,481
                              )
                              
                              
                              (562,161
                              )
                              
                              
                              (8,858,104
                              )Other
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (766,868
                              )Net
      loss
                              
                              
                              (2,118,384
                              )
                              
                              
                              (2,703,761
                              )
                              
                              
                              (4,485,228
                              )
                              
                              
                              (7,292,366
                              )
                              
                              
                              (132,892,010
                              )Deemed
      dividend
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (28,856,835
                              )Net loss
      attributable to common Stockholders
                              
                              $
                              (2,118,384
                              )
                              
                              $
                              (2,703,761
                              )
                              
                              $
                              (4,485,228
                              )
                              
                              $
                              (7,292,366
                              )
                              
                              $
                              (161,748,845
                              )Loss
      per share: basic and diluted
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.04
                              )
                              
                              $
                              (0.08
                              )Weighted
      average shares: basic and diluted
                              
                              
                              101,708,741
                              
                              
                              
                              89,944,029
                              
                              
                              
                              100,018,782
                              
                              
                              
                              89,939,471





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, 2010 and 2009


and
for the Period from Inception to June 30, 2010


(unaudited)





Six Months EndedJune 30,
                        
                        
                        Inception to2010
                        
                        
                        2009
                        
                        
                        June 30, 2010Cash Flows From Operating
      ActivitiesNet
      loss
                        
                        $
                        (4,485,228
                        )
                        
                        $
                        (7,292,366
                        )
                        
                        $
                        (132,892,010
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                        
                        
                        167,766
                        
                        
                        
                        117,228
                        
                        
                        
                        1,820,275Accretion
      of convertible notes payable discount
                        
                        
                        -
                        
                        
                        
                        519,543
                        
                        
                        
                        6,736,550Stock-based
      compensation
                        
                        
                        227,837
                        
                        
                        
                        1,027,857
                        
                        
                        
                        21,245,387Other
                        
                        
                        85,708
                        
                        
                        
                        875
                        
                        
                        
                        1,444,889Changes
      in:Prepaid
      expenses and other
                        
                        
                        317,188
                        
                        
                        
                        360,852
                        
                        
                        
                        (391,420
                        )Accounts
      payable and accrued expenses
                        
                        
                        133,091
                        
                        
                        
                        (1,025,447
                        )
                        
                        
                        685,587Refundable
      deposit
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        550,000Late
      registration penalty (including accrued interest)
                        
                        
                        11,119
                        
                        
                        
                        (253,777
                        )
                        
                        
                        400,955Net
      cash used in operating activities
                        
                        
                        (3,542,519
                        )
                        
                        
                        (6,545,235
                        )
                        
                        
                        (100,399,787
                        )Cash Flows From Investing
      ActivitiesPurchase
      of property and equipment
                        
                        
                        (34,552
                        )
                        
                        
                        (57,872
                        )
                        
                        
                        (1,558,260
                        )Investments
      in joint ventures and subsidiaries
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (361,261
                        )Investments
      in intangible assets
                        
                        
                        (29,552
                        )
                        
                        
                        (32,774
                        )
                        
                        
                        (1,276,125
                        )Net
      cash used in investing activities
                        
                        
                        (64,104
                        )
                        
                        
                        (90,646
                        )
                        
                        
                        (3,195,646
                        )Cash Flows from Financing
      ActivitiesProceeds
      from sales of stock, net of offering costs
                        
                        
                        5,391,677
                        
                        
                        
                        -
                        
                        
                        
                        104,801,454Proceeds
      from  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
                        )Principal
      payments on convertible notes payable
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (4,680,044
                        )Net
      cash provided by financing activities
                        
                        
                        5,391,677
                        
                        
                        
                        -
                        
                        
                        
                        107,039,310Net
      change in cash and cash equivalents
                        
                        
                        1,785,054
                        
                        
                        
                        (6,635,881
                        )
                        
                        
                        3,443,877Cash
      and cash equivalents at beginning of period
                        
                        
                        1,658,823
                        
                        
                        
                        17,567,848
                        
                        
                        
                        -Cash
      and cash equivalents at end of period
                        
                        $
                        3,443,877
                        
                        
                        $
                        10,931,967
                        
                        
                        $
                        3,443,877Supplemental informationCash
      paid for interest
                        
                        $
                        3,612
                        
                        
                        $
                        97,596
                        
                        
                        $
                        1,513,412Cash
      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.


5


SULPHCO,
INC.


(A
Company in the Development Stage)


NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS


June 30,
2010


(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 (the
“SEC”).  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.





2.
            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,
2010, there were approximately 23 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, 2010 and 2009, because
inclusion of such potentially dilutive securities would have been
anti-dilutive.


6


3.
            Capital
      Stock




In
January 2010, the Company completed the sale of 11,764,712 equity units at a
price of $0.51 per unit pursuant to the terms of a Placement Agency Agreement
dated January 25, 2010, resulting in gross proceeds to the Company of
approximately $6.0 million before transaction costs. Each equity unit consists
of (i) one share of common stock, (ii) a 2-year warrant to purchase one half of
a share of common stock at an exercise price of $0.70, and (iii) a 5-year
warrant to purchase one half share of a share of common stock at an exercise
price of $1.00.  The shares of common stock and shares of common stock
issuable upon the exercise of the warrants that comprise the equity units are
registered on a shelf registration statement on Form S-3 declared effective by
the SEC on September 4, 2007.





4.
            Stock Plans and
      Stock-Based Compensation




In
accordance with the Stock Compensation Topic of the FASB Accounting Standards
Codification, 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 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. The stock-based compensation expense for the three and six month
periods ended June 30, 2010 and 2009 was approximately $0.1 million, $0.2
million, $0.2 million and $1.0 million, respectively.





During
the three and six month periods ended June 30, 2010 and 2009, the Company
granted zero, 968,541, 1,350,000 and 1,418,541 stock options, respectively, to
its directors, officers and employees.  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, 2010 and 2009
                            2010
                            
                            2009Valuation
      Assumptions:Expected
      Term (years)
                            5.0
      – 5.5
                            
                            5.0
      - 6.5Expected
      Volatility
                            124%
                            
                            126%
      - 143%Expected
      Dividend Rate
                            -
                            
                            -Risk
      Free Interest Rate
                            2.39%
                            
                            1.45%
      - 2.75%Grant
      Date Fair Value
                            $0.31
                            
                            $0.52
      - $0.99Three
      Months Ended June 30, 2010 and 2009
                            2010
                            
                            2009Valuation
      Assumptions:Expected
      Term (years)
                            -
                            
                            5.0
      - 5.5Expected
      Volatility
                            -
                            
                            126%
      - 138%Expected
      Dividend Rate
                            -
                            
                            -Risk
      Free Interest Rate
                            -
                            
                            1.87%
      - 2.75%Grant
      Date Fair Value
                            -
                            
                            $0.71
      -
$0.99


7





Of the
1,350,000 stock options granted to the Company’s directors, officers and
employees during the six month period ended June 30, 2010, 1,150,000 were
performance-based stock options granted to the Company’s directors and executive
officers.  The performance-based stock options have an exercise price of
$0.37 with a grant date fair value of approximately $360,000, a term of ten
years from the grant date and vest on a graduated basis over the next 12 months
subject to the achievement of certain commercial milestones. If the commercial
milestones are not achieved within the graduated vesting periods, these
performance-based stock options will be forfeited. The Company will assess the
probability of the achievement of the commercial milestones at the end of each
reporting period. If the Company determines that achievement of the commercial
milestones before the end of a vesting period is probable, future accruals of
stock-based compensation expense will be adjusted and a cumulative catch-up
adjustment will be recorded in that reporting period. As of June 30, 2010, the
Company has not recorded any stock-based compensation expense related to the
performance-based stock options granted during the three and six month period
ended June 30, 2010.





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
and Other 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. In the past, the Company has expended significant
resources   for its legal defense.  In the future, the
Company will devote resources to its legal defense as necessary.





The
following paragraphs set forth the status of litigation and other contingencies
as of June 30, 2010.





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 W. 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 August 3, 2009, the Nevada Supreme Court affirmed the
court’s Order and judgment in its entirety.  The Nevada Supreme Court then
denied EcoEnergy’s request for a rehearing on September 25, 2009 and further
denied EcoEnergy’s Petition for En Banc Reconsideration on November 17,
2009.  On December 15, 2009, the Nevada Supreme Court restored jurisdiction
to the district court for any post-appeal issues. Since that time, the Company
received legal fees, costs, and interest awarded to it under the judgment from
EcoEnergy. The Company then moved the district court for an award of legal fees
and costs incurred on appeal.  The district court granted the award and the
Company received approximately $120,000 in March 2010 for costs incurred in
connection with the appeal.


8





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.
Following a trial, on May 14, 2009, the court entered a judgment in favor of the
Company and dismissed all claims with prejudice. On July 21, 2010, the
Ninth Circuit Court of Appeals affirmed the trial court’s judgment. 
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 was
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 alleged, 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 of Directors and failure
to state a claim.  On July 3, 2007, the parties filed a Stipulation of
Voluntary Dismissal Without Prejudice (the “Stipulation”).  The Stipulation
provided 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 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.


9


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 “District Court”). 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.
200866743 (the “Texas Derivative Claim”).  The Company responded to this
litigation by moving to dismiss and the individual defendants responded by
moving to dismiss for lack of personal jurisdiction.





On June 30, 2010, the District Court
preliminarily approved a proposed settlement regarding the Texas Derivative
Claim.  The District Court has ordered that a final settlement hearing will
occur on August 13, 2010.  Upon approval by the District Court, the
proposed settlement would, among other actions, result in the dismissal of the
claims asserted in the Texas Derivative Claim with prejudice.  The terms of
the proposed settlement include an award, not to exceed $300,000, to the
plaintiff’s counsel for fees and reimbursement of expenses.  Since the
Company has previously met its director and officer liability insurance policy
deductible, any monetary award made in connection with the settlement will be
borne by the director and officer liability insurance policy and will therefore
not have any impact on the financial condition of the Company.  No relief
is sought against the Company and no liability has been accrued relative to this
action.





NYSE Amex LLC Listing
Standards Deficiency





On June 30, 2010, we were notified of
our failure to comply with the NYSE Amex LLC’s (the “Exchange”) continued
listing standards under section 1003 of the Company Guide. 
Specifically, the Exchange noted our failure to comply with section 1003(a)
(iii) of the Exchange’s Company Guide because our stockholders' equity was less
than $6,000,000 and we had losses from continuing operations and net losses in
our five most recent fiscal years. The notice was based on a review by the
Exchange of our publicly available information, including the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 2010 at which time
the Company’s stockholders’ equity was approximately $5.3 million. 
 As of June 30, 2010, the Company's stockholders’ equity was approximately
$3.3 million resulting in our failure to comply with Section 1003(a)(ii) of
the Company Guide because our stockholders’ equity was less than $4,000,000 and
we had losses from continuing operations and net losses in three of our four
most recent fiscal years.  On or before July 30, 2010, we intend to submit
a plan to the Exchange outlining our efforts to meet the continued listing
requirements. The Exchange has 45 days in which to decide whether the plan
is acceptable. The plan will consist of several elements, but will primarily
focus on the sales of our products and services and raising additional equity
capital.  If (i) our plan is not accepted, (ii) we do not make progress
toward compliance consistent with the plan, or (iii) we are not in compliance at
the end of the plan period, then our shares of common stock may be subject to
delisting proceedings by the Exchange.


10


Item
2.  Management’s Discussion and Analysis of Financial Condition and Results
of Operations.





Overview





SulphCo
is an energy technology company focused on the development and commercialization
of an oxidative desulfurization (“ODS”) process for crude oil products, crude
oils, natural gasoline and condensate streams.  SulphCo’s oxidative
desulfurization process consists of (1) the ultrasound assisted conversion of
the sulfur compounds to their oxidized analogs employing its patented and
proprietary SonocrackingTM technology, and (2) the subsequent removal of these
oxidized compounds via adsorption, extraction, water wash or other similar
separation techniques (the “SulphCo Process”).





Ever
increasing environmental regulations are mandating the reduction of sulfur
content in many fuels, including gasoline, diesel fuel, and bunker fuel. 
For example, the sulfur specification for finished diesel fuel in certain
jurisdictions is less than 10 parts per million (“ppm”), while typical starting
concentrations are in the thousands of ppm. The currently practiced method for
desulfurization is hydrodesulfurization (“HDS”).  HDS requires a large
capital investment and suffers from high hydrogen and energy consumption as
severe operating conditions have to be employed to treat the most refractory
sulfur compounds. In contrast, the SulphCo Process allows
for  comparably mild reaction conditions such as ambient temperatures
and mild pressures, resulting in a potentially more cost effective and energy
efficient alternative to HDS for certain applications within the refining,
transportation, and blending market segments.





Research
and Development Activities Update





The
following is an update of the Company’s more significant research and
development activities conducted in the first six-months of 2010.




Development of Catalyst
Systems and Sulfur Removal Processes


Activities in the first six-months of
2010 continued to center around optimizing additive packages for the sulfur
conversion step as well as establishing key parameters for the adsorption or
extraction process typically needed for sulfur removal. Targeted efforts to
improve cost/benefit ratios have led to the identification of a preferred new,
cost effective catalyst system that distinguishes itself through high reactivity
towards a wide range of sulfur compounds, robustness towards process conditions
and wide range of applicability.  In diesel finishing and transmix
applications, less than 10 ppm sulfur content has routinely been achieved
employing this catalyst system.  In addition, this catalyst system also
excels for natural gasoline and condensate streams.




We also
continued dedicated work on sulfur removal for diesel and transmix streams,
which included ongoing work in adsorption and a new effort in extraction. 
Adsorption is the preferred means of sulfur removal for product streams with low
sulfur content (100 ppm or less), while extraction is preferred for product
streams with higher sulfur content. At least two potential adsorbent
alternatives have been identified and characterized. Also, a suitable extraction
solvent has been identified. Ongoing work will be oriented towards process
implementation for the adsorption and extraction based processes.





The most
promising work during the first six-months of 2010 has been directed towards
desulfurization of natural gasoline, an important blend stock for on-road
gasoline.  The above mentioned catalyst system has proven to be highly
effective in the oxidation of the sulfur compounds contained in the samples of
natural gasoline evaluated during the first six-months of 2010.  At least
as important, the resulting oxidized sulfur species are water soluble due to
their small molecular size and can be removed by employing a simple water
wash.


11




Ultrasound Probe, Reactor
and Control Systems


During the first six-months of 2010,
the collaborative work between SulphCo and Märkisches Werk Halver, GmbH (“MWH”)
continued to center around simplifying and enhancing the user friendliness of
the equipment towards commercial operation as well as long-term endurance
testing.  Highlights include development of a prototype forged probe to
allow simplified mass production and a prototype tool that simplifies ultrasound
probe swap-out.  Also, high intensity endurance testing of the current
ultrasound probe/transducer assembly continued with positive results. 
Testing will continue throughout the remainder of 2010.





Business
Development Activities Update




The
following is an update on the more significant business development activities
in the regions that have been the focal point of the Company’s efforts during
the first six months of 2010.




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 near-term success
for the technology (i.e., crude oil product streams such as diesel fuel, natural
gasoline, and naphtha as well as low to moderate sulfur-containing crude oils
and condensates) and are working with several potential customers to achieve
this goal.




Europe


SulphCo and OMV Refining and Marketing
GmbH (“OMV”) entered into a technology agreement in the first quarter of 2009
and have been working together since that time to jointly evaluate SulphCo’s
SonocrackingTM technology in several of OMV’s refining applications.  During
the first quarter of 2010, SulphCo’s efforts with OMV have centered on the
evaluation of certain additional product streams from OMV’s facility in
Burghausen, Germany.  During the second quarter of 2010, OMV collected and
shipped samples of these product streams to SulphCo for further
evaluation.  Testing of these samples has shown promising results.  In
the near future, the Company expects to discuss these results with OMV. 
While the Company is encouraged by the recent progress in Europe, there can be
no assurance that the Company will be successful in implementing any commercial
agreements.





North
America


During
the later part of 2009 and into the first quarter of 2010, SulphCo was pursuing
a specific condensate application with an integrated major oil company with a
facility located in North America. We have performed several lab-scale trials to
demonstrate the effectiveness of our technology in this particular
application.  Technical representatives from this company visited our
Houston offices in June 2009 to confirm the lab-scale results and subsequently
recommended the installation of a SonocrackingTM unit at this company’s facility
in North America. In November 2009, this potential customer changed the process
requirements associated with this condensate application. In response to this
change, SulphCo formulated a proposed solution that met the new technical
requirements and provided it to this potential customer.  Late in the first
quarter of 2010, the potential customer notified SulphCo that it had completed
its evaluation of investment and process options for this condensate application
and had decided not to use the SulphCo Process for this particular application.
Notwithstanding this application specific decision, discussions with technical
representatives of this company continue with respect to other applications of
the SulphCo Process in its facilities around the world.




We have
presented in-house laboratory and third-party data with respect to the
performance of the SonocrackingTM technology to an independent refiner located in
the United States.  Based on those presentations and discussions, we are
working on samples of various streams from its facility to determine the best
value proposition for the technology in its system.  We have sent a
collaboration proposal to this potential customer and are awaiting results of
further laboratory tests to determine steps forward.  It is anticipated
that this proposal may lead to collaboration on application specific technology
developments and commercial scale demonstrations.


12




On
September 15, 2009, SulphCo reported that it had executed a letter of intent
with Laguna Development Corporation ("Laguna") to move toward the installation
of SulphCo's desulfurization technology at Laguna's New Mexico trans-mix
facility. On November 13, 2009, SulphCo reported that it had executed a letter
of intent with Golden Gate Petroleum (“Golden Gate”) to move toward the
installation of SulphCo’s technology at Golden Gate’s Nevada trans-mix
facility.  SulphCo continues to work with Laguna, Golden Gate and other
companies in the trans-mix market to meet their technical and commercial
requirements to produce ultra-low sulfur diesel.  As of the end of the
second quarter, neither of Laguna or Golden Gate have decided whether they want
to go forward with the proposals that have been presented to them by
SulphCo.




On June
23, 2010, SulphCo announced that it had executed a validation agreement (the
“Validation Agreement”) with Enterprise Products Operating LLC (“Enterprise”), a
wholly owned subsidiary of Enterprise Products Partners L.P.  Pursuant to
the terms of the Validation Agreement, SulphCo will install a mobile
SonocrackingTM unit at Enterprise’s natural gas liquids (“NGL”) fractionation
facility located in Mont Belvieu, Texas for the purpose of evaluating the
commercial scale performance of SulphCo’s SonocrackingTM technology on certain
Enterprise natural gasoline streams produced at the facility following
laboratory tests on such streams.  SulphCo expects that the installation
will be completed by the end of July with commercial scale evaluations to follow
during the ensuing eight to ten week period.  Concurrent with the execution
of the Validation Agreement, SulphCo and Enterprise commenced negotiations on a
definitive commercial agreement (the “Operating Agreement”).  While SulphCo
expects that the Operating Agreement will be executed as soon as practicable
after the successful completion of the commercial evaluation, there can be no
guarantees that the evaluation phase will lead to a definitive commercial
agreement.




In
addition to the ongoing discussions described above, we have been contacted by
several new potential customers expressing interest in the SonocrackingTM
technology, including product pipeline companies, integrated major oil
companies, independent oil companies, and small refiners.  The applications
include sulfur reduction in natural gasoline, natural gas condensates, naphthas
and diesel fuels. Work continues on samples provided by several of these
potential customers which will form the basis for their evaluation of the
SonocrackingTM technology in their respective systems.




While the
Company is encouraged by the recent progress in North America, there can be no
assurance that the Company will be successful in implementing any commercial
agreements.




South
America


Based on technical data presented by
SulphCo at meetings with an Argentinean based oil company in 2009, the
distribution agreement between SulphCo and J.W. Tecnologia Servicios Petroleros
S.A.C. (“South American Distributor”) was expanded to include that certain
company in Argentina.  We have also performed tests on crude oil and
petroleum product streams provided by other South American companies through our
South American Distributor and have achieved results consistent with testing
performed on diesel fuels and oils originating from other areas of the world.
Proposals for collaboration were sent to these potential customers in early 2009
and have lead to additional discussions on possible collaborative efforts to
utilize the Sonocracking TM technology on specific customer applications. 
Additionally, SulphCo representatives, along with our South American Distributor
met with two oil companies in Peru during March 2010 to discuss diesel fuel
applications.  Samples of diesel from two different refineries in Peru
owned by one of these oil companies have been sent to SulphCo for testing and
evaluation.


13




Further,
as a result of laboratory tests on samples provided by a large integrated oil
company in Brazil, technology meetings were held in that country during the
first quarter of 2009 and again during the first quarter of 2010. Based on
positive feedback from these meetings, a proposal for collaboration on
application specific technology and commercial scale demonstrations was sent to
this potential customer.  In response to this proposal, discussions are
being held with this company to identify the value proposition for site specific
applications and determine the appropriate actions moving forward. Samples of
diesel from the Brazilian oil company have been delivered to SulphCo’s Houston
facility and testing on the samples is set to begin as soon as possible. 
It is anticipated these discussions may ultimately lead to commercial
demonstrations.




While the
Company is encouraged by the recent progress in South America, there can be no
assurance that the Company will be successful in implementing any commercial
agreements.




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.




Three
and six months ended June 30, 2010 compared to the three and six months ended
June 30, 2009




Selling,
General and Administrative Expenses





For the
three and six month periods ended June 30, 2010, we incurred expenses of
approximately $1.4 million and $3.0 million, respectively, in selling, general
and administrative expenses. This compares to expenses of approximately $1.5
million and $5.0 million for the comparable periods in 2009.





Stock-based
compensation was approximately $0.1 million and $0.2 million, respectively, for
the three and six month periods ended June 30, 2010. This compares to
stock-based compensation of approximately $0.2 million and $1.0 million for the
comparable periods in 2009.





Legal
fees were approximately $0.2 million and $0.3 million, respectively, for the
three and six month periods ended June 30, 2010.  This compares to expenses
of approximately $0.2 million and $0.7 million for the comparable periods in
2009. The decrease in legal fees in the six month period ended June 30, 2010
relative to the six month period ended June 30, 2009 is primarily attributable
to the resolution of outstanding litigation matters that gave rise to
significant legal fees in the first quarter of 2009. The Company does not expect
to incur significant litigation fees in the foreseeable future.





Non-employee
director fees were approximately $0.1 million and $0.1 million, respectively,
for the three and six month periods ended June 30, 2010.  This compares to
expenses of approximately zero and $0.2 million for the comparable periods in
2009.  In April 2010, non-employee directors began receiving an annual cash
retainer of approximately $0.2 million payable in equal monthly
installments.





Travel,
consulting, marketing and investor and public relations expenses were
approximately $33,000 and $0.2 million, respectively, for the three and six
month periods ended June 30, 2010.  This compares to expenses of
approximately $0.2 million and $0.8 million for the comparable periods in
2009.





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





Research and Development
Expenses




For the
three and six month periods ended June 30, 2010, we incurred expenses of
approximately $0.7 million and $1.4 million, respectively, related to research
and development of our SonocrackingTM technology. This compares to expenses of
approximately $0.9 million and $1.6 million for the comparable periods in
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 2010.


14





During
the three and six month periods ended June 30, 2010, we incurred expenses of
approximately $7,000 and $24,000, respectively, related to the facility in
Fujairah, UAE. This compares to expenses of approximately $0.1 million and $0.2
million for the comparable periods in 2009.





Interest
Expense




For the
three and six month periods ended June 30, 2010 and 2009, the Company
recognized total interest expense of approximately $9,000, $0.3 million, $18,000
and $0.6 million, respectively. For the three and six month periods ended
June 30, 2010 and 2009, total interest expense recognized by the Company
included incremental interest expense associated with discount accretion of
approximately zero, $0.3 million, zero, and $0.5 million, respectively. On
July 29, 2009, the Company made full cash payment of the outstanding principal
balance of its convertible notes payable and all accrued but unpaid interest
thereon.





Liquidity and Capital
Resources





On June 30, 2010, we were notified of
our failure to comply with the NYSE Amex LLC’s (the “Exchange”) continued
listing standards under section 1003 of the Company Guide. 
Specifically, the Exchange noted our failure to comply with section 1003(a)
(iii) of the Exchange’s Company Guide because our stockholders' equity was less
than $6,000,000 and we had losses from continuing operations and net losses in
our five most recent fiscal years. The notice was based on a review by the
Exchange of our publicly available information, including the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 2010 at which time
the Company’s stockholders’ equity was approximately $5.3 million. 
 As of June 30, 2010, the Company's stockholders’ equity was approximately
$3.3 million resulting in our failure
to comply with Section 1003(a)(ii) of the Company Guide because our
stockholders’ equity was less than $4,000,000 and we had losses from continuing
operations and net losses in three of our four most recent fiscal years.
On or before July 30, 2010, we intend to submit a plan to the Exchange outlining
our efforts to meet the continued listing requirements. The Exchange has
45 days in which to decide whether the plan is acceptable. The plan will
consist of several elements, but will primarily focus on the sales of our
products and services and raising additional equity capital.  If (i) our
plan is not accepted, (ii) we do not make progress toward compliance consistent
with the plan, or (iii) we are not in compliance at the end of the plan period,
then our shares of common stock may be subject to delisting proceedings by the
Exchange.





In
January 2010, the Company completed the sale of 11,764,712 equity units at a
price of $0.51 per unit pursuant to the terms of a Placement Agency Agreement
dated January 25, 2010, resulting in gross proceeds to the Company of
approximately $6.0 million before transaction costs. Each equity unit consists
of (i) one share of common stock, (ii) a 2-year warrant to purchase one half of
a share of common stock at an exercise price of $0.70, and (iii) a 5-year
warrant to purchase one half share of a share of common stock at an exercise
price of $1.00.  The shares of common stock and shares of common stock
issuable upon the exercise of the warrants that comprise the equity units are
registered on a shelf registration statement on Form S-3 declared effective by
the SEC on September 4, 2007.





As of
June 30, 2010, we had approximately $3.4 million in available cash reserves.
Based on the cash reserves at June 30, 2010 and the forecasted monthly cash burn
rate, we anticipate that our cash reserves will be sufficient to fund our cash
requirements into the first quarter of 2011.  Historically, we have 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. The Company is evaluating various equity financing
alternatives that may include, among other things, additional equity issuances,
the proceeds of which would be used to fund future research and development
activity.  There can be no assurance that the Company will be successful in
raising such financing.  If the Company is unable to raise additional
financing, its ability to continue to operate will be significantly
limited.  If the Company is not listed on a national exchange and/or if our
public float remains below $75 million, it will be limited in its ability to
file new shelf registration statements on Form S-3 and/or to fully use one or
more registrations statements on Form S-3 that have been filed with the
Securities and Exchange Commission.  Any such limitations may have a
material adverse effect on the Company’s ability to raise the capital needed to
continue its operations.


15





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.


16





Item
3. Quantitative and Qualitative Disclosures About Market Risk.




We are
exposed to market risks arising from changes in market rates and prices,
including movements in foreign currency exchange rates and interest
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, 2010,
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, 2010, 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, 2010, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




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





We
may be delisted from the NYSE Amex LLC resulting in a more limited market
for our common stock.





On June
30, 2010, we were notified of our failure to comply with the NYSE Amex LLC’s
(the “Exchange”) continued listing standards under section 1003(a) (iii) of
the Exchange’s Company Guide because our stockholders' equity was less than
$6,000,000 and we have had losses from continuing operations and net losses in
our five most recent fiscal years.  The notice was based on a
review by the Exchange of our publicly available information, including the
Company's quarterly report on Form 10-Q for the quarter ended March 31, 2010 at
which time the Company’s stockholders’ equity was approximately $5.3
million.As of June 30, 2010 our stockholders' equity was
approximately $3.3 million resulting in our failure to comply with Section
1003(a)(ii) of the Company Guide because our stockholders’ equity was less than
$4,000,000 and we had losses from continuing operations and net losses in three
of our four most recent fiscal years. On or before July 30, 2010, we intend to
submit to the Exchange a plan outlining our efforts to regain compliance with
the Exchange's continued listing requirements. The Exchange has 45 days in
which to decide whether the plan is acceptable. The plan will consist of several
elements, but will primarily focus on the sales of our products and services and
raising additional equity capital.  If (i) our plan is not accepted, (ii)
we do not make progress toward regaining compliance consistent with our plan, or
(iii) we are not in compliance at the end of the plan period, then our shares of
common stock may be delisted from the Exchange.  If the Exchange delists
our common stock, we anticipate that our common stock would be quoted on the OTC
Bulletin Board or possibly the so-called "pink sheets." Even if our common stock
is quoted on such systems, a delisting by the Exchange could harm our investors
by reducing the liquidity and market price of our common stock. Additionally, a
delisting could negatively affect us by reducing the number of investors willing
to hold or acquire our common stock, which could negatively affect our ability
to access public capital markets. If the
Company is not listed on a national exchange and/or if our public float remains
below $75 million, we will be limited in our ability to file new shelf
registration statements on Form S-3 and/or to fully use one or more registration
statements on Form S-3 that have been filed with the Securities and Exchange
Commission. Any such limitations may have a material adverse effect on the
Company’s ability to raise the capital needed to continue its
operations.




17





As of the date of this filing and other
than the risk factor described above, 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, 2009. 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 here and 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.





Item 2.  Unregistered Sales of
Equity Securities and Use of Proceeds.





The Form 8-K filed by the Company on
January 29, 2010, is hereby incorporated by reference as a response to this Item
2.





Item 3.  Defaults Upon Senior
Securities. - None





Item 4.  (Removed and
Reserved). – Not Applicable





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.


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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:     July
      22, 2010
              /s/ Larry D. RyanBy:
              Larry
      D. RyanChief
      Executive Officer(Principal
      Executive Officer)Date:     July
      22, 2010
              /s/ Stanley W. FarmerBy:
              Stanley
      W. FarmerVice
      President, Chief Financial Officer,Treasurer
      and Corporate Secretary(Principal
      Financial and Accounting
Officer)


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