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.................................................September 30,
2009


or





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


SECURITIES
EXCHANGE ACT OF 1934





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





Commission
File Number 001-32636





SULPHCO, INC.


(Exact
name of registrant as specified in its charter)





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





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




(713)
896-9100


(Registrant's
telephone number, including area code)





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





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





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





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





Class
              
              Outstanding at October 15,
    2009Common
      Stock, par value $.001
              
              89,944,029
      shares








SulphCo,
Inc.





PagePart
      I – Financial InformationItem
      1. Financial StatementsCondensed Balance Sheets (unaudited)
              
              3Condensed Statements of Operations (unaudited)
              
              4Condensed Statements of Cash Flows (unaudited)
              
              5Notes to Condensed Financial Statements
              
              6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
              
              13Item
      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


September
30, 2009 and December 31, 2008


(unaudited)




September 30,
                                                                                                              2009
                                                                                                            
                                                                                                            
                                                                                                            December 31,
                                                                                                              2008ASSETSCurrent AssetsCash
      and cash equivalents
                                                                                                            
                                                                                                            $
                                                                                                            4,201,558
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            17,567,848Prepaid
      expenses and other
                                                                                                            
                                                                                                            
                                                                                                            333,506
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            546,239Total
      current assets
                                                                                                            
                                                                                                            
                                                                                                            4,535,064
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            18,114,087Property and Equipment(net ofaccumulated
      depreciation of $1,163,420and
      $1,066,096, respectively)
                                                                                                            
                                                                                                            
                                                                                                            295,346
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            294,522Other AssetsIntangible
      assets (net of accumulated amortization of $222,901and
      $159,971, respectively)
                                                                                                            
                                                                                                            
                                                                                                            994,990
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            993,829Other
                                                                                                            
                                                                                                            
                                                                                                            40,785
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            254,445Total
      other assets
                                                                                                            
                                                                                                            
                                                                                                            1,035,775
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,248,274Total
      assets
                                                                                                            
                                                                                                            $
                                                                                                            5,866,185
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            19,656,883LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts
      payable and accrued expenses
                                                                                                            
                                                                                                            $
                                                                                                            793,598
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            1,823,033Refundable
      deposit
                                                                                                            
                                                                                                            
                                                                                                            550,000
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            550,000Late
      registration penalty (including accrued interest)
                                                                                                            
                                                                                                            
                                                                                                            380,435
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            624,811Convertible
      notes payable, net of discount
                                                                                                            
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            3,824,282Total
      current liabilities
                                                                                                            
                                                                                                            
                                                                                                            1,724,033
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            6,822,126Long-term Liabilities
                                                                                                            
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            -Total
      liabilities
                                                                                                            
                                                                                                            
                                                                                                            1,724,033
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            6,822,126Commitments and Contingencies (see Note
      5)Stockholders' EquityPreferred
      stock: 10,000,000 shares authorized ($0.001 par value); none
      issued
                                                                                                            
                                                                                                            
                                                                                                            -
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            -Common
      stock: 150,000,000 shares authorized ($0.001 par value);89,944,029
      and 89,919,029 shares issued and outstanding, respectively
                                                                                                            
                                                                                                            
                                                                                                            89,944
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            89,919Additional
      paid-in capital
                                                                                                            
                                                                                                            
                                                                                                            159,175,767
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            157,992,101Deficit
      accumulated during the development stage
                                                                                                            
                                                                                                            
                                                                                                            (155,123,559
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            (145,247,263
                                                                                                            )Total
      stockholders' equity
                                                                                                            
                                                                                                            
                                                                                                            4,142,152
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            12,834,757Total
      liabilities and stockholders' equity
                                                                                                            
                                                                                                            $
                                                                                                            5,866,185
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            19,656,883





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


3





SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED STATEMENTS OF
OPERATIONS


For the
Three and Nine-Month Periods ended September 30, 2009 and 2008


and the
Period from Inception to September 30, 2009


(unaudited)





Three Months Ended
                                    September 30,
                                  
                                  
                                  Nine Months Ended
                                    September 30,
                                  
                                  
                                  Inception to2009
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  2008
                                  
                                  
                                  September 30,
                                    2009RevenueSales
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  42,967ExpensesSelling,
      general, and administrative expenses
                                  
                                  
                                  (1,389,975
                                  )
                                  
                                  
                                  (3,370,349
                                  )
                                  
                                  
                                  (6,349,277
                                  )
                                  
                                  
                                  (12,597,655
                                  )
                                  
                                  
                                  (74,286,419
                                  )Research
      and development expenses:Fujairah
      test facility
                                  
                                  
                                  (54,178
                                  )
                                  
                                  
                                  (127,402
                                  )
                                  
                                  
                                  (217,110
                                  )
                                  
                                  
                                  (297,421
                                  )
                                  
                                  
                                  (23,749,652
                                  )Other
                                  
                                  
                                  (791,298
                                  )
                                  
                                  
                                  (1,138,738
                                  )
                                  
                                  
                                  (2,417,514
                                  )
                                  
                                  
                                  (2,983,586
                                  )
                                  
                                  
                                  (19,260,648
                                  )Loss
      on joint venture
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (136,095
                                  )Loss
      on disposal of asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (221,711
                                  )Loss
      on impairment of asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (233,900
                                  )Total
      operating expenses
                                  
                                  
                                  (2,235,451
                                  )
                                  
                                  
                                  (4,636,489
                                  )
                                  
                                  
                                  (8,983,901
                                  )
                                  
                                  
                                  (15,878,662
                                  )
                                  
                                  
                                  (117,888,425
                                  )Loss
      from operations
                                  
                                  
                                  (2,235,451
                                  )
                                  
                                  
                                  (4,636,489
                                  )
                                  
                                  
                                  (8,983,901
                                  )
                                  
                                  
                                  (15,878,662
                                  )
                                  
                                  
                                  (117,845,458
                                  )Other
      income (expense)Interest
      income
                                  
                                  
                                  863
                                  
                                  
                                  
                                  52,136
                                  
                                  
                                  
                                  19,108
                                  
                                  
                                  
                                  114,705
                                  
                                  
                                  
                                  1,175,823Interest
      expense
                                  
                                  
                                  (349,342
                                  )
                                  
                                  
                                  (281,891
                                  )
                                  
                                  
                                  (911,503
                                  )
                                  
                                  
                                  (860,966
                                  )
                                  
                                  
                                  (8,830,221
                                  )Other
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (766,868
                                  )Net
      loss
                                  
                                  
                                  (2,583,930
                                  )
                                  
                                  
                                  (4,866,244
                                  )
                                  
                                  
                                  (9,876,296
                                  )
                                  
                                  
                                  (16,624,923
                                  )
                                  
                                  
                                  (126,266,724
                                  )Deemed
      Dividend
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (4,087,887
                                  )
                                  
                                  
                                  (28,856,835
                                  )Net
      loss attributable to common stockholders
                                  
                                  $
                                  (2,583,930
                                  )
                                  
                                  $
                                  (4,866,244
                                  )
                                  
                                  $
                                  (9,876,296
                                  )
                                  
                                  $
                                  (20,712,810
                                  )
                                  
                                  $
                                  (155,123,559
                                  )Loss
      per share - basic and diluted
                                  
                                  $
                                  (0.03
                                  )
                                  
                                  $
                                  (0.05
                                  )
                                  
                                  $
                                  (0.11
                                  )
                                  
                                  $
                                  (0.25
                                  )Weighted
      average shares - basic and diluted
                                  
                                  
                                  89,944,029
                                  
                                  
                                  
                                  89,782,933
                                  
                                  
                                  
                                  89,941,007
                                  
                                  
                                  
                                  84,525,815




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
Nine-Month Periods Ended September 30, 2009 and 2008


and
for the Period from Inception to September 30, 2009


(unaudited)


Nine months EndedSeptember 30,
                                                                
                                                                
                                                                Inception to2009
                                                                
                                                                
                                                                2008
                                                                
                                                                
                                                                September 30,
                                                                  2009Cash Flows From Operating
      ActivitiesNet
      loss
                                                                
                                                                $
                                                                (9,876,296
                                                                )
                                                                
                                                                $
                                                                (16,624,923
                                                                )
                                                                
                                                                $
                                                                (126,266,724
                                                                )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
                                                                
                                                                
                                                                181,327
                                                                
                                                                
                                                                
                                                                163,694
                                                                
                                                                
                                                                
                                                                1,589,172Accretion
      of convertible notes payable discount
                                                                
                                                                
                                                                855,762
                                                                
                                                                
                                                                
                                                                625,998
                                                                
                                                                
                                                                
                                                                6,736,550Stock-based
      compensation
                                                                
                                                                
                                                                1,183,691
                                                                
                                                                
                                                                
                                                                4,408,346
                                                                
                                                                
                                                                
                                                                20,894,426Other
                                                                
                                                                
                                                                875
                                                                
                                                                
                                                                
                                                                299,686
                                                                
                                                                
                                                                
                                                                1,359,181Changes
      in:Prepaid
      expenses and other
                                                                
                                                                
                                                                426,393
                                                                
                                                                
                                                                
                                                                158,182
                                                                
                                                                
                                                                
                                                                (374,291
                                                                )Accounts
      payable and accrued expenses
                                                                
                                                                
                                                                (1,029,435
                                                                )
                                                                
                                                                
                                                                (725,186
                                                                )
                                                                
                                                                
                                                                793,598Refundable
      deposit
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                550,000Late  registration
      penalty (including accrued interest)
                                                                
                                                                
                                                                (244,376
                                                                )
                                                                
                                                                
                                                                102,633
                                                                
                                                                
                                                                
                                                                380,435Net
      cash used in operating activities
                                                                
                                                                
                                                                (8,502,059
                                                                )
                                                                
                                                                
                                                                (11,591,570
                                                                )
                                                                
                                                                
                                                                (94,337,653
                                                                )Cash Flows From Investing
      ActivitiesPurchase
      of property and equipment
                                                                
                                                                
                                                                (120,096
                                                                )
                                                                
                                                                
                                                                (52,526
                                                                )
                                                                
                                                                
                                                                (1,513,429
                                                                )Investments
      in joint ventures and subsidiaries
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (361,261
                                                                )Investments
      in intangible assets
                                                                
                                                                
                                                                (64,091
                                                                )
                                                                
                                                                
                                                                (145,914
                                                                )
                                                                
                                                                
                                                                (1,233,732
                                                                )Net
      cash used in investing activities
                                                                
                                                                
                                                                (184,187
                                                                )
                                                                
                                                                
                                                                (198,440
                                                                )
                                                                
                                                                
                                                                (3,108,422
                                                                )Cash Flows from Financing
      ActivitiesProceeds
      from issuance of stock, net of offering costs
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                25,486,503
                                                                
                                                                
                                                                
                                                                99,409,777Proceeds
      from issuance of related party notes payable
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                11,000,000Proceeds
      from issuance of line of credit
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                750,000Principal
      payments on related party notes payable
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (5,441,285
                                                                )Decrease
      in related party receivable
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                1,359,185Principal
      payments on line of credit
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (750,000
                                                                )Principal
      payments on convertible notes payable
                                                                
                                                                
                                                                (4,680,044
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (4,680,044
                                                                )Net
      cash provided by financing activities
                                                                
                                                                
                                                                (4,680,044
                                                                )
                                                                
                                                                
                                                                25,486,503
                                                                
                                                                
                                                                
                                                                101,647,633Net
      change in cash and cash equivalents
                                                                
                                                                
                                                                (13,366,290
                                                                )
                                                                
                                                                
                                                                13,696,493
                                                                
                                                                
                                                                
                                                                4,201,558Cash
      and cash equivalents at beginning of period
                                                                
                                                                
                                                                17,567,848
                                                                
                                                                
                                                                
                                                                7,430,138
                                                                
                                                                
                                                                
                                                                -Cash
      and cash equivalents at end of period
                                                                
                                                                $
                                                                4,201,558
                                                                
                                                                
                                                                $
                                                                21,126,631
                                                                
                                                                
                                                                $
                                                                4,201,558Supplemental information and non-cash
      transactionsCash
      paid for interest
                                                                
                                                                $
                                                                124,367
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                1,509,800Cash
      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


September
30, 2009


(unaudited)





1.           
Basis of
Presentation




The
accompanying unaudited condensed financial statements of SulphCo, Inc., (the
“Company” or “SulphCo”) were prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial statements, pursuant to the
rules and regulations of the Securities and Exchange
Commission.  Accordingly, they do not include all of the information
and footnotes required by GAAP for complete annual financial
statements.





In the
opinion of management, the unaudited interim financial statements reflect all
normal and recurring adjustments necessary for a fair presentation of the
results of operations, financial position and cash flows for the interim
periods. The results of operations for any interim period are not necessarily
indicative of the results for a full year.  The accompanying condensed
financial statements are unaudited and should be read in conjunction with the
Company’s most recent annual report on Form 10-K.





Use
of Estimates




The preparation
of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements, and the related reported amounts of revenues and expenses
during the reporting period. The significant estimates made by management in the
accompanying financial statements include allowances for doubtful accounts,
determination of income taxes, contingent liabilities, useful lives used in
depreciation and amortization and the assumptions utilized to compute
stock-based compensation. Actual results could differ from those
estimates.





Fair
Value of Financial Instruments




The
carrying amounts of financial instruments held by the Company, which include
cash, accounts payable, and accrued liabilities, approximate fair values due to
their short maturity.  The carrying value of the convertible notes
payable reasonably approximated its fair value as it had a variable interest
rate that reset on a quarterly basis.





Subsequent
Events




The
Company evaluated subsequent events through the date the accompanying financial
statements were issued, which was October 28, 2009.


6





2.         
  Convertible Notes
Payable




At
December 31, 2008, the Company had outstanding convertible notes payable
of approximately $4.7 million (the “Convertible Notes
Payable”).  The Convertible Notes Payable were presented net of the
unamortized discount related to a beneficial conversion feature present in the
terms of the note.  The discount was accreted into the statement of
operations as incremental interest expense using the effective interest method
through July 29, 2009. Interest on the Convertible Notes Payable adjusted
quarterly based on a London Inter-Bank Offering Rate (“LIBOR”) plus 0.5% per
annum, with interest only payments due on December 31st of each
year during the term of the Convertible Notes Payable. For the three and
nine-month periods ended September 30, 2009 and 2008, the Company recognized
total interest expense of approximately $0.3 million, $0.3 million, $0.9 million
and $0.9 million, respectively.  For the three and nine-month periods
ended September 30, 2009 and 2008, total interest expense recognized by the
Company included incremental interest expense associated with discount accretion
of approximately $0.3 million, $0.2 million, $0.9 million and $0.6 million,
respectively.  On July 29, 2009, the Company made full cash payment of
the outstanding principal balance and all accrued but unpaid interest thereon.





3.          
 Loss Per
Share




The
computations of basic and diluted loss per common share are based upon the
weighted average number of common shares outstanding and potentially dilutive
securities.  Potentially dilutive securities include options and
warrants to acquire the Company’s common stock and convertible
debt.  As of September 30, 2009, there were approximately 11 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 nine-month
periods ended September 30, 2009 and 2008, because inclusion of such potentially
dilutive securities would have been anti-dilutive.





4.   
        Stock Plans and Stock-Based
Compensation




In accordance with the 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.





During
the three and nine-month periods ended September 30, 2009 and 2008, the
Company granted 7,000, 330,786, 1,425,541 and 2,066,820 stock options,
respectively, to its directors, officers and employees.  The
stock-based compensation expense for these stock options for the three and
nine-month periods ended September 30, 2009 and 2008 was approximately $0.2
million, $1.1 million, $1.2 million and $4.3 million, respectively. The fair
value of these stock options was estimated using the Black-Scholes options
pricing model with the following assumptions:


7





Nine
      Months Ended September 30, 2009 and 2008
                    
                    2009
                    
                    
                    2008Valuation
      Assumptions:Expected
      Term (years)
                    
                    
                    5.0
      - 6.5
                    
                    
                    
                    1.5
      - 6.5Expected
      Volatility
                    
                    
                    126%
      - 143%
                    
                    
                    
                    93%
      - 151%Expected
      Dividend Rate
                    
                    
                    -
                    
                    
                    
                    -Risk
      Free Interest Rate
                    
                    
                    1.45%
      - 2.75%
                    
                    
                    
                    1.6%
      - 3.57%Grant
      Date Fair Value
                    
                    
                    $0.52
      - $1.53
                    
                    
                    
                    $1.60
      -$3.69





Three
      Months Ended September 30, 2009 and 2008
                      
                      2009
                      
                      
                      2008Valuation
      Assumptions:Expected
      Term (years)
                      
                      
                      5.0
                      
                      
                      
                      5.0
      - 6.5Expected
      Volatility
                      
                      
                      129%
                      
                      
                      
                      126%
      - 139%Expected
      Dividend Rate
                      
                      
                      -
                      
                      
                      
                      -Risk
      Free Interest Rate
                      
                      
                      2.37%
                      
                      
                      
                      3.06%
      - 3.55%Grant
      Date Fair Value
                      
                      
                      $1.53
                      
                      
                      
                      $2.18
      - $2.61





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. 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 as of September 30,
2009.


8




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 July 31, 2009, a Supreme Court of the State of
Nevada three judge panel (“Supreme Court Panel”) issued an Order of Affirmance
finding that the plaintiff’s arguments were without merit and affirmed the
District Court’s judgment in favor of the Company. The plaintiff requested a
rehearing from the Supreme Court Panel which was denied.  On October
5, 2009, the plaintiff filed a petition for rehearing by the entire Supreme
Court of the State of Nevada.  That petition has not yet been
decided.  No asset or liability has been accrued relative to this
action.




Talisman
Litigation


In
Talisman Capital Talon Fund, Ltd. v. Rudolf W. Gunnerman and SulphCo, Inc., Case
No. 05-CV-N-0354-BES-RAM, the Company and Rudolf W. Gunnerman were named as
defendants in a legal action commenced in federal court in Reno, Nevada. The
plaintiff’s claims relate to the Company's ownership and rights to develop its
"sulfur removal technology." The Company regards these claims as without merit.
Discovery in this case formally concluded on May 24, 2006. On September 28,
2007, the court granted, in part, the defendants' motion for summary judgment
and dismissed the plaintiff's claims for bad faith breach of contract and unjust
enrichment that had been asserted against Rudolf Gunnerman. The court denied the
plaintiff's motion for partial summary judgment. The trial for this matter
commenced on December 1, 2008 and continued through December 12,
2008.  The court recessed the trial on December 12, 2008 prior to
hearing closing arguments.  Post trial briefs were filed with the
court on February 20, 2009, and closing arguments were heard on March 3, 2009.
On May 14, 2009, the court entered a judgment in favor of the Company and
dismissed all claims with prejudice. The plaintiff appealed the judgment on June
11, 2009. The plaintiff’s opening brief is due to the court on December 4,
2009.  The Company’s answering brief will be due to the court on
February 2, 2010 with the plaintiff’s reply brief thereto due to the court on
February 16, 2010.  No date has been set for argument or submission of
the appeal. 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 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.


9


In
September of 2007, the Company’s Board of Directors received a demand letter
(the “Hendrickson Demand Letter”) from Mr. Hendrickson’s attorney reasserting
the allegations contained in the original derivative claim and requesting that
the Board of Directors conduct an investigation of these matters in response
thereto.  In response to the Hendrickson Demand Letter, the Company’s
Board of Directors formed a committee comprised of three independent directors
(the “Committee”) to evaluate the Hendrickson Demand Letter and to determine
what action, if any, should be taken. The Committee retained independent counsel
to advise it.





On
September 2, 2008, the Company’s Board of Directors held a special meeting for
the purpose of hearing and considering the Committee’s report and
recommendation.  At that meeting, the Committee reported on its
investigation and presented the Committee’s unanimous recommendation that no
actions be brought by the Company based upon the matters identified in the
Hendrickson Demand Letter.  The Board of Directors unanimously adopted
the Committee’s recommendation. SulphCo communicated this conclusion to Mr.
Hendrickson’s counsel in mid-September 2008.





On
November 6, 2008, Mr. Hendrickson re-filed the shareholder derivative claim in
the 127th Judicial District Court of Harris County, Texas. The case is known as
Thomas Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf W.
Gunnerman, Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert Henri
Charles Van Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E.
Urquhart, Lawrence G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
Henkel, (No. 200866743).  The Company has responded to this litigation
by moving to dismiss and the individual defendants have responded by moving to
dismiss for lack of personal jurisdiction.  No relief is sought
against the Company and no liability has been accrued relative to this
action.





Nevada Heat Treating
Litigation


On
November 29, 2007, Nevada Heat Treating, Inc. (“NHT”) filed a lawsuit against
the Company, Nevada Heat Treating, Inc., d/b/a California Brazing, in the Second
Judicial District Court of the State of Nevada, in and for the County of Washoe,
Case No. CV07-02729.  In its complaint, NHT alleges trade secret
misappropriation and breach of contract relative to certain information alleged
to have been disclosed to the Company beginning in late 2006 and continuing
through early 2007 pursuant to a consulting engagement with
NHT.  Among other things, NHT asserted that certain information,
alleged to have been disclosed to the Company during the term of the consulting
engagement, is the subject of a non-disclosure/confidentiality agreement
executed at the inception of the consulting engagement.  NHT is
contending that this certain information represents a trade secret that should
no longer be available for use by the Company following the termination of the
consulting engagement with NHT in the spring of 2007.  In connection
with filing this action, NHT also filed a motion for preliminary injunction
against the Company seeking to enjoin it from using certain information until
the matter can be resolved through the courts. Hearings on the preliminary
injunction motion took place on March 24 and 25, 2008, and May 8,
2008.  On May 8, 2008, the court ruled from the bench, at the
conclusion of the hearing on the motion for preliminary
injunction.  The court denied the plaintiff’s motion on grounds that
the plaintiff had failed to demonstrate a probability of success on the merits
of its claims.  On November 18, 2008, the Company accepted a formal
settlement offer from NHT wherein it was agreed that NHT would dismiss its
claims and each party would bear its own costs and fees, but that NHT would
preserve any claims that it might have in the future relating to its patent
application.  On March 2, 2009, the Company filed notice with the Court
that it had accepted the formal settlement offer.  On April 1, 2009, the
Court entered a judgment consistent with the terms of the formal settlement
offer and the matter has been concluded.  No liability was accrued relative
to this action.


10




Securities and Exchange
Commission Subpoena


On
February 25, 2008, the Company received a subpoena from the Denver office of the
Securities and Exchange Commission (the “SEC”).  The subpoena
formalized virtually identical requests the Company received in May, June and
August 2007 to which the Company responded to the request for voluntary
production of documents and information, including financial, corporate, and
accounting information related to the following subject
matters:  Fujairah Oil Technology LLC, the Company’s restatements for
the first three quarterly periods of 2006 and the non-cash deemed dividend for
the quarter ended March 31, 2007, and information and documents related to
certain members of former management, none of whom have been employed by the
Company since March 2007.  On June 15, 2009, the Company was advised
by the SEC that this investigation has been completed as to SulphCo, against
which the SEC does not intend to recommend any enforcement action.





6.    
       Related Party
Transactions




During
the three and nine-month periods ended September 30, 2009 and 2008, the Company
made payments of approximately $0.2 million, $0.5 million, $0.7 million and $1.0
million, respectively, to Märkisches Werk Halver, GmbH (“MWH”) in connection
with ongoing probe development activities under an existing
agreement.  Under the terms of the agreement, MWH will continue to
develop and manufacture high-volume, high-power ultrasound systems for use in
SulphCo’s Sonocracking process (the “Equipment”) through June 2013. MWH will
sell Equipment exclusively to the Company and the Company will purchase a
minimum of 60% of its annual Equipment requirements from MWH.  The
Company may purchase a lesser percentage of Equipment from MWH if the Company
can either purchase comparable equipment at a price that is 25% less than the
price charged by MWH or MWH does not manufacture the Equipment within the
Company’s quality control specifications. In addition to the fees that MWH will
receive for its probe development and manufacturing activities, MWH also
received an option to purchase 50,000 shares of SulphCo common
stock.  Edward E. Urquhart, the Chief Executive Officer of MWH from
July 2003 through May 2009, was a member of the Company’s Board of Directors
from August 2006 to April 2009.





The
Company had a consulting contract with Vincent van Maasdijk, the son of Robert
van Maasdijk who has been a member of the Company’s Board of Directors since
April 2005 and Chairman of the Board from January 2007 to April 2009, to serve
as a project manager. As a project manager, Mr. van Maasdijk’s responsibilities
included overseeing the installation and testing of commercial SonocrackingTM
units at various locations assigned by the Company.  Under the terms
of the contract, Mr. van Maasdijk received a monthly payment of approximately
$7,000 plus reimbursement of all reasonable out-of-pocket expenses, in
accordance with the Company’s applicable policies and procedures.  For
the three and nine-month periods ended September 30, 2009 and 2008, the total
expense recognized by the Company under this arrangement was approximately zero,
$29,000,
$30,000 and $72,000,
respectively. In April of 2009, both parties mutually agreed not to renew the
contract.





7.           
New Accounting
Pronouncements





Recently
Adopted Accounting Standards





In
January 2009, we adopted authoritative guidance issued by the Financial
Accounting Standards Board (“FASB”) on determining whether instruments
granted in share-based payment transactions are participating securities. The
guidance 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 the Earnings Per Share Topic of the FASB Accounting Standards
Codification. Adoption of the new guidance did not have a material impact on the
Company’s computation of earnings per share.


11





In
January 2009, we adopted authoritative guidance issued by the FASB on
determining whether an instrument (or an Embedded Feature) is indexed to an
entity’s own stock. The guidance 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. Adoption of
the new guidance did not have a material impact on the Company’s financial
statements.





In
January 2009, we adopted authoritative guidance issued by the FASB on
business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. Adoption of the
new guidance will not have a material impact on the Company’s financial
statements unless the Company makes an acquisition of a business.





In May
2009, we adopted authoritative guidance issued by the FASB on interim
disclosures about fair value of financial instruments. Adoption of the new
guidance did not have a material impact on the Company’s financial
statements.





In May
2009, we adopted
authoritative guidance issued by theFASB on subsequent
events. The guidance establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Adoption of the
new guidance did not materially impact the Company’s financial
statements.





In July
2009, we adopted
authoritative guidance issued by theFASB that provides
for the FASB Accounting Standards Codification (the “Codification”) to become
the single official source of authoritative GAAP. The Codification did not
change GAAP but reorganizes the accounting literature. The adaption of the new
guidance did not materially impact the Company’s financial
statements.





Recently
Issued Accounting Standards





In
October 2009, the FASB issued authoritative guidance on revenue arrangements
with multiple deliverables that are outside the scope of the software revenue
recognition guidance. Under the new guidance, when vendor specific objective
evidence or third party evidence for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to separate
deliverables and allocate arrangement consideration using the relative selling
price method. The new guidance includes new disclosure requirements on how the
application of the relative selling price method affects the timing and amount
of revenue recognition. The new guidance will be effective for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. We believe future adoption of this new guidance will not
have a material impact on our financial statements.


12


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





Results of
Operations




As a development stage company, we have
not generated any material revenues since we commenced our current line of
business in 1999.  When we emerge from the development stage, our
reporting will change to reflect costs of sales against revenues.





Research
and Development Activities Update




SulphCo’s SonocrackingTM technology
employs high power ultrasound to accelerate oxidative desulfurization (“ODS”),
an attractive alternative to hydrodesulfurization (“HDS”), the currently
practiced method of desulfurization.  In order to meet stringent
regulatory limits, HDS 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 ultrasound-assisted ODS process allows
comparably mild reaction conditions such as ambient temperatures and mild
pressures.  Ultrasound accelerates chemical reactions by inducing
cavitation, which results in strong mixing, high shear and mass transport.
SulphCo’s ultrasound assisted ODS SonocrackingTM technology is a potentially more
cost effective and energy efficient alternative to HDS. The lower capital cost
and smaller equipment footprint suggest a multitude of potential placement
options in refinery or other operating settings. The most attractive deployment
of the SonocrackingTM technology exploits the advantages of both processes due to
the fact that ODS technology works efficiently on the most refractory sulfur
compounds. It is important to note that SulphCo’s desulfurization process
consists of the ultrasound assisted conversion of the sulfur compounds to their
oxidized analogs (step 1) and the subsequent removal of these oxidized compounds
by a separation technique such as adsorption (step 2).  The following
is an update of the Company’s more significant research and development
activities conducted during 2009.




Development of Catalyst
Systems and Adsorption Process


Activities in the third quarter of 2009
continued to center around optimizing additive packages for the sulfur
conversion step as well as establishing key parameters for the adsorption
process typically needed for sulfur removal. For the diesel finishing and
transmix applications, a variety of catalyst systems have been evaluated, with
achievement of sulfur content levels of less than 15 parts per million (“ppm”)
for several streams. Targeted efforts to improve cost/benefit ratios have led to
the identification of several promising catalyst systems. We also established a
dedicated effort on adsorption for sulfur removal. At least two potential
adsorbent alternatives have been identified and characterized. Ongoing work is
geared towards process implementation.




For a
specific natural gas condensate application, the primary focus is on the removal
of mercaptan sulfur compounds. A third quarter 2009 highlight was the successful
development of a low-cost catalyst system for this particular application.
Equally important, our lab work suggests that sufficient sulfur removal can be
achieved by simple phase separation eliminating the need for an adsorption unit.
Ongoing work is directed towards optimizing critical process parameters such as
flow rates, reaction temperatures and pressures. Preparation for field
validation at commercial rates has been initiated.


13




Ultrasound Probe, Reactor
and Control Systems


During the first nine-months of 2009,
SulphCo and MärkischesWerk Halver, GmbH
(“MWH”) developed a simplified control panel system that is more
conducive to continuous commercial operation. It incorporates an operator
interface to the ultrasound system with real-time process data updating and
automatic probe control.  It is intended to become the primary
interface for operators in a commercial setting, with the ability to integrate
into existing plant control systems. Enhancements include an updated amplitude
measurement device as well as an improved probe mounting assembly. The new
ultrasound probe mounting assembly simplifies field replacement of probes during
commercial operation. Our current state-of-the-art ultrasound probe, reactor and
control system technology is well suited for laboratory, pilot and commercial
use and only minor modifications are expected for the future. High intensity
endurance testing of the current ultrasound probe/transducer assembly was
initiated in September 2009.




Business
Development Activities Update




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




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




OMV


Based on the promising results
of  laboratory and field trials conducted in the first quarter of
2009, SulphCo and OMV Refining and Marketing GmbH (“OMV”) entered into a
technology agreement (the “Technology Agreement”) to jointly evaluate our
SonocrackingTM technology in several of OMV’s refining
applications.  In early July 2009 we completed the first series of
detailed technology trials contemplated under the Technology Agreement in which
various petroleum products and crude oil streams were treated using our
SonocrackingTM technology in OMV’s pilot plant facilities located in Schwechat,
Austria. Based on the results of this first series of technology trials, SulphCo
and OMV have agreed to move forward with further technical and economic
evaluations for a select group of specific applications, focusing on the most
compelling economic cases. In the third quarter of 2009, OMV utilized its linear
program refining model to help determine detailed and specific application
economics. In early October, Dr. Ryan and Dr. Schattenmann traveled to Vienna to
discuss the preliminary results of the linear program refining model with OMV.
Dr. Ryan and Dr. Schattenmann will be meeting with OMV again in early November
to discuss the next steps in SulphCo's work with OMV regarding its project
planning process through which SulphCo’s SonocrackingTM technology could be
integrated into a future OMV investment cycle leading to the potential
installation of a commercial SonocrackingTM unit. 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.




North
America


SulphCo
is pursuing a specific natural gas condensate application with an integrated
major oil company with a facility located in western Canada. 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 SononcrackingTM unit
at this company’s facility in Canada. SulphCo is currently negotiating a
placement and validation agreement with this company that, upon execution, will
result in the placement of a SononcrackingTM unit on-site to facilitate
commercial scale validation of the technology for this
application.  Additionally, discussions with technical representatives
of this company continue with respect to other applications of the SonocrackingTM
technology in their facilities around the world.


14




We have
presented in-house laboratory and third-party data, with respect to the
performance of the SonocarckingTM 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 their facility to determine the
best value proposition for the technology in their 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.




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. SulphCo continues to work with Laguna and other companies in the
trans-mix market to meet their technical and commercial requirements to produce
ultra-low sulfur diesel.




In
addition to the ongoing discussions described above, we have been contacted by
several new potential customers expressing interest in the SonocrackingTM
technology, including integrated major oil companies, independent oil companies,
and small refiners.  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 this recent progress in this region, 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 a certain company in Argentina earlier this year, the
distribution agreement between SulphCo and J.W. Tecnologia Servicios Petroleros
S.A.C. (“South American Distributor”) has been 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 earlier this
year and may lead to additional discussions and possibly collaborative efforts
to utilize the Sonocracking TM technology on specific customer
applications.




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. 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. It is anticipated these discussions may ultimately lead
to commercial demonstrations.




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


15




Middle
East


The agreement with Amira Group Company
LLC (“Amira”), a U.S.-based oil and gas services company, granting Amira an
exclusive distributorship in the countries of Kuwait, Qatar, Abu Dhabi, Bahrain,
Saudi Arabia, Libya, Egypt and certain customer specific opportunities (the
"Amira Sales Territories") expired as of July 10, 2009. The parties are
negotiating a possible modification and extension of the previous agreement. As
of September 30, 2009, the Company has not entered into any customer agreements
in the Amira Sales Territories and there can be no assurance that the Company
will enter into any such 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 countries 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 barrels per day (“Bpd”) of
processing capacity to be shipped at our expense from Fujairah to a designated
port within the Isis Sales Territories. Subsequently, the Company shipped 90,000
Bpd of processing capacity from our facility in Fujairah, UAE, to Singapore in
April 2008.




Subsequent
to the initial discussions with the potential customer, unanticipated events
occurred which led to delays in reaching a final placement agreement. 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.  In anticipation of other capacity requirements, the Company
has decided to ship the 90,000 Bpd of processing capacity currently stored in
Singapore to Houston during the fourth quarter of 2009.




There can
be no assurance that the Company will be successful in implementing any
commercial agreements in the Isis Sales Territories.




Fujairah


As of
September 30, 2009, the Company had 90,000 Bpd of processing capacity at its
facility in Fujarah.  The Company has not conducted any validation
testing at the Fujairah facility during 2009. The ultimate timing of future
testing depends entirely on the requirements of potential customers. There can
be no assurance that the Company will be successful in implementing any
commercial agreements in Fujairah.




South
Korea


To date
several attempts have been made by the Company to resolve the outstanding
business issues between it and SulphCo Korasia, but those issues have not been
resolved satisfactorily at this point. While we expect to continue our efforts
to resolve those issues, there can be no assurance that they will be resolved
favorably.


16


Three
and nine-months ended September 30, 2009 compared to the three and nine-months
ended September 30, 2008





Research and Development
Expenses




For the
three and nine-month periods ended September 30, 2009, we incurred expenses of
approximately $0.8 million and $2.6 million, respectively, related to research
and development of our SonocrackingTM technology.  This compares to
expenses of approximately $1.3 million and $3.3 million for the comparable
periods in 2008.  The decrease in research and development expenses in
the three and nine-month periods in 2009 as compared to the three and nine-month
periods in 2008 is primarily due to a reduction in expenditures related to the
development of the ultra-sonic probe and reactor assemblies. The ultra-sonic
probes and reactor assemblies have been developed to a point suitable for their
expected application and the Company does not expect to incur significant
expenses on further development of the ultrasonic-probes and reactor assemblies
through the end of 2009.





During
the three and nine-month periods ended September 30, 2009, we incurred expenses
of approximately $0.1 million and $0.2 million, respectively, related to
the test facility in Fujairah, UAE.  This compares to expenses of
approximately $0.1 million and $0.3 million, respectively, for the comparable
periods in 2008.




Selling,
General and Administrative Expenses





For the
three and nine-month periods ended September 30, 2009, we incurred expenses of
approximately $1.4 million and $6.3 million, respectively, in selling, general
and administrative expenses. This compares to expenses of approximately $3.4
million and $12.6 million, respectively, for the comparable periods in
2008.





Stock-based
compensation was approximately $0.2 million and $1.2 million, for the three and
nine-month periods ended September 30, 2009, respectively. This compares to
stock-based compensation of approximately $1.1 million and $4.4 million,
respectively, for the comparable periods in 2008.





Legal
fees were approximately $0.2 million and $0.9 million, respectively, for the
three and nine-month periods ended September 30, 2009.  This compares
to expenses of approximately $1.0 million and $2.8 million, respectively, for
the comparable periods in 2008. This represents decreases of $0.8 million and
$1.9 million, respectively, relative to comparable periods in 2008. The
decreases in legal fees over the first nine months of 2009 were primarily
attributable to the resolution of outstanding litigation matters that gave rise
to significant legal fees for the three and nine-month periods ended September
30, 2008. We are not expecting any significant litigation fees for the remainder
of 2009.





Consulting,
payroll and related expenses were approximately $0.6 million and $2.1 million,
respectively, for the three and nine-month periods ended September 30,
2009.  This compares to expenses of approximately $0.6 million and
$3.2 million, respectively, for the comparable periods in 2008.  This
represents decreases of zero and $1.1 million, respectively, relative to
comparable periods in 2008. The $1.1 million decrease in the nine months of 2009
compared to the first nine months of 2008 was primarily attributable to the
reduction in the number of outside consultants engaged during the first nine
months of 2009 and additional expenses recognized in the second quarter of 2008
related to a settlement agreement with a former consultant.





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


17


Interest
Expense




For the
three and nine-month periods ended September 30, 2009 and 2008, the Company
recognized total interest expense of approximately $0.3 million, $0.3 million,
$0.9 million and $0.9 million, respectively. For the three and nine-month
periods ended September 30, 2009 and 2008, total interest expense recognized by
the Company included incremental interest expense associated with discount
accretion of approximately $0.3 million, $0.2 million, $0.9 million and $0.6
million, respectively.





On July
29, 2009, the Company made full cash payment of the outstanding principal
balance and all accrued but unpaid interest thereon.





Deemed
Dividend




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





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





Liquidity
and Capital Resources





On July
29, 2009, the Company prepaid in cash the full $4.7 million outstanding
principal balance of the convertible notes payable and all accrued but unpaid
interest thereon. As of September 30, 2009, we had approximately
$4.2 million in available cash reserves. Based on the cash reserves at
September 30, 2009 and the forecasted monthly cash burn rate, we anticipate that
our cash reserves will be sufficient to fund our cash requirements into the
latter part of the first quarter of 2010.  The Company is also
evaluating various equity financing alternatives that may include, among other
things, additional equity issuances, the proceeds of which would be used to
replace cash reserves used to repay the convertible notes.  There can
be no assurance that the Company will be successful in raising such financing,
if it decides to pursue such an alternative.





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


18





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.




We are
exposed to market risks arising from changes in market rates and prices,
including movements in foreign currency exchange rates and interest rates. On
July 29, 2009, the Company made full cash payment of the approximately $4.7
million outstanding variable rate debt that exposed the Company to the risk of
increased interest expense.





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 September 30,
2009, the end of the period covered by this Form 10-Q.  Based on this
evaluation, our chief executive officer and chief financial officer concluded
that, as of September 30, 2009, the Company’s disclosure controls and procedures
were effective.




Changes in Internal
Controls





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the period ended
September 30, 2009, that have materially affected, or are 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 Financial Statements – Commitments and Contingencies (Part
I, Item 1) for information regarding legal proceedings involving the
Company.





Item
1A.    Risk Factors





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





Items
2, 3 and 4 are not applicable and have been omitted.





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.


21


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:   October
      28, 2009
              /s/ Larry D. RyanBy:  Larry
      D. RyanChief
      Executive Officer(Principal
      Executive Officer)Date:   October
      28, 2009
              /s/ Stanley W. FarmerBy:  Stanley
      W. FarmerVice
      President, Chief Financial Officer,Treasurer
      and Corporate Secretary(Principal
      Financial and Accounting
Officer)


22