UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-Q








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





For
the quarterly period ended.................................................March
31, 2010


or





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


SECURITIES
EXCHANGE ACT OF 1934





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





Commission
File Number 001-32636





SULPHCO, INC.


(Exact
name of registrant as specified in its charter)





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





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





(713)
896-9100


(Registrant's
telephone number, including area code)





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





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




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





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





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





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





Class
                  
                  Outstanding at April 30,
    2010Common
      Stock, par value $.001
                  
                  101,708,741
      shares








SulphCo,
Inc.





PagePart
      I – Financial InformationItem
      1. Financial Statements
                    
                    3Condensed Balance Sheets (unaudited)
                    
                    3Condensed Statements of Operations (unaudited)
                    
                    4Condensed Statements of Cash Flows (unaudited)
                    
                    5Notes to Condensed Financial Statements
                    
                    6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                    
                    11Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                    
                    17Item
      4. Controls and Procedures
                    
                    17Part
      II – Other InformationItem
      1. Legal Proceedings
                    
                    18Item
      1A. Risk Factors
                    
                    18Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                    
                    18Item
      6. Exhibits
                    
                    18Signatures
                    
                    19




2


PART I. FINANCIAL
INFORMATION





Item
1.  Financial Statements.





SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED BALANCE
SHEETS


March 31,
2010 and December 31, 2009


(unaudited)




March 31,
                                                                        2010
                                                                      
                                                                      
                                                                      December 31,
                                                                        2009ASSETSCurrent AssetsCash
      and cash equivalents
                                                                      
                                                                      $
                                                                      5,421,624
                                                                      
                                                                      
                                                                      $
                                                                      1,658,823Prepaid
      expenses and other
                                                                      
                                                                      
                                                                      336,895
                                                                      
                                                                      
                                                                      
                                                                      688,008Total
      current assets
                                                                      
                                                                      
                                                                      5,758,519
                                                                      
                                                                      
                                                                      
                                                                      2,346,831Property and Equipment(net of accumulated depreciation of $1,246,861and
      $1,205,050, respectively)
                                                                      
                                                                      
                                                                      229,285
                                                                      
                                                                      
                                                                      
                                                                      263,995Other AssetsIntangible
      assets (net of accumulated amortization of $268,500and
      $244,608, respectively)
                                                                      
                                                                      
                                                                      983,250
                                                                      
                                                                      
                                                                      
                                                                      986,124Other
                                                                      
                                                                      
                                                                      20,600
                                                                      
                                                                      
                                                                      
                                                                      20,600Total
      other assets
                                                                      
                                                                      
                                                                      1,003,850
                                                                      
                                                                      
                                                                      
                                                                      1,006,724Total
      assets
                                                                      
                                                                      $
                                                                      6,991,654
                                                                      
                                                                      
                                                                      $
                                                                      3,617,550LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts
      payable and accrued expenses
                                                                      
                                                                      $
                                                                      734,202
                                                                      
                                                                      
                                                                      $
                                                                      552,496Refundable
      deposit
                                                                      
                                                                      
                                                                      550,000
                                                                      
                                                                      
                                                                      
                                                                      550,000Late
      registration penalty (including accrued interest)
                                                                      
                                                                      
                                                                      399,033
                                                                      
                                                                      
                                                                      
                                                                      389,836Total
      current liabilities
                                                                      
                                                                      
                                                                      1,683,235
                                                                      
                                                                      
                                                                      
                                                                      1,492,332Long-Term Liabilities
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Total
      liabilities
                                                                      
                                                                      
                                                                      1,683,235
                                                                      
                                                                      
                                                                      
                                                                      1,492,332Commitments and Contingencies (Note
      5)Stockholders' EquityPreferred
      stock: 10,000,000 shares authorized ($0.001 par value) none
      issued
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Common
      stock: 150,000,000 shares authorized ($0.001 par value)101,708,741
      and 89,944,029 shares issued and outstanding, respectively
                                                                      
                                                                      
                                                                      101,709
                                                                      
                                                                      
                                                                      
                                                                      89,944Additional
      paid-in capital
                                                                      
                                                                      
                                                                      164,837,171
                                                                      
                                                                      
                                                                      
                                                                      159,298,891Deficit
      accumulated during the development stage
                                                                      
                                                                      
                                                                      (159,630,461
                                                                      )
                                                                      
                                                                      
                                                                      (157,263,617
                                                                      )Total
      stockholders' equity
                                                                      
                                                                      
                                                                      5,308,419
                                                                      
                                                                      
                                                                      
                                                                      2,125,218Total
      liabilities and stockholders' equity
                                                                      
                                                                      $
                                                                      6,991,654
                                                                      
                                                                      
                                                                      $
                                                                      3,617,550





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


3


SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED STATEMENTS OF
OPERATIONS


For the
Three Month Periods Ended March 31, 2010 and 2009


and for
the Period from Inception to March 31, 2010


(unaudited)





Three Months Ended
                                          March 31,
                                        
                                        
                                        Inception2010
                                        
                                        
                                        2009
                                        
                                        
                                        to DateRevenueSales
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        42,967ExpensesSelling,
      general, and administrative expenses
                                        
                                        
                                        (1,615,098
                                        )
                                        
                                        
                                        (3,498,253
                                        )
                                        
                                        
                                        (77,022,371
                                        )Research
      and development expenses:Fujairah
      test facility
                                        
                                        
                                        (16,352
                                        )
                                        
                                        
                                        (108,584
                                        )
                                        
                                        
                                        (23,866,256
                                        )Other
      research and development
                                        
                                        
                                        (726,694
                                        )
                                        
                                        
                                        (732,463
                                        )
                                        
                                        
                                        (20,922,760
                                        )Other
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (591,706
                                        )Total
      operating expenses
                                        
                                        
                                        (2,358,144
                                        )
                                        
                                        
                                        (4,339,300
                                        )
                                        
                                        
                                        (122,403,093
                                        )Loss
      from operations
                                        
                                        
                                        (2,358,144
                                        )
                                        
                                        
                                        (4,339,300
                                        )
                                        
                                        
                                        (122,360,126
                                        )Other income (expense)Interest
      income
                                        
                                        
                                        497
                                        
                                        
                                        
                                        11,267
                                        
                                        
                                        
                                        1,202,188Interest
      expense
                                        
                                        
                                        (9,197
                                        )
                                        
                                        
                                        (260,572
                                        )
                                        
                                        
                                        (8,848,820
                                        )Other
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (766,868
                                        )Net
      loss
                                        
                                        
                                        (2,366,844
                                        )
                                        
                                        
                                        (4,588,605
                                        )
                                        
                                        
                                        (130,773,626
                                        )Deemed
      dividend
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (28,856,835
                                        )Net loss
      attributable to common Stockholders
                                        
                                        $
                                        (2,366,844
                                        )
                                        
                                        $
                                        (4,588,605
                                        )
                                        
                                        $
                                        (159,630,461
                                        )Loss
      per share: basic and diluted
                                        
                                        $
                                        (0.02
                                        )
                                        
                                        $
                                        (0.05
                                        )Weighted
      average shares: basic and diluted
                                        
                                        
                                        98,310,046
                                        
                                        
                                        
                                        89,934,862





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


4


SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED STATEMENTS OF CASH
FLOWS


For the
Three Month Periods Ended March 31, 2010 and 2009


and
for the Period from Inception to March 31, 2010


(unaudited)





Three Months EndedMarch 31,
                                        
                                        
                                        Inception to2010
                                        
                                        
                                        2009
                                        
                                        
                                        March 31, 2010Cash Flows From Operating
      ActivitiesNet
      loss
                                        
                                        $
                                        (2,366,844
                                        )
                                        
                                        $
                                        (4,588,605
                                        )
                                        
                                        $
                                        (130,773,626
                                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                        
                                        
                                        65,703
                                        
                                        
                                        
                                        57,318
                                        
                                        
                                        
                                        1,718,212Accretion
      of convertible notes payable discount
                                        
                                        
                                        -
                                        
                                        
                                        
                                        249,486
                                        
                                        
                                        
                                        6,736,550Stock-based
      compensation
                                        
                                        
                                        158,368
                                        
                                        
                                        
                                        852,586
                                        
                                        
                                        
                                        21,175,918Other
                                        
                                        
                                        -
                                        
                                        
                                        
                                        3,622
                                        
                                        
                                        
                                        1,359,181Changes
      in:Prepaid
      expenses and other
                                        
                                        
                                        351,113
                                        
                                        
                                        
                                        122,115
                                        
                                        
                                        
                                        (357,495
                                        )Accounts
      payable and accrued expenses
                                        
                                        
                                        181,706
                                        
                                        
                                        
                                        (110,359
                                        )
                                        
                                        
                                        734,202Refundable
      deposit
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        550,000Late
      registration penalty (including accrued interest)
                                        
                                        
                                        9,197
                                        
                                        
                                        
                                        (250,941
                                        )
                                        
                                        
                                        399,033Net
      cash used in operating activities
                                        
                                        
                                        (1,600,757
                                        )
                                        
                                        
                                        (3,664,778
                                        )
                                        
                                        
                                        (98,458,025
                                        )Cash Flows From Investing
      ActivitiesPurchase
      of property and equipment
                                        
                                        
                                        (7,101
                                        )
                                        
                                        
                                        (43,206
                                        )
                                        
                                        
                                        (1,530,809
                                        )Investments
      in joint ventures and subsidiaries
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (361,261
                                        )Investments
      in intangible assets
                                        
                                        
                                        (21,018
                                        )
                                        
                                        
                                        (31,603
                                        )
                                        
                                        
                                        (1,267,591
                                        )Net
      cash used in investing activities
                                        
                                        
                                        (28,119
                                        )
                                        
                                        
                                        (74,809
                                        )
                                        
                                        
                                        (3,159,661
                                        )Cash Flows from Financing
      ActivitiesProceeds
      from sales of stock, net of offering costs
                                        
                                        
                                        5,391,677
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        104,801,454Proceeds
      from  related party notes payable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11,000,000Proceeds
      from issuance of line of credit
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        750,000Principal
      payments on related party notes payable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (5,441,285
                                        )Decrease
      in related party receivable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,359,185Principal
      payments on line of credit
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (750,000
                                        )Principal
      payments on convertible notes payable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (4,680,044
                                        )Net
      cash provided by financing activities
                                        
                                        
                                        5,391,677
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        107,039,310Net
      change in cash and cash equivalents
                                        
                                        
                                        3,762,801
                                        
                                        
                                        
                                        (3,739,587
                                        )
                                        
                                        
                                        5,421,624Cash
      and cash equivalents at beginning of period
                                        
                                        
                                        1,658,823
                                        
                                        
                                        
                                        17,567,848
                                        
                                        
                                        
                                        -Cash
      and cash equivalents at end of period
                                        
                                        $
                                        5,421,624
                                        
                                        
                                        $
                                        13,828,261
                                        
                                        
                                        $
                                        5,421,624Supplemental informationCash
      paid for interest
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        92,407
                                        
                                        
                                        $
                                        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


March 31,
2010


(unaudited)





1.
            Basis of
      Presentation




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





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





Use
of Estimates




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





Fair
Value of Financial Instruments




The
carrying amounts of financial instruments held by the Company, which include
cash, accounts payable, and accrued liabilities, approximate fair values due to
their short maturity.





2.
            Loss Per
      Share




The
computations of basic and diluted loss per common share are based upon the
weighted average number of common shares outstanding and potentially dilutive
securities.  Potentially dilutive securities include options and
warrants to acquire the Company’s common stock and convertible
debt.  As of March 31, 2010, there were approximately 23 million
shares issuable in connection with these potentially dilutive
securities.  These potentially dilutive securities were disregarded in
the computations of diluted net loss per share for the three month periods ended
March 31, 2010 and 2009, because inclusion of such potentially dilutive
securities would have been anti-dilutive.


6




3.
              Capital
      Stock




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





4.
              Stock Plans and
      Stock-Based
Compensation




In
accordance with the Stock Compensation Topic of the FASB Accounting Standards
Codification, the Company records stock-based compensation expense for all
share-based payment arrangements, including stock options, warrants and
restricted stock grants. The fair value of each option award granted is
estimated on the date of grant using a Black-Scholes option valuation model.
Expected volatilities are based on the historical volatility of the Company’s
stock. The expected term of options granted to employees is derived utilizing
the simplified method which represents the period of time that options granted
are expected to be outstanding. The Company utilizes the simplified method
because it does not have historical exercise data which is sufficient to provide
a reasonable basis to estimate the expected term. The Company expects to
continue utilizing the simplified method to determine the expected term until
such time as it accumulates historical exercise data that will provide a
sufficient basis for the Company to begin estimating the expected term for
option exercises. The risk-free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve at the time of
grant. The stock-based compensation expense for the three month periods
ended March 31, 2010 and 2009 was approximately $0.2 million and $0.9 million,
respectively.





During
the three month periods ended March 31, 2010 and 2009, the Company granted
1,350,000 and 450,000 stock options, respectively, to its directors, officers
and employees.  The fair value of these stock options was estimated
using the Black-Scholes options pricing model with the following
assumptions:





Three Months Ended March  31, 2010 and 2009
                            
                            2010
                            
                            
                            2009Valuation
      Assumptions:Expected
      Term (years)
                            
                            
                            5.0 
      - 5.5
                            
                            
                            
                            5.0Expected
      Volatility
                            
                            
                            124%
                            
                            
                            
                            127.9%
      - 157.2%Expected
      Dividend Rate
                            
                            
                            -
                            
                            
                            
                            -Risk
      Free Interest Rate
                            
                            
                            2.39%
                            
                            
                            
                            1.45%
      - 2.16%Grant
      Date Fair Value
                            
                            $
                            0.31
                            
                            
                            $
                            0.52
      - $0.81





Of the
1,350,000 stock options granted to the Company’s directors, officers and
employees during the three month period ended March 31, 2010, 1,150,000 were
performance-based stock options granted to the Company’s directors and executive
officers.  The performance-based stock options have an exercise price
of $0.37 with a grant date fair value of approximately $360,000, a term of ten
years from the grant date and vest on a graduated basis over the next 12 months
subject to the achievement of certain commercial milestones. If the commercial
milestones are not achieved within the graduated vesting periods, these
performance-based stock options will be forfeited. The Company will assess the
probability of the achievement of the commercial milestones at the end of each
reporting period. If the Company determines that achievement of the commercial
milestones before the end of a vesting period is probable, future accruals of
stock-based compensation expense will be adjusted and a cumulative catch-up
adjustment will be recorded in that reporting period. As of March 31, 2010, the
Company has not recorded any stock-based compensation expense related to the
performance-based stock options granted during the three month period ended
March 31, 2010.


7





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 March 31,
2010.





Clean Fuels
Litigation





In Clean Fuels Technology v. Rudolf
W. Gunnerman, Peter Gunnerman, RWG, Inc. and SulphCo, Inc., Case No. CV05-01346
(Second Judicial District, County of Washoe) the Company, Rudolf W. Gunnerman,
Peter Gunnerman, and RWG, Inc., were named as defendants in a legal action
commenced in Reno, Nevada (the “Clean Fuels Litigation”).  The
plaintiff, Clean Fuels Technology later assigned its claims in the lawsuit to
EcoEnergy Solutions, Inc., which entity was substituted as the
plaintiff.  In general, the plaintiff’s alleged claims relate to
ownership of the “sulfur removal technology” originally developed by Professor
Teh Fu Yen and Rudolf Gunnerman with financial assistance provided by Rudolf W.
Gunnerman, and subsequently assigned to the Company.  On September 14,
2007, after a jury trial and extensive post-trial proceedings, the trial court
entered final judgment against the plaintiff EcoEnergy Solutions, Inc. on all of
its claims.  As per the final judgment, all of the plaintiff’s claims
were resolved against the plaintiff and were dismissed with
prejudice.  In addition, the trial court entered judgment in favor of
the Company and against the plaintiff for reimbursement of legal fees and costs
of approximately $124,000, with post-judgment interest.  The plaintiff
appealed the judgment on October 5, 2007. On August 3, 2009, the Nevada Supreme
Court affirmed the court’s Order and judgment in its entirety.  The
Nevada Supreme Court then denied EcoEnergy’s request for a rehearing on
September 25, 2009 and further denied EcoEnergy’s Petition for En Banc
Reconsideration on November 17, 2009.  On December 15, 2009, the
Nevada Supreme Court restored jurisdiction to the district court for any
post-appeal issues. Since that time, the Company received legal fees, costs, and
interest awarded to it under the judgment from EcoEnergy. The Company then moved
the district court for an award of legal fees and costs incurred on
appeal.  The district court granted the award and the Company received
approximately $120,000 in March 2010 for costs incurred in connection with the
appeal.


8


Talisman
Litigation





In
Talisman Capital Talon Fund, Ltd. v. Rudolf W. Gunnerman and SulphCo, Inc., Case
No. 05-CV-N-0354-BES-RAM, the Company and Rudolf W. Gunnerman were named as
defendants in a legal action commenced in federal court in Reno, Nevada. The
plaintiff’s claims relate to the Company's ownership and rights to develop its
"sulfur removal technology." The Company regards these claims as without merit.
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 appeal brief was filed with the court in late December
2009.  The Company’s answering brief was filed with the court in early
February 2010.   The Ninth Circuit Court of Appeals has scheduled
oral arguments on the plaintiff’s appeal for June 16, 2010. No liability has
been accrued relative to this action.





Hendrickson Derivative
Litigation





On January 26, 2007, Thomas
Hendrickson filed a shareholder derivative claim against certain current and
former officers and directors of the Company in the Second Judicial District
Court of the State of Nevada, in and for the County of Washoe. The case was
known as Thomas Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf
W. Gunnerman, Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert
Henri Charles Van Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E.
Urquhart, Lawrence G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
Henkel, Case No. CV07-00187, Dept. No. B6.  The complaint alleged,
among other things, that the defendants breached their fiduciary duty to the
Company by failing to act in good faith and diligence in the administration of
the affairs of the Company and in the use and preservation of its property and
assets, including the Company’s credibility and reputation.  On April
12, 2007 the Company and individual defendants filed a motion to dismiss, based
upon the plaintiff’s failure to make a demand upon the Board of Directors and
failure to state a claim.  On July 3, 2007, the parties filed a
Stipulation of Voluntary Dismissal Without Prejudice (the
“Stipulation”).  The Stipulation provided that in connection with the
dismissal of this action each of the parties will bear their own costs and
attorney fees and thereby waive their rights, if any, to seek costs and attorney
fees from the opposing party.  Further, neither the plaintiff nor his
counsel received any consideration for the dismissal of this
action.




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


9





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




On
November 6, 2008, Mr. Hendrickson re-filed the shareholder derivative claim in
the 127th Judicial District Court of Harris County, Texas. The case is known as
Thomas Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf W.
Gunnerman, Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert Henri
Charles Van Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E.
Urquhart, Lawrence G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
Henkel, Case No. 200866743.  The 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.




On April
7, 2010, the parties entered into a Memorandum of Understanding ("MOU"),
providing for a proposed settlement of the action under certain
conditions.  Under the MOU, the parties will negotiate a definitive
settlement agreement and after notice to SulphCo shareholders, the Court will
hold a hearing on the parties' motion for final settlement approval and
dismissal of the action with prejudice.  As there has been no definitive
settlement agreement executed, the parties have not asked the Court for an order
of preliminary approval.  Under the terms of the MOU, the contemplated
settlement will not have a material impact on the financialcondition of the
Company.


10


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





Overview





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





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





Research
and Development Activities Update





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




Development of Catalyst
Systems and Adsorption Process


Activities in the first quarter of 2010
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. Targeted efforts to improve
cost/benefit ratios have led to the identification of a preferred new, cost
effective catalyst system that distinguishes itself through high reactivity
towards a wide range of sulfur compounds, robustness towards process conditions
and wide range of applicability.  In diesel finishing and transmix
applications, less than 10 ppm sulfur content has routinely been achieved
employing this catalyst system.  In addition, this catalyst system
also excels for natural gasoline and condensate streams.




We also
continued dedicated work on sulfur removal for diesel and transmix streams,
which included ongoing work in adsorption and a new effort in
extraction.  Adsorption is the preferred means of sulfur removal for
product streams with 500 ppm and less sulfur content, while extraction is
preferred for product streams with higher sulfur content. At least two potential
adsorbent alternatives have been identified and characterized. Ongoing work is
oriented towards process implementation.




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


11


Ultrasound Probe, Reactor
and Control Systems


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





Business
Development Activities Update




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




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




Europe


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





North
America


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




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


12




On
September 15, 2009, SulphCo reported that it had executed a letter of intent
with Laguna Development Corporation ("Laguna") to move toward the installation
of SulphCo's desulfurization technology at Laguna's New Mexico trans-mix
facility. On November 13, 2009, SulphCo reported that it had executed a letter
of intent with Golden Gate Petroleum (“Golden Gate”) to move toward the
installation of SulphCo’s technology at Golden Gate’s Nevada trans-mix
facility.  SulphCo continues to work with Laguna, Golden Gate and
other companies in the trans-mix market to meet their technical and commercial
requirements to produce ultra-low sulfur diesel.




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




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




South
America


Based on technical data presented by
SulphCo at meetings with a certain company in Argentina in 2009, 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 in early 2009
and have lead to additional discussions and possibly collaborative efforts to
utilize the Sonocracking TM technology on specific customer
applications.  Additionally, SulphCo representatives, along with our
South American Distributor met with two oil companies in Peru during March 2010
to discuss diesel fuel applications.  Samples from one of those oil
companies are being sent to SulphCo for testing and evaluation.




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




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


13


Results of
Operations




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




Three
months ended March 31, 2010 compared to the three months ended March 31,
2009




Selling,
General and Administrative Expenses





For the
three month period ended March 31, 2010, we incurred expenses of approximately
$1.6 million in selling, general and administrative expenses. This compares to
expenses of approximately $3.5 million for the comparable period in
2009.





Stock-based
compensation was approximately $0.2 million for the three month period ended
March 31, 2010. This compares to stock-based compensation of approximately $0.9
million for the comparable period in 2009.





Legal
fees were approximately $0.1 million for the three month period ended March 31,
2010.  This compares to expenses of approximately $0.6 million for the
comparable period in 2009. The decrease in legal fees during the first quarter
of 2010 relative to the first quarter of 2009 is primarily attributable to the
resolution of outstanding litigation matters that gave rise to significant legal
fees in the first quarter of 2009. The Company does not expect to incur
significant litigation fees in the foreseeable future.





The
Company did not incur any expenses related to non-employee director fees for the
three month period ended March 31, 2010.  This compares to expenses of
approximately $0.2 million for non-employee director fees in the three month
period ended March 31, 2009.  In 2010, non-employees directors will
receive an annual cash retainer of approximately $0.2 million payable in equal
monthly installments beginning in April 2010.





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





Research and Development
Expenses




For the
three month period ended March 31, 2010, we incurred expenses of approximately
$0.7 million related to research and development of our SonocrackingTM
technology. This compares to expenses of approximately $0.7 million for the
comparable period in 2009.  The ultrasonic probes and reactor
assemblies have been developed to a point suitable for their expected
application and the Company does not expect to incur significant expenses on
further development of the ultrasonic probes and reactor assemblies through the
end of 2010.





During
the three month period ended March 31, 2010, we incurred expenses of
approximately $16,000 related to the test facility in Fujairah, UAE. This
compares to expenses of approximately $0.1 million for the comparable period in
2009.


14


Interest
Expense




For the
three month periods ended March 31, 2010 and 2009, the Company recognized
total interest expense of approximately $9,000 and $0.3 million, respectively.
For the three month periods ended March 31, 2010 and 2009, total interest
expense recognized by the Company included incremental interest expense
associated with discount accretion of zero and approximately $0.3 million,
respectively. On July 29, 2009, the Company made full cash payment of the
outstanding principal balance of its convertible notes payable and all accrued
but unpaid interest thereon.





Liquidity
and Capital Resources





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





As of
March 31, 2010, we had approximately $5.4 million in available cash
reserves. Based on the cash reserves at March 31, 2010 and the forecasted
monthly cash burn rate, we anticipate that our cash reserves will be sufficient
to fund our cash requirements into the first quarter of
2011.  Historically, we have been able to raise capital to continue
with our research and development and it is likely that we will need to raise
additional funds before we can generate enough revenue to become profitable. The
Company is evaluating various equity financing alternatives that may include,
among other things, additional equity issuances, the proceeds of which would be
used to fund future research and development activity.  There can be
no assurance that the Company will be successful in raising such financing, if
it decides to pursue such an alternative.


15


Forward-Looking
Statements





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





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





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





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


16


Item
3. Quantitative and Qualitative Disclosures About Market Risk.




We are
exposed to market risks arising from changes in market rates and prices,
including movements in foreign currency exchange rates and interest
rates.





Item
4. Controls and Procedures.





Evaluation of Disclosure
Controls and Procedures





Our
management, with the participation of the Company’s Chief Executive Officer and
Chief Financial Officer, have evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the “1934 Act”)) as of March 31,
2010, the end of the period covered by this Form 10-Q.  Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of March 31, 2010, the Company’s disclosure controls and procedures
were effective.




Changes in Internal
Controls





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the period ended March
31, 2010, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


17


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, 2009. An
investment in our common stock involves various risks. When considering an
investment in our common stock, you should consider carefully all of the Risk
Factors described in our most recent Form 10-K. These risks and uncertainties
are not the only ones facing us and there may be additional matters that we are
unaware of or that we currently consider immaterial. All of these could
adversely affect our business, financial condition, results of operations and
cash flows and, thus, the value of an investment in our Company.





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





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





Items
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.


18


SIGNATURES





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





SULPHCO,
      INC.(Registrant)Date:
      May 5, 2010
              /s/ Larry D. RyanBy:
              Larry
      D. RyanChief
      Executive Officer(Principal
      Executive Officer)Date:
      May 5, 2010
              /s/ Stanley W. FarmerBy:
              Stanley
      W. FarmerVice
      President, Chief Financial Officer,Treasurer
      and Corporate Secretary(Principal
      Financial and Accounting
Officer)


19