**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,
        2008**
 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**
 
 **S** **ULPH** **C** **O, INC.** ****
 (Exact
        name of registrant as specified in its charter)
 
 **Nevada**
              
              **88-0224817**(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 **4333 W. Sam Houston Pkwy N., Suite 190**
                **Houston,
                  TX**
              
              **77043**(Address
                  of principal executive offices)
              
              (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 is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        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
        equity, as of the latest practicable date:
 
 Class
              
              Outstanding
                  at October 31, 2008Common
                  Stock, par value $.001
              
              89,869,029
                  shares
  
 
 **SulphCo,
        Inc.**
 
 **Page****Part
                  I – Financial Information**Item 1.
              Financial
                  StatementsCondensed
                  Balance Sheets
              3Condensed
                  Statements of Operations
              4Condensed
                  Statements of Cash Flows
              5Notes
                  to Financial Statements
              7Item 2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              17Item 3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              23Item 4.
              Controls
                  and Procedures
              24**Part
                  II – Other Information**Item 1.
              Legal
                  Proceedings
              25Item 6.
              Exhibits
              25
  2
  **PART
        I.**
 **Item
        1. Financial Statements.**
 
 SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 CONDENSED
        BALANCE SHEETS
 September
        30, 2008 and December 31, 2007
 (unaudited)
 
 **ASSETS**
              
              **September 30,**
                **2008**
              
              **December 31,**
                **2007****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              21,126,631
              
              $
              7,430,138Prepaid
                  expenses and other
              
              
              270,552
              
              
              442,934Total
                  current assets
              
              
              21,397,183
              
              
              7,873,072**Property
                  and Equipment**(net
                  of****accumulated
                  depreciation of $1,027,955and
                  $917,107, respectively)****
              
              
              247,930
              
              
              309,323**Other
                  Assets**Intangible
                  assets (net of accumulated amortization of $141,401 and $89,496
                  respectively)
              
              
              975,854
              
              
              881,848Other
              
              
              254,445
              
              
              37,798Total
                  other assets
              
              
              1,230,299
              
              
              919,646Total
                  assets
              
              $
              22,875,412
              
              $
              9,102,041**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  payable and accrued expenses
              
              $
              970,150
              
              $
              1,515,278Refundable
                  deposit
              
              
              550,000
              
              
              550,000Late
                  registration penalty (including accrued interest)
              
              
              1,197,304
              
              
              1,094,671Convertible
                  notes payable, net of discount
              
              
              3,593,800
              
              
              -Total
                  current liabilities
              
              
              6,311,254
              
              
              3,159,949Convertible
                  notes payable, net of discount
              
              
              -
              
              
              2,967,802Other
              
              
              -
              
              
              180,058Total
                  long-term liabilities
              
              
              -
              
              
              3,147,860Total
                  liabilities
              
              
              6,311,254
              
              
              6,307,809**Commitments
                  and Contingencies (see Note 7)****Stockholders'
                  Equity**Preferred
                  stock: 10,000,000 shares authorized ($0.001 par value); none
                  issued
              
              
              -
              
              
              -Common
                  stock: 110,000,000 shares authorized ($0.001 par value);89,869,029
                  and 80,848,416 shares issued and outstanding, respectively
              
              
              89,870
              
              
              80,848Additional
                  paid-in capital
              
              
              157,174,665
              
              
              122,700,951Deficit
                  accumulated during the development stage
              
              
              (140,700,377
              )
              
              (119,987,567
              )Total
                  stockholders' equity
              
              
              16,564,158
              
              
              2,794,232Total
                  liabilities and stockholders' equity
              
              $
              22,875,412
              
              $
              9,102,041
  
 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, 2008 and 2007
 and
        the
        Period from Inception to September 30, 2008
 (unaudited)
 **Three Months Ended**
                
                **Nine Months Ended****September 30,**
                
                **September 30,**
                
                **Inception to****2008**
                
                **2007**
                
                **2008**
                
                **2007**
                
                **September 30,**
                  **2008****Revenue**Sales
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                42,967**Expenses:**Selling,
                    general, and administrative expenses
                
                
                (3,370,349
                )
                
                (3,160,574
                )
                
                (12,597,655
                )
                
                (10,231,982
                )
                
                (64,500,748
                )Research
                    and development expenses:Fujairah
                    test facility
                
                
                (127,402
                )
                
                (398,061
                )
                
                (297,421
                )
                
                (1,694,509
                )
                
                (23,465,059
                )Other
                
                
                (1,138,738
                )
                
                (849,507
                )
                
                (2,983,586
                )
                
                (2,496,906
                )
                
                (16,137,916
                )Loss
                    on investment in joint venture
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (136,095
                )Loss
                    on disposal of asset
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (221,711
                )Loss
                    on impairment of asset
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (233,900
                )Total
                    operating expenses
                
                
                (4,636,489
                )
                
                (4,408,142
                )
                
                (15,878,662
                )
                
                (14,423,397
                )
                
                (104,695,429
                )Loss
                    from operations
                
                
                (4,636,489
                )
                
                (4,408,142
                )
                
                (15,878,662
                )
                
                (14,423,397
                )
                
                (104,652,462
                )**Other
                    income (expense):**Interest
                    income
                
                
                52,136
                
                
                91,223
                
                
                114,705
                
                
                224,691
                
                
                1,133,269Interest
                    expense
                
                
                (281,891
                )
                
                (111,773
                )
                
                (860,966
                )
                
                (413,766
                )
                
                (7,557,481
                )Late
                    registration penalty
                
                
                -
                
                
                **-**
                
                
                -
                
                
                -
                
                
                (760,240
                )Other
                
                
                -
                
                
                (1,187
                )
                
                -
                
                
                (31,324
                )
                
                (6,628
                )**Net
                    loss**
                
                
                (4,866,244
                )
                
                (4,429,879
                )
                
                (16,624,923
                )
                
                (14,643,796
                )
                
                (111,843,542
                )Deemed
                    Dividend (see Note 4)
                
                
                -
                
                
                (3,937,415
                )
                
                (4,087,887
                )
                
                (17,119,121
                )
                
                (28,856,835
                )**Net
                      loss attributable tocommon
                      stockholders**
                
                $
                (4,866,244
                )
                $
                (8,367,294
                )
                $
                (20,712,810
                )
                $
                (31,762,917
                )
                $
                (140,700,377
                )Loss
                    per share - basic and diluted
                
                $
                (0.05
                )
                $
                (0.11
                )
                $
                (0.25
                )
                $
                (0.42
                )Weighted
                    average shares - basic and diluted
                
                
                89,782,933
                
                
                78,601,389
                
                
                84,525,815
                
                
                76,239,369
  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, 2008 and 2007
 and
        for
        the Period from Inception to September 30, 2008
 (unaudited)
 
 **Nine Months Ended****September 30,**
              
              **Inception to****2008**
              
              **2007**
              
              **September 30,**
                **2008****Cash Flows From Operating Activities**Net
                  loss
              
              $
              (16,624,923
              )
              $
              (14,643,796
              )
              $
              (111,843,542
              )Adjustments
                    to reconcile net loss to cash usedin operating
                    activities:Depreciation
                  and amortization
              
              
              163,694
              
              
              132,969
              
              
              1,320,877Accretion
                  of note payable discount
              
              
              625,998
              
              
              30,261
              
              
              5,680,567Allowance
                  for loan receivable
              
              
              14,200
              
              
              307,564
              
              
              327,651Stock-based
                  compensation
              
              
              4,408,346
              
              
              3,303,096
              
              
              18,892,449Stock
                  issued for interest expense
              
              
              -
              
              
              -
              
              
              296,000Stock
                  issued for settlement of litigation
              
              
              500,000
              
              
              -
              
              
              500,000Contribution
                  from stockholder
              
              
              -
              
              
              -
              
              
              555,000Loss
                  from joint venture
              
              
              -
              
              
              -
              
              
              136,096(Gain)
                  loss on disposal and impairment of assets
              
              
              2,133
              
              
              (6,908
              )
              
              450,836Changes
                  in:Receivables
              
              
              -
              
              
              -
              
              
              (118,657
              )Prepaid
                  expenses and other
              
              
              158,182
              
              
              (47,251
              )
              
              (201,092
              )Accounts
                  payable and accrued expenses
              
              
              (725,186
              )
              
              (1,687,387
              )
              
              892,340Other
                  assets
              
              
              (216,647
              )
              
              
              
              
              333,353Accrued
                  fees
              
              
              102,633
              
              
              101,657
              
              
              784,485Net
                  cash used in operating activities
              
              
              (11,591,570
              )
              
              (12,509,795
              )
              
              (81,993,637
              )**Cash
                  Flows From Investing Activities**Purchase
                  of property and equipment
              
              
              (52,526
              )
              
              (218,114
              )
              
              (1,308,600
              )Investments
                  in joint ventures and subsidiaries
              
              
              -
              
              
              -
              
              
              (361,261
              )Payment
                  of deposits
              
              
              -
              
              
              -
              
              
              (36,822
              )Investments
                  in intangible assets
              
              
              (145,914
              )
              
              (258,181
              )
              
              (1,133,100
              )Net
                  cash used in investing activities
              
              
              (198,440
              )
              
              (476,295
              )
              
              (2,839,783
              )**Cash
                  Flows from Financing Activities**Proceeds
                  from issuance of stock, net of offering costs
              
              
              25,486,503
              
              
              13,157,047
              
              
              95,169,691Proceeds
                  from issuance of related party notes payable
              
              
              -
              
              
              -
              
              
              11,000,000Proceeds
                  from stock subscriptions
              
              
              -
              
              
              -
              
              
              4,240,887Proceeds
                  from issuance of line of credit
              
              
              -
              
              
              -
              
              
              750,000Return
                  on capital
              
              
              -
              
              
              -
              
              
              (118,427
              )Principal
                  payments on related party notes payable
              
              
              -
              
              
              -
              
              
              (3,250,000
              )Decrease
                  in related party receivable
              
              
              -
              
              
              -
              
              
              1,359,185Payments
                  on contract payable
              
              
              -
              
              
              -
              
              
              (250,000
              )Principal
                  payments on line of credit
              
              
              -
              
              
              -
              
              
              (750,000
              )Principal
                  payments on advance from related party
              
              
              -
              
              
              -
              
              
              (2,191,285
              )Net
                  cash provided by financing activities
              
              
              25,486,503
              
              
              13,157,047
              
              
              105,960,051Net
                  change in cash and cash equivalents
              
              
              13,696,493
              
              
              170,957
              
              
              21,126,631Cash
                  and cash equivalents at beginning of period
              
              
              7,430,138
              
              
              6,004,992
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              21,126,631
              
              $
              6,175,949
              
              $
              21,126,631
  The
        Accompanying Notes are an Integral Part of the Financial Statements.
  5
 
 SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 CONDENSED
        STATEMENTS OF CASH FLOWS - Continued
 For
        the
        Nine-Month Periods Ended September 30, 2008 and 2007
 and
        for
        the Period from Inception to September 30, 2008
 (unaudited)
 
 **Supplemental
                  information and non-cash transactions**Cash
                  paid for interest
              
              $
              -
              
              $
              4,862
              
              $
              967,760Cash
                  paid for income taxes
              
              $
              -
              
              $
              -
              
              $
              -The
                  Company had the following non-cash investing and financing activities:Extinguishment
                  of related party note payable
              
              $
              -
              
              $
              5,000,000
              
              $
              5,000,000Extinguishment
                  of convertible notes payable
              
              
              -
              
              
              -
              
              
              4,680,044Issuance
                  of stock for convertible notes
              
              
              -
              
              
              -
              
              
              319,956Non-cash
                  deemed dividend (see Note 4 )
              
              
              4,087,887
              
              
              17,119,121
              
              
              28,856,835
 
 The
        Accompanying Notes are an Integral Part of the Financial Statements.
  6
 
 **SULPHCO,
        INC.**
 **(A
        Company in the Development Stage)**
 NOTES
        TO THE INTERIM CONDENSED FINANCIAL STATEMENTS
 September
        30, 2008
 (unaudited)
 
 **1.**
              **Basis
                  of Presentation**
 The
        accompanying unaudited condensed financial statements of SulphCo, Inc., (the
        “Company” or “SulphCo”) were prepared in accordance with generally accepted
        accounting principles for interim financial statements in the United States
        of
        America (“GAAP”), 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 most
        recent
        annual report on Form 10-K.
 
 **Use
        of Estimates**
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America 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.
 
 **Going
        Concern**
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the settlement of liabilities
        and commitments in the normal course of business.  As of September 30,
        2008, the Company had cash and cash equivalents on hand of approximately
        $21.1
        million and working capital of approximately $15.1 million. For the three
        and
        nine-month periods ended September 30, 2008, the Company recognized net losses
        of approximately $4.9 million and $16.6 million, respectively. As a result
        of
        these continuing net losses, the Company has an accumulated deficit of
        approximately $140.7 million that includes the effect of non-cash deemed
        dividends totaling approximately $28.9 million.  Based upon our expected
        levels of expenditures and anticipated needs, we anticipate that our existing
        capital resources will be sufficient to fund our cash requirements through
        late
        2009. Our ability to meet future capital requirements after that date will
        depend primarily upon the ability of the Company to generate material revenue
        from business operations, debt and equity financings, third party lease
        financing of SonocrackingTM equipment and components, and proceeds from future
        exercises of outstanding warrants and options. Presently, we have no binding
        commitments for additional financings other than the equity line of credit
        discussed in Note 3, which expires on November 1, 2009. To date, we have
        generated no material revenues from our business operations. We are unable
        to
        predict when or if we will be able to generate future revenues from commercial
        activities or the amounts expected from such activities. These factors raise
        substantial doubt regarding the Company’s ability to continue as a going
        concern.
  7
  **2.**
              **Convertible
                  Notes Payable**
  At
        December 31, 2007 and September 30, 2008, the Company had outstanding
        convertible notes payable of approximately $4.7 million (the “Convertible Notes
        Payable”). The Convertible Notes Payable are presented net of the unamortized
        discount related to a beneficial conversion feature present in the terms
        of the
        note. The discount is being accreted into the statement of operations as
        incremental interest
        expense using the effective interest method through July 31, 2009, after
        which
        time the note holders have the ability to require payment of any outstanding
        principal and accrued interest by opting to accelerate the maturity of the
        Convertible Notes Payable.
 
 As
        of
        September 30, 2008, the net balance of the Note Payable is:
  **September 30, 2008**Assumed
                  proceeds from modified Convertible Notes Payable
              
              $
              4,680,044Less:Discount
                  related to beneficial conversion feature
              
              
              (1,736,550
              )Net
                  Convertible Notes Payable balance
              
              
              2,943,494Add:Discount
                  accretion through September 30, 2008
              
              
              650,306Net
                  Convertible Notes Payable balance at September 30, 2008
              
              $
              3,593,800
 
 The
        Convertible Notes Payable represent an unsecured obligation of the
        Company.
 
 Interest
        on the Convertible Notes Payable is adjusted quarterly based on a London
        Inter-Bank Offering Rate (“LIBOR”) plus 0.5% per annum, with interest only
        payments due on December 31 st of each
        year during the remaining term of the Convertible Notes Payable that extends
        through December 31, 2011 when the notes mature (unless maturity is otherwise
        accelerated by the note holders to any date after July 31, 2009). For the
        three
        and nine-month periods ended September 30, 2008 and 2007, the Company recognized
        total interest expense of approximately $0.3 million, $0.1 million, $0.9
        million
        and $0.4 million, respectively. For the three and nine-month periods ended
        September 30, 2008 and 2007, total interest expense recognized by the Company
        included incremental interest expense associated with discount accretion
        of
        approximately $0.2 million, $23,000, $0.6 million, and $30,000, respectively.
 
 **3.**
              ******Capital
                  Stock**
 
 Other
        than the stock-based compensation transactions disclosed in Note 6, the Company
        had the following transactions related to its common stock during the nine
        months ended September 30, 2008:
 
 During
        the quarter ended June 30, 2008, the Company completed two equity transactions.
        The first involved the sale of 6,818,750 shares of its common stock at a
        price
        of $3.20 per share pursuant to the terms of a Securities Purchase Agreement
        dated May 27, 2008, resulting in net proceeds to the Company of approximately
        $20.3 million before transaction costs. The shares were sold pursuant to
        a shelf
        registration statement declared effective by the Securities and Exchanges
        Commission on September 4, 2007. The second involved the exercise by investors
        of warrants to acquire approximately 1.9 million shares of the Company’s common
        stock at an exercise price of $2.68 per share resulting in net proceeds to
        the
        Company of approximately $5.2 million. Between these two transactions, the
        Company raised net proceeds totaling approximately $25.5 million.
  8
  During
        the quarter ended June 30, 2008, the Company entered into an equity line
        of
        credit with Azimuth Opportunity Ltd. (“Azimuth”) pursuant to a Common Stock
        Purchase Agreement dated April 30, 2008. Subject to the conditions set forth
        in
        that agreement, Azimuth is committed to purchase up to $60,000,000 of the
        Company’s common stock pursuant to draw down notices that the Company may give
        to Azimuth from time to time at the Company’s discretion until November 1, 2009.
        The price of shares sold is determined by reference to the volume weighted
        average price of the Company’s common stock during a ten trading day pricing
        period at the time of each draw down notice, less a small discount.
 
 On
        July
        9, 2008, the Company entered into a Confidential Settlement Agreement and
        Release with Mark Neuhaus (the “Settlement Agreement”), by which Mr. Neuhaus and
        the Company agreed to dismiss the respective legal proceedings each party
        had
        initiated on the other, and by which both parties agreed to a mutual release.
        The total consideration paid by the Company to Mr. Neuhaus under the Settlement
        Agreement was $750,000, of which $250,000 was paid in cash and the remaining
        $500,000 was settled by issuance of 123,763 shares of the Company’s common stock
        to Mr. Neuhaus and 123,762 shares of the Company’s common stock to Mr. Neuhaus’
attorneys, Erickson, Thorpe & Swainston, Ltd, which amount was determined by
        dividing $500,000 by $2.02, the closing price of the Company’s stock on July 9,
        2008.
 
 **4.**
              **Deemed
                  Dividend**
 
 On
        March
        12, 2007, the Company executed Amendment No. 1 to Securities Purchase Agreements
        and Warrants (“Amendment No. 1”) with certain warrant holders (the “Warrant
        Holders”) who had been issued warrants by the Company in 2004 (“2004 Warrants,”
and holders of 2004 Warrants, “2004 Warrant Holders”) and in 2006 (“2006
        Warrants,” and holders of 2006 Warrants, “2006 Warrant Holders”) that provided
        inducements to encourage the Warrant Holders to exercise their respective
        warrants. As consideration for Warrant Holders exercising their respective
        warrants, the Company agreed that it would:
 
 ·
              reduce
                  the exercise price on warrants to acquire 4,000,000 shares of the
                  Company’s common stock held by the 2006 Warrant Holders from $6.805 per
                  share to $2.68 per share; and
 
 ·
              issue
                  the Warrant Holders additional warrants, with an exercise price
                  of $2.68
                  per share, on a one to one basis for each existing warrant that
                  was
                  exercised including granting up to 1,952,068 warrants to the 2004
                  Warrant
                  Holders and up to 4,000,000 warrants to the 2006 Warrant
                  Holders.
 
 As
        a
        result of the inducements included in Amendment No. 1 described above, during
        the quarter ended March 31, 2007, 1,952,068 warrants held by the 2004 Warrant
        Holders and 2,000,000 warrants held by the 2006 Warrant Holders were exercised
        resulting in the grant of 3,952,068 additional warrants (the “March 2007
        Warrants”). As a result of the inducements, the Company recorded a non-cash
        deemed dividend of approximately $11.5 million. The amount of the deemed
        dividend was estimated to be equal to the sum of the fair value of the
        inducements as the sum of (1) the incremental fair value conveyed to the
        2006
        Warrant Holders by the reduction of the exercise price of the 2006 Warrants
        determined as provided in paragraph 51 of SFAS 123R utilizing the Black-Scholes
        Valuation Model and (2) the fair value of the 3,952,068 March 2007 Warrants
        estimated using the Black-Scholes Valuation Model.
 
 During
        the quarter ended June 30, 2007, 600,000 2006 Warrants held by the 2006 Warrant
        Holders were exercised resulting in the grant of 600,000 additional warrants.
        As
        a result, the Company recorded additional non-cash deemed dividends of
        approximately $1.7 million that was estimated using the Black-Scholes Valuation
        Model.
  9
  During
        the quarter ended September 30, 2007, the remaining 1,400,000 warrants held
        by
        the 2006 Warrant Holders were exercised resulting in the grant of 1,400,000
        additional warrants. As a result, the Company recorded additional non-cash
        deemed dividend of approximately $3.9 million that was estimated using the
        Black-Scholes Valuation Model
 
 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
        holding approximately 3.95 million of the then outstanding 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 approve 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.
 
 For
        the
        three and nine-month periods ended September 30, 2008 and 2007, the Company
        recognized non-cash deemed dividends of approximately zero, $3.9 million,
        $4.1
        million and $17.1 million, respectively.
 
 **5.**
              **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,
        2008, there were approximately 10.9 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 three
        and
        nine-month periods ended September 30, 2008 and 2007, because inclusion of
        such
        potentially dilutive securities would have been anti-dilutive.
 
 **6.**
              **Stock
                  Plans and Stock-Based
                  Compensation**
 
 In
        accordance with the provisions of SFAS 123R, the Company records stock-based
        compensation expense for all share-based payment arrangements, including
        stock
        options, warrants and restricted stock grants. The fair value of each option
        award granted is estimated on the date of grant using a Black-Scholes option
        valuation model. Expected volatilities are based on the historical volatility
        of
        the Company’s stock. The expected term of options granted to employees is
        derived utilizing the simplified method referred to in SEC’s Staff Accounting
        Bulletin No. 107, “Share-Based Payment” (“SAB No. 107”) which represents the
        period of time that options granted are expected to be outstanding. The Company
        utilizes the simplified method because it does not have historical exercise
        data
        which is sufficient to provide a reasonable basis to estimate the expected
        term.
        The Company expects to continue utilizing the simplified method to determine
        the
        expected term until such time as it accumulates historical exercise data
        that
        will provide a sufficient basis for the Company to begin estimating the expected
        term for option exercises. The expected term of options granted to non-employees
        is equal to the contractual term of the option as required by other accounting
        literature. 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.
  10
 
 Total
        stock-based compensation for the three and nine-month periods ended September
        30, 2008 and 2007, was approximately $1.1 million, $1.0 million, $4.4 million,
        and $3.3 million, respectively.
  **Stock
        Option Grants – Directors, Officers and Employees**
 
 During
        the three and nine-month periods ended September 30, 2008 and 2007, the
        Company granted 330,786, 452,500, 2,066,820, and 1,337,500 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, 2008 and 2007 was approximately $1.1 million,
        $0.9
        million, $4.3 million and $2.6 million, respectively. The fair value of these
        stock options was estimated using the Black-Scholes options pricing model
        with
        the following assumptions:
 
 **Nine
                  Months Ended September 30, 2008 and 2007**
              
              **2008**
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              1.5 - 6.5
              
              
              5.0 - 6.5Expected Volatility
              
              
              93% - 151%
              
              
              140% - 149%Expected Dividend
                  Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              1.6% - 3.57%
              
              
              4.52% - 5.10%Grant Date
                  Fair Value
              
              
              $1.60 - $3.69
              
              
              $2.46 - $3.66**Three
                  Months Ended September 30, 2008 and 2007**
              
              
              **2008**
              
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              5.0 - 6.5
              
              
              5.0 - 5.5Expected
                  Volatility
              
              
              126% - 139%
              
              
              139% - 140%Expected
                  Dividend Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              3.06% - 3.55%
              
              
              4.52% - 4.80%Grant
                  Date Fair Value
              
              
              $2.18 - $2.61
              
              
              $3.09 - $3.53
  11
 
 **Stock
        Option Grants – Non-Employees**
 
 During
        the three and nine-month periods ended September 30, 2008 and 2007, the
        Company granted zero, 50,000, 102,500 and 100,500 stock options, respectively,
        to non-employees. The stock-based compensation expense for these stock options
        for the three and nine-month periods ended September 30, 2008 and 2007 was
        48,000, $27,000, $90,000 and $27,000, respectively. The fair value of these
        stock options was estimated using the Black-Scholes options pricing model
        with
        the following assumptions:
 
 **Nine
                  Months Ended September 30, 2008 and 2007**
              
              **2008**
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              10
              
              
              2.6
                  - 4Expected
                  Volatility
              
              
              140%
              
              
              105%
                  - 144%Expected
                  Dividend Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              3.74% - 3.99%
              
              
              4.12% - 5.00%Grant Date
                  Fair Value
              
              
              $2.20 - $3.78
              
              
              $3.18 - $3.46**Three
                  Months Ended September 30, 2008 and 2007**
              
              
              **2008**
              
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              -
              
              
              2.6Expected
                  Volatility
              
              
              -
              
              
              105%Expected
                  Dividend Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              -
              
              
              4.12%Grant
                  Date Fair Value
              
              
              -
              
              
              $3.46
 
 **Restricted
        Stock Grants – Directors, Officers and Employees**
 
 During
        the three and nine -month periods ended September 30, 2008 and 2007, the
        Company
        granted zero, 43,353, zero, and 313,559 shares of restricted stock,
        respectively, to its directors and officers. All of the restricted shares
        granted during these periods were valued by reference to the market price
        of the
        Company’s stock on the date of grant.
 
 The
        stock-based compensation expense for the restricted stock grants for the
        three
        and nine-month periods ended September 30, 2008 and 2007 was zero, $0.1 million,
        zero, and $0.7 million, respectively.
 
 **7.**
              **Commitments
                  and Contingencies**
 
 **Concentrations
        of Credit Risk**
 
 Financial
        instruments, which potentially subject the Company to concentrations of credit
        risk, consist mainly of cash equivalents. The Company maintains these financial
        instruments in one U.S. financial institution, which exceed federally insured
        limits by approximately $21 million at September 30, 2008. The Company has
        not
        experienced any losses in this account; however, management continues to
        monitor
        the situation closely and has taken steps subsequent to September 30, 2008,
        to
        mitigate the exposure to this risk .
  12
 
 **Registration
        Payment Arrangements**
 
 Amendment
        No. 2, discussed in Note 4 above, contains certain registration provisions
        requiring the Company to use commercially reasonable efforts to prepare and
        file
        a registration statement (the “Amendment No. 2 Additional Registration
        Statement”) to cover all shares of common stock underlying the additional
        warrants issued under Amendment No. 2 as soon as possible, but in no event
        later
        than 90 days after May 28, 2008 (the “Filing Deadline”).
 
 Amendment
        No. 2 further provides that in the event the Company does not file the Amendment
        No. 2 Additional Registration Statement by the Filing Deadline, each of the
        warrant holders would be entitled to receive on the Filing Deadline and on
        each
        monthly anniversary of the Filing Deadline thereafter, an amount in cash,
        as
        partial liquidated damages, equal to 1% of the aggregate exercise price paid
        by
        the warrant holders until the Company files the Amendment No. 2 Additional
        Registration Statement. The Company filed the Amendment No. 2 Additional
        Registration Statement within the required time frame and therefore will
        not
        incur any liquidated damages .
 
 **Litigation
        Contingencies**
 
 There
        are
        various claims and lawsuits pending against the Company arising in the normal
        course of the Company’s business. The following paragraphs set forth the status
        of litigation as of September 30, 2008.
 
 Clean
        Fuels Litigation
 As
        previously reported, in *Clean
        Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc. and SulphCo,
        Inc.* ,
        Case
        No. CV05-01346 (Second Judicial District, County of Washoe) the Company,
        Rudolf
        W. Gunnerman, Peter Gunnerman, and RWG, Inc., were named as defendants in
        a
        legal action commenced in Reno, Nevada.  The plaintiff, Clean Fuels
        Technology later assigned its claims in the lawsuit to EcoEnergy Solutions,
        Inc., which entity was substituted as the plaintiff.  In general, the
        plaintiff’s alleged claims relate to ownership of the “sulphur removal
        technology” originally developed by Professor Teh Fu Yen and Dr. Gunnerman with
        financial assistance provided by Dr. Gunnerman, and subsequently assigned
        to the
        Company.  On September 14, 2007, after a jury trial and extensive
        post-trial proceedings, the trial court entered final judgment against the
        plaintiff EcoEnergy Solutions, Inc. on all of its claims.  As per the final
        judgment, all of the plaintiff’s claims were resolved against the plaintiff and
        were dismissed with prejudice.  In addition, the trial court entered
        judgment in favor of the Company and against the plaintiff for reimbursement
        of
        legal fees and costs of approximately $124,000, with post-judgment interest.
         The plaintiff appealed the judgment on October 5, 2007.  On December
        19, 2007, and as required by Nevada statute, the Company participated in
        a
        mandatory settlement conference at which time a settlement was not reached.
        The
        appeal has been fully briefed, but no date has been set for oral arguments.
        As
        of September 30, 2008, no asset or liability has been accrued relative to
        this
        action.
 
 Talisman
        Litigation
 As
        previously reported, 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
        "sulphur 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, which was originally
        scheduled for August 4, 2008, has been rescheduled to take place during the
        week
        of December 1, 2008. As of September 30, 2008, no liability has been accrued
        relative to this action.
  13
  Neuhaus
        Litigation
 As
        previously reported, on October 20, 2006, Mark Neuhaus filed a lawsuit against
        the Company and Rudolf W. Gunnerman, *Mark
        Neuhaus v. SulphCo, Inc., Rudolph W. Gunnerman* ,
        in the
        Second Judicial District Court, in and for the County of Washoe, Case No.
        CV06-02502, Dept. No. 1. The lawsuit is based on a purported Non-Qualified
        Stock
        Option Agreement and related Consulting Agreement between Mark Neuhaus and
        the
        Company dated March of 2002 (the “Non-Qualified Stock Option Agreement”). Mark
        Neuhaus claimed that according to the terms of the Non-Qualified Stock Option
        Agreement, he was granted an option to purchase three million (3,000,000)
        shares
        of the Company’s common stock at the exercise price per share of $0.01. On or
        about February of 2006, Mark Neuhaus attempted to exercise the option allegedly
        provided to him under the Non-Qualified Stock Option Agreement. At that time,
        the Company rejected Mr. Neuhaus’s attempt to exercise the option. Thereafter,
        Mr. Neuhaus filed this lawsuit seeking to enforce the Non-Qualified Stock
        Option
        Agreement.
  On
        July
        9, 2008, the Company entered into a Confidential Settlement Agreement and
        Release with Mark Neuhaus (the “Settlement Agreement”), by which Mr. Neuhaus and
        the Company agreed to dismiss the respective legal proceedings each party
        had
        initiated on the other, and by which both parties agreed to a mutual release.
        The total consideration paid by the Company to Mr. Neuhaus under the Settlement
        Agreement was $750,000, of which $250,000 was paid in cash and the remaining
        $500,000 was paid by issuance of 123,763 shares of the Company’s common stock to
        Mr. Neuhaus and 123,762 shares of the Company’s common stock to Mr. Neuhaus’
attorneys, Erickson, Thorpe & Swainston, Ltd, which amount was determined by
        dividing $500,000 by $2.02, the closing price of the Company’s stock on July 9,
        2008.
  Hendrickson
        Derivative Litigation
 As
        previously reported, on January 26, 2007, Thomas Hendrickson filed a shareholder
        derivative claim against certain current and former officers and directors
        of
        the Company in the Second Judicial District Court of the State of Nevada,
        in and
        for the County of Washoe. The case is known as *Thomas
        Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf W. Gunnerman,
        Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert Henri Charles
        Van
        Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E. Urquhart, Lawrence
        G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
        Henkel* ,
        Case
        No. CV07-00137, Dept. No. B6. The complaint alleges, among other things,
        that
        the defendants breached their fiduciary duty to the Company by failing to
        act in
        good faith and diligence in the administration of the affairs of the Company
        and
        in the use and preservation of its property and assets, including the Company’s
        credibility and reputation. The Company and the Board had intended to file
        a
        motion for dismissal with the court, based upon the plaintiff’s failure to make
        a demand upon the Board. On July 10, 2007, the Company received notice that
        a
        stipulation (the “Stipulation”) of voluntary dismissal without prejudice had
        been entered, with an effective date of July 3, 2007, regarding this action.
        The
        Stipulation provides that in connection with the dismissal of this action
        each
        of the parties will bear their own costs and attorney fees and thereby waive
        their rights, if any, to seek costs and attorney fees from the opposing
        party.  Further, neither the plaintiff nor his counsel has received
        any consideration for the dismissal of this action, and no future consideration
        has been promised.
 
 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, if
        any, action should be taken. The Committee retained independent counsel to
        advise it.
  14
 
 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. As of
        September 30, 2008, no liability has been accrued relative to this action.
 
 Nevada
        Heat Treating Litigation
 As
        previously reported, on November 29, 2007, Nevada Heat Treating, Inc. (“NHT”)
        filed a lawsuit against the Company, *Nevada
        Heat Treating, Inc., d/b/a California Brazing* ,
        in the
        Second Judicial District Court of the State of Nevada, in and for the County
        of
        Washoe, Case No. CV07-02729. In its complaint, NHT alleges trade secret
        misappropriation and breach of contract relative to certain information alleged
        to have been disclosed to the Company beginning in late 2006 and continuing
        through early 2007 pursuant to a consulting engagement with NHT. Among other
        things, NHT is asserting that certain information, alleged to have been
        disclosed to the Company during the term of the consulting engagement, is
        the
        subject of a nondisclosure/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. Trial has
        been
        set for April 27, 2009. As of September 30, 2008, no liability has been accrued
        relative to this action.
 
 Securities
        and Exchange Commission Subpoena
 As
        previously reported, on February 25, 2008, the Company received a subpoena
        from
        the Denver office of the Securities and Exchange Commission (the “SEC”). The
        subpoena formalizes virtually identical requests the Company received in
        May,
        June and August 2007 to which the Company responded to the request for voluntary
        production of documents and information, including financial, corporate,
        and
        accounting information related to the following subject matters: Fujairah
        Oil
        Technology LLC, the Company’s restatements for the first three quarterly periods
        of 2006 and the non-cash deemed dividend for the quarter ended March 31,
        2007,
        and information and documents related to certain members of former management,
        all of whom have not been employed by the Company for over a year. We have
        been
        advised by the SEC that, despite the subpoena and formal order of investigation
        authorizing its issuance, neither the SEC nor its staff has determined whether
        the Company or any person has committed any violation of law. The Company
        intends to continue to cooperate with the SEC in connection with its requests
        for documents and information.
  15
  **8.**
              **Related
                  Party Transactions**
 
 During
        the three and nine-month periods ended September 30, 2008 and 2007, the Company
        made payments of approximately $0.5 million, $0.1 million, $1.0 million and
        $0.3
        million, respectively, to Märkisches Werk Halver, GmbH (“MWH”) in connection
        with ongoing probe development activities under an existing agreement (the
        “Development Agreement”). On June 27, 2008, the Company renewed the Development
        Agreement with MWH for a period of five years. Pursuant to the terms of the
        renewed Development Agreement, MWH has agreed to continue providing the Company
        with development and manufacturing services related to its SoncrackingTM probe
        assembly and reactor (the “Equipment”). In return, the Company has agreed to pay
        fees to MWH for its probe development and manufacturing services and grant
        MWH
        an option to purchase up to 50,000 shares of the Company’s common stock at an
        exercise price of $2.46 per share. In addition, in the event that within
        the
        next twelve months the Equipment demonstrates certain performance metrics,
        the
        Company has agreed to issue MWH 50,000 restricted shares of the Company’s common
        stock. Under the renewed agreement, the Company granted MWH a worldwide
        non-exclusive license to utilize the Company’s ultrasound probe technology for
        all applications outside the treatment of crude oil and crude oil fractions.
        Edward E. Urquhart, a member of the Company’s Board of Directors since August
        2006, has been the Chief Executive Officer of MWH since July 2003.
 
 The
        Company has a consulting contract with Vincent van Maasdijk, the son of Robert
        van Maasdijk who is the Chairman of the Company’s Board of Directors, to serve
        as a project manager. As a project manager, Mr. van Maasdijk’s responsibilities
        will include overseeing the installation and testing of commercial Sonocracking
        units at various locations assigned by the Company. Under the terms of the
        contract, Mr. van Maasdijk will receive 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, 2008 and 2007, the total expense
        recognized by the Company under this arrangement was approximately $29,000,
        $22,000, $72,000 and $61,000, respectively.
  16
 
 **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations.**
 
 **Results
        of Operations**
 
 As
        a
        development stage company, we have not generated any material revenues since
        we
        commenced our current line of business in 1999. When we emerge from the
        development stage, our reporting will change to reflect costs of sales against
        revenues.
 
 **Business
        Development Activities Update**
 
 The
        following is an update on the more significant activities the Company has
        been
        pursuing.
  With
        respect to the Company’s ongoing commercial efforts, we continue to see a high
        level of interest in the SonocrackingTM process as potential customers see the
        value that can be driven by the technology. We are pursuing what we believe
        are
        opportunities presenting the highest likelihood of success for the technology
        (i.e., crudes with high sulphur content, fuel oil, also known as bunker fuel,
        and high sulphur crude fractions such as high sulphur diesel) and are working
        with several potential customers to achieve that goal.
  Houston,
        Texas
  We
        continue to be in discussions with several potential North American clients.
        In
        anticipation of the need for processing capacity in North America, we shipped
        a
        15,000 Bpd SonocrackingTM unit from Europe to Houston. The SonocrackingTM unit
        arrived in Houston during May 2008. That unit remains available for installation
        at a facility upon execution of appropriate customer agreements. There can
        be no
        assurance that the Company will enter into any such agreements.
  Research
        and development activities in SulphCo’s Houston facility have been centered
        around four principal areas: 1) the building and performance validation of
        a
        laboratory pilot scale unit (with flow rates of 1 - 15 gallons per minute)
        which
        will provide potential customers with laboratory scale data replicating the
        performance of a commercial scale SonocrackingTM unit, 2) the refinement of
        catalyst and additive packages for the SonocrackingTM process to ensure
        consistent and reproducible results both in the laboratory and in field testing,
        3) the building and commissioning of mobile units capable of processing up
        to
        5,000 barrels per day (Bpd) of crude oil that can quickly be installed at
        a
        potential customer site, and 4) the testing and evaluation of current and
        next-generation ultrasound probe, reactor, and control systems developed
        and
        supplied by MWH.
  We
        have
        developed a pilot scale continuous flow laboratory unit for our SonocrackingTM
process and during the third quarter we conducted extensive testing with
        this
        unit as well as in a batch reactor environment. These trials incorporated
        new
        probe and reactor technology along with different catalysts and additives
        designed to provide consistent and reproducible results from the SonocrackingTM
process. Potential customers have supplied a variety of crudes in various
        quantities for laboratory testing. During the third quarter we conducted
        a
        series of focused trials on a potential customer’s crude oil for which we had
        conducted field trials in May and June of 2008. In these laboratory trials
        we
        were able to consistently produce a 25%-30% sulphur reduction with this
        customer’s crude oil. With some further processing, we were able to consistently
        and reliably produce more than a 50% sulphur reduction. We extended the series
        of tests to several other crude oils and for some, but not all, have been
        able
        to produce the same level of sulphur reduction as described above. We have,
        as
        well, observed significant API shifts in the crude oil, and although those
        improvements represent an incremental economic benefit to the overall process,
        that is not the primary focus of our current efforts. We expect to continue
        conducting extensive laboratory testing on potential customers’ crudes and
        petroleum products during the fourth quarter of 2008 and beyond. If such
        tests
        are successful on a laboratory scale, we would anticipate moving forward
        to
        field testing and/or commercial operating agreements with such potential
        customers.
  17
  Construction
        and commissioning of the first 5,000 Bpd mobile unit was completed in the
        first
        quarter of 2008 and that unit was evaluated in field validation tests at
        a
        potential customer site in May and June, 2008. Given the increased interest
        in
        the 5,000 Bpd mobile unit by potential customers, the Company decided to
        construct a second 5,000 Bpd mobile unit, the construction and commissioning
        of
        which was completed in the third quarter of 2008. The 5,000 Bpd unit is
        outfitted with the latest generation of the ultrasound probe, reactor, and
        control systems supplied by MWH, and employs the newly developed catalyst
        and
        additive packages described above.
  The
        second unit was recently deployed at a potential customer facility in the
        southeastern United States for a series of field trials which were a
        continuation of the field validation tests conducted in May and June, 2008.
        During these recent trials the Company successfully duplicated, on a commercial
        scale, the positive results produced in its Houston laboratory. While these
        field trials are a crucial step in the overall technology validation process,
        additional technical iterations and analysis will continue as we identify,
        execute, and evaluate the multiple processes necessary to comply with future
        customer requirements. In addition to process optimization, we continue to
        focus
        on minimizing costs associated with the chemical package and the overall
        material and mass balance to achieve the economics as highlighted in our
        business plan. There can be no assurance that the Company will be successful
        in
        achieving such goals.
  Middle
        East
  On
        July
        10, 2008, we announced an agreement with Amira Group Company LLC. (“Amira”), a
        US-based oil and gas services company, granting Amira an exclusive
        distributorship in certain regions of the Middle East and North Africa and
        certain customer specific opportunities (the "Amira Sales Territories").
        The
        Company and Amira personnel have made formal presentations to several
        prospective customers within the Amira Sales Territories, providing technical
        and commercial information on the SonocrackingTM process. During the third
        quarter, SulphCo and Amira personnel narrowed these discussions to key,
        strategic potential customers, and those discussions have focused primarily
        on
        issues relating to proposed installation of SonocrackingTM units at customer
        sites. Currently, the Company has not entered into any customer agreements.
  Southeast
        Asia
  On
        February 11, 2008, we announced an agreement with Pt. Isis Megah (“Isis”), an
        Indonesian oil and gas services company, granting Isis an exclusive
        distributorship in the sales territories of India, Malaysia, Singapore and
        Indonesia (the “Isis Sales Territories”). We concurrently announced a customer
        order procured through Isis, conditioned upon the execution of an operating
        agreement, for SonocrackingTM units having at least 30,000 Bpd of processing
        capacity to be shipped at our expense from Fujairah to a designated port
        within
        the Isis Sales Territories. Subsequently, the Company shipped 90,000 Bpd
        of
        processing capacity from our facility in Fujairah, UAE, which arrived in
        Singapore during the week of April 14, 2008. The SonocrackingTM units have
        remained in storage there pending finalization of a refinery placement
        agreement. There can be no assurance that the Company will enter into any
        such
        agreements.
  18
  During
        the week of March 31, 2008, SulphCo personnel conducted joint site inspections
        with the customer at two of its Southeast Asian refineries to evaluate their
        suitability for the proposed SonocrackingTM unit installations. Following these
        inspections the parties reached a preliminary understanding as to the placement
        of the Company’s first 30,000 Bpd commercial scale SonocrackingTM unit within the
        customer’s refinery (the “Placement Agreement”). It was anticipated that upon
        execution of the Placement Agreement among Isis, the customer, and SulphCo,
        the
        30,000 Bpd SonocrackingTM unit would be shipped by barge from Singapore to
        the customer’s refinery site. An operating agreement cannot be signed
        before finalization of the Placement Agreement, since the character
        of the crude oil or fractions to be processed are dependent
        upon both the selection of and location within the
        refinery where the SonocrackingTM unit is to be installed.
  Subsequent
        to the initial discussions with the customer, an unanticipated event occurred
        which has led to delays in reaching a final Placement Agreement. The customer
        experienced a turnover in key management and operating personnel, leading
        to a
        decision that a further review be conducted prior to implementing SulphCo’s
        technology within its refineries. That review would require the customer’s
        personnel first witness testing of a relevant crude oil at either the Company’s
        Houston or Fujairah facilities and based on those results, the customer would
        determine how the implementation of the SonocrackingTM process at its refinery
        sites would proceed. In furtherance of this process, the Company conducted
        testing at its Houston facility on relevant crude oils during the third quarter
        of 2008 and has, through Isis, delivered the test results to the customer.
        In
        addition, because some of the relevant crude oils are of Middle Eastern origin,
        the Company has advised the customer that the Company is prepared to conduct
        additional testing in Fujairah, provided, the customer is able to supply
        the
        crude oil to the facility in Fujairah. Alternatively, the Company has invited
        the customer’s personnel to observe the testing of relevant crude oil at the
        Company’s Houston location. A decision by the customer as to which option it
        would prefer is expected in the fourth quarter of 2008.
  Fujairah
  The
        Company had originally scheduled additional rounds of testing at the Fujairah
        Facility during the second quarter of 2008 for the benefit of potential
        customers to allow them to observe the SonocrackingTM technology first hand.
        However, at the request of the potential customers the scheduled tests were
        put
        on hold. The Company is now prepared to conduct a new round of validation
        testing at the Fujairah facility during fourth quarter of 2008 utilizing
        the
        latest generation probe technology and employing the newly developed catalyst
        and additive packages. The ultimate timing of those trials depends entirely
        on
        the requirements of the potential customers. In addition, the Company is
        currently in the process of securing sufficient crude oil and residual fuel
        oil
        for independent validation testing in Fujairah.
  European
        Testing Activities
  Pending
        the evaluations of the latest generation probes, reactors and the newly
        developed catalyst and additive packages described above , the
        Company postponed meetings with its European testing partner until the fourth
        quarter of 2008. This will allow an opportunity for updated discussions on
        the
        following items: 1) the results of all prior testing performed to date in
        the
        European testing partner’s facilities and the commercial significance of those
        results, and 2) additional commercial opportunities that may arise as a result
        of recent test results utilizing the latest generation probe and reactor
        chamber
        technology and chemical additive package.
  South
        Korea
  The
        SulphCo KorAsia project has experienced delays due to unanticipated equipment
        problems that occurred during the testing conducted in the first quarter
        of
        2008. During the course of the limited trials, issues arose with a certain
        switching component of an electrical driver for the ultrasound probes. Those
        issues were ultimately attributed to factors related to the original electrical
        equipment supplied with the earlier generation 2,000 Bpd SonocrackingTM unit in
        2005. Given the limited resources of the Company and the higher priority
        attached to more immediate opportunities that have presented themselves
        elsewhere, the Company has been proceeding in South Korea at a more measured
        pace than originally anticipated. Once the technical updates are completed
        and
        several outstanding business issues are resolved we intend to resume testing
        utilizing Khafji crude oil (sulphur content ~2.9%). Once a full set of trials
        have been performed and the data analyzed, we will determine, in conjunction
        with SulphCo KorAsia, the appropriate technical and commercial paths forward.
        During the third quarter, several attempts were made to resolve the outstanding
        business issues between the parties, but those issues have not been resolved
        satisfactorily at this point. We expect to continue our efforts to resolve
        those
        issues in the fourth quarter. There can be no assurance that the technical
        updates or outstanding business issues will be resolved favorably.
  19
  ***Three
        and nine-months ended September 30, 2008 compared to the three and nine-months
        ended September 30, 2007***
 
 **Research
        and Development Expenses**
  For
        the
        three and nine-month periods ended September 30, 2008, we incurred expenses
        of
        approximately $1.3 million and $3.3 million, respectively, related to research
        and development of our SonocrackingTM technology. This compares to expenses of
        approximately $1.2 million and $4.2 million, respectively, for the comparable
        periods in 2007. During the three and nine-month periods ended September
        30,
        2008, we incurred approximately $0.1 million and $0.3 million respectively,
        related to the test facility in Fujairah, UAE. This compares to expenses
        of $0.4
        million and $1.7 million, respectively, for the comparable periods in
        2007.
  For
        the
        three and nine-month periods ended September 30, 2008, we paid approximately
        $0.3 million and $0.5 million respectively, to our engineers and other research
        and development employees as wages and related benefits for design and testing
        of our SonocrackerTM units. This compares to expenses of approximately $0.1
        million and $0.4 million, respectively, for the comparable periods in 2007.
        For
        the three and nine-month periods ended September 30, 2008, approximately
        $0.6
        million and $1.7 million in expenses, respectively, was incurred for the
        procurement of control panels, probes, centrifuges, and generators related
        to
        the ongoing research and development of our units. This compares to expenses
        of
        approximately $0.2 million and $0.9 million, respectively, for the comparable
        periods in 2007. The balance of our research and development expenses are
        recurring monthly expenses related to the maintenance of our laboratory and
        warehouse facilities.
  **Selling,
        General and Administrative Expenses**
  For
        the
        three and nine-month periods ended September 30, 2008, we incurred approximately
        $3.4 million and $12.6 million, respectively, in selling, general and
        administrative expenses. This compares to expenses of approximately $3.2
        million
        and $10.2 million, respectively, for the comparable periods in 2007.
 
 Stock-based
        compensation was $1.1 million and $4.4 million for the three and nine months
        ended September 30, 2008, respectively. This compares to stock-based
        compensation of approximately of $1.0 million and $3.3 million, respectively,
        for the comparable period in 2007.
 
 Legal
        fees were approximately $1.0 million and $2.8 million for the three and
        nine-months ended September 2008, respectively. This compares to expenses
        of
        approximately $0.6 million and $2.3 million, respectively, for the comparable
        periods in 2007. We expect to continue to incur significant litigation fees
        through the end of 2008.
 
 Consulting
        fees, payroll and related expenses were approximately $0.6 million and $3.2
        million for the three and nine-months ended September 30, 2008, respectively.
        This compares to expenses of approximately $0.9 million and $2.6 million,
        respectively, for the comparable periods in 2007. This represents a decrease
        of
        $0.3 million and an increase of $0.6 million, respectively to the comparable
        periods in 2007. The decrease of $0.3 million in the most recent quarter
        relative to the comparable prior year quarter is due to a reduction in payroll
        expense in relation to former employees and nonrecurring moving expenses
        classified as payroll expense in the third quarter of 2007. The increase
        of $0.6
        million in the nine-months ended September 30, 2008, relative to the comparable
        prior year period is primarily attributable to additional expenses recognized
        in
        the second quarter of 2008 related to a settlement agreement with a former
        consultant.
  20


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





**Interest
      Expense**




Interest
      expense was approximately $0.3 million and $0.9 million for the three and
      nine-month periods ended September 30, 2008, respectively, reflecting increases
      of approximately 150% and 110%, respectively, over comparable periods in 2007.
      The majority of the increases for the three and nine-month periods is a result
      of the Company recognizing non-cash expense of approximately $0.2 million and
      $0.6 million, respectively, in interest related to the accretion of a discount
      on the Convertible Notes Payable discussed in the financial statement footnotes.





**Net
      Loss and Net Loss Attributable to Common Stockholders**




The
      difference between net losses and net losses attributable to common stockholders
      for each period is solely attributable to the deemed dividend recorded in that
      period.




**Deemed
      Dividend**




For
      the
      three and nine-month periods ended September 30, 2008 and 2007, the Company
      recognized non-cash deemed dividends of approximately zero, $3.9 million, $4.1
      million and $17.1 million, respectively.





On
      March
      12, 2007, the Company executed Amendment No. 1 to Securities Purchase Agreements
      and Warrants (“Amendment No. 1”) with certain warrant holders (the “Warrant
      Holders”) who had been issued warrants by the Company in 2004 (“2004 Warrants,”
and holders of 2004 Warrants, “2004 Warrant Holders”) and in 2006 (“2006
      Warrants,” and holders of 2006 Warrants, “2006 Warrant Holders”) that provided
      inducements to encourage the Warrant Holders to exercise their respective
      warrants. As consideration for Warrant Holders exercising their respective
      warrants, the Company agreed that it would:





·
            reduce
                the exercise price on warrants to acquire 4,000,000 shares of the
                Company’s common stock held by the 2006 Warrant Holders from $6.805 per
                share to $2.68 per share; and





·
            issue
                the Warrant Holders the additional warrants, with an exercise price
                of
                $2.68 per share, on a one to one basis for each existing warrant
                that was
                exercised including granting up to 1,952,068 warrants to 2004 Warrant
                Holders and up to 4,000,000 warrants to the 2006 Warrant
                Holders.





As
      a
      result of the inducements included in Amendment No. 1 described above, during
      the quarter ended March 31, 2007, 1,952,068 warrants held by the 2004 Warrant
      Holders and 2,000,000 warrants held by the 2006 Warrant Holders were exercised
      resulting in the grant of 3,952,068 additional warrants (the “March 2007
      Warrants”). As a result of the inducements, the Company recorded a non-cash
      deemed dividend of approximately $11.5 million. The amount of the deemed
      dividend was estimated to be equal to the sum of the fair value of the
      inducements as the sum of (1) the incremental fair value conveyed to the 2006
      Warrant Holders via the reduction of the exercise price of the 2006 Warrants
      determined as provided in paragraph 51 of SFAS 123R utilizing the Black-Scholes
      Valuation Model and (2) the fair value of the 3,952,068 March 2007 Warrants
      estimated using the Black-Scholes Valuation Model.





During
      the quarter ended June 30, 2007, 600,000 2006 Warrants held by the 2006 Warrant
      Holders were exercised resulting in the grant of 600,000 additional warrants.
      As
      a result, the Company recorded additional non-cash deemed dividend of
      approximately $1.7 million that was estimated using the Black-Scholes Valuation
      Model.


21





During
      the quarter ended September 30, 2007, the remaining 1,400,000 warrants held
      by
      the 2006 Warrant Holders were exercised resulting in the grant of 1,400,000
      additional warrants. As a result, the Company recorded additional non-cash
      deemed dividend of approximately $3.9 million that was estimated using the
      Black-Scholes Valuation Model





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
      holding approximately 3.95 million of the then outstanding 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 September 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**





During
      the nine-month period ended September 30, 2008, the Company completed two equity
      transactions. The first involved the sale of 6,818,750 shares of its common
      stock at a price of $3.20 per share pursuant to the terms of a Securities
      Purchase Agreement dated May 27, 2008, resulting in net proceeds to the Company
      of approximately $20.3 million. The shares were sold pursuant to a shelf
      registration statement declared effective by the Securities and Exchanges
      Commission on September 4, 2007. The second involved the exercise by investors
      of warrants to acquire approximately 1.9 million shares of the Company’s common
      stock at an exercise price of $2.68 per share resulting in net proceeds to
      the
      Company of approximately $5.2 million. Between these two transactions, the
      Company has raised net proceeds totaling approximately $25.5 million.





During
      the nine-month period ended September 30, 2008, the Company entered into an
      equity line of credit with Azimuth Opportunity Ltd. (“Azimuth”) pursuant to a
      Common Stock Purchase Agreement dated April 30, 2008. Subject to the conditions
      set forth in that agreement, Azimuth is committed to purchase up to $60,000,000
      of the Company’s common stock pursuant to draw down notices that the Company may
      give to Azimuth from time to time at the Company’s discretion until November 1,
      2009. The price of shares sold is determined by reference to the volume weighted
      average price of the Company’s common stock during a ten trading day pricing
      period at the time of each draw down notice, less a small discount. The use
      of
      this credit facility is entirely at the Company’s discretion.





As
      of
      September 30, 2008, we had cash and cash equivalents of approximately $21.1
      million. Based upon our currently expected levels of expenditures and
      anticipated needs, we anticipate that our existing capital resources will be
      sufficient to fund our cash requirements through the latter part of 2009. Our
      ability to meet future capital requirements after that date will depend
      primarily upon the ability of the Company to generate material revenue from
      business operations, debt and equity financings, third party lease financing
      of
      SonocrackingTM equipment and components, and proceeds from future exercises of
      outstanding warrants and options. Presently, we have no binding commitments
      for
      additional financings other than the equity line of credit discussed above.
      To
      date, we have generated no material revenues from our business operations.
      We
      are unable to predict when or if we will be able to generate future revenues
      from commercial activities or the amounts expected from such activities. These
      factors raise substantial doubt regarding the Company’s ability to continue as a
      going concern.


22


**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 described
      in the Company’s Form 10-K for the year ended December 31, 2007 and those set
      forth from time to time in our filings with the Securities and Exchange
      Commission (“SEC”). These documents are available through our web site, http://www.sulphco.com ,
      or
      through the SEC’s Electronic Data Gathering and Analysis Retrieval System
      (“EDGAR”) at http://www.sec.gov .





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk.**





**Interest
      Rates**





As
      of
      September 30, 2008, the Company had variable rate debt aggregating approximately
      $4.7 million. The variable rate debt exposes the Company to the risk of
      increased interest expense in the event of increases in short-term interest
      rates. If the variable interest rate were to increase by 1% from
      September 2008 levels, interest expense would increase by approximately
      $47,000 annually. The carrying value of the variable interest rate debt
      approximates fair value as it bears interest at current market rates.


23





**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,
      2008, 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, 2008, 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, 2008, that have materially affected, or are reasonably likely
      to
      materially affect, our internal control over financial
      reporting.


24


**PART
      II. OTHER INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





See
      Note
      7 of the Notes to the Financial Statements - Commitments and Contingencies
      (Part
      I, Item 1) for information regarding legal proceedings in which the Company
      is
      involved.





**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, 2007. An investment in our common stock involves various risks.
      When considering an investment in our company, you should consider carefully
      all
      of the risk factors described in our most recent Form 10-K. These risks and
      uncertainties are not the only ones facing us and there may be additional
      matters that we are unaware of or that we currently consider immaterial. All
      of
      these could adversely affect our business, financial condition, results of
      operations and cash flows and, thus, the value of an investment in our company.





**Items
      2, 3, 4 and 5 are not applicable and have been
      omitted.**





**Item
      6.**  **Exhibits**


31.1
            Certifications
                pursuant to Rule 13a-14 under the Securities Exchange Act of
                1934.31.2
            Certifications
                pursuant to Rule 13a-14 under the Securities Exchange Act of
                1934.32.1
            Certifications
                of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906
                of the Sarbanes-Oxley Act of
                2002.


25





**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:
                November 7, 2008
            /s/
                Larry D. RyanBy:
            Larry
                D. RyanChief
                Executive Officer(Principal Executive
              Officer)Date:
                November 7, 2008
            /s/
                Stanley W. FarmerBy:
            Stanley
                W. FarmerVice
                President andChief
                Financial Officer(Principal Financial
              and
              Accounting Officer)




26