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,
2010


or





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


SECURITIES
EXCHANGE ACT OF 1934





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





Commission
File Number 001-32636





SULPHCO, INC.


(Exact
name of registrant as specified in its charter)





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





4333 W. Sam Houston Pkwy N., Suite
      190Houston, 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes  ̈  No
þ




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





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





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





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





Class
                    
                    Outstanding at October 31, 2010Common
      Stock, par value $.001
                    
                    101,708,741
      shares









SulphCo,
Inc.





PagePart
      I – Financial InformationItem
      1.
                                      Financial
      Statements
                                      
                                      3Condensed
      Balance Sheets (unaudited)
                                      
                                      3Condensed
      Statements of Operations (unaudited)
                                      
                                      4Condensed
      Statements of Cash Flows (unaudited)
                                      
                                      5Notes
      to Condensed Financial Statements
                                      
                                      6Item
      2.
                                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                      
                                      11Item
      3.
                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                      
                                      18Item
      4.
                                      Controls
      and Procedures
                                      
                                      18Part
      II – Other InformationItem
      1.
                                      Legal
      Proceedings
                                      
                                      18Item
      1A.
                                      Risk
      Factors
                                      
                                      18Item
      2.
                                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                                      
                                      19Item
      6.
                                      Exhibits
                                      
                                      19Signatures
                                      
                                      
                                      20


2


PART I. FINANCIAL
INFORMATION





Item
1.  Financial Statements.





SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED BALANCE
SHEETS


September
30, 2010 and December 31, 2009


(unaudited)





September30,
                                                                            2010
                                                                          
                                                                          
                                                                          December31,
                                                                            2009ASSETSCurrent AssetsCash
      and cash equivalents
                                                                          
                                                                          $
                                                                          2,059,293
                                                                          
                                                                          
                                                                          $
                                                                          1,658,823Prepaid
      expenses and other
                                                                          
                                                                          
                                                                          218,876
                                                                          
                                                                          
                                                                          
                                                                          688,008Total
      current assets
                                                                          
                                                                          
                                                                          2,278,169
                                                                          
                                                                          
                                                                          
                                                                          2,346,831Property and Equipment(net of accumulated depreciation
      of  $1,278,641  and $1,205,050,
      respectively)
                                                                          
                                                                          
                                                                          186,254
                                                                          
                                                                          
                                                                          
                                                                          263,995Other AssetsIntangible
      assets (net of accumulated amortization of $370,431 and $244,608,
      respectively)
                                                                          
                                                                          
                                                                          800,724
                                                                          
                                                                          
                                                                          
                                                                          986,124Other
                                                                          
                                                                          
                                                                          12,600
                                                                          
                                                                          
                                                                          
                                                                          20,600Total
      other assets
                                                                          
                                                                          
                                                                          813,324
                                                                          
                                                                          
                                                                          
                                                                          1,006,724Total
      assets
                                                                          
                                                                          $
                                                                          3,277,747
                                                                          
                                                                          
                                                                          $
                                                                          3,617,550LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts
      payable and accrued expenses
                                                                          
                                                                          $
                                                                          627,608
                                                                          
                                                                          
                                                                          $
                                                                          552,496Refundable
      deposit
                                                                          
                                                                          
                                                                          550,000
                                                                          
                                                                          
                                                                          
                                                                          550,000Late
      registration penalty (including accrued interest)
                                                                          
                                                                          
                                                                          410,186
                                                                          
                                                                          
                                                                          
                                                                          389,836Total
      current liabilities
                                                                          
                                                                          
                                                                          1,587,794
                                                                          
                                                                          
                                                                          
                                                                          1,492,332Long-Term Liabilities
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Total
      liabilities
                                                                          
                                                                          
                                                                          1,587,794
                                                                          
                                                                          
                                                                          
                                                                          1,492,332Commitments and Contingencies (Note
      5)Stockholders' EquityPreferred
      stock: 10,000,000 shares authorized ($0.001 par value) none
      issued
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Common
      stock: 150,000,000 shares authorized ($0.001 par value)101,708,741
      and 89,944,029 shares issued and outstanding, respectively
                                                                          
                                                                          
                                                                          101,709
                                                                          
                                                                          
                                                                          
                                                                          89,944Additional
      paid-in capital
                                                                          
                                                                          
                                                                          164,883,714
                                                                          
                                                                          
                                                                          
                                                                          159,298,891Deficit
      accumulated during the development stage
                                                                          
                                                                          
                                                                          (163,295,470
                                                                          )
                                                                          
                                                                          
                                                                          (157,263,617
                                                                          )Total
      stockholders' equity
                                                                          
                                                                          
                                                                          1,689,953
                                                                          
                                                                          
                                                                          
                                                                          2,125,218Total
      liabilities and stockholders' equity
                                                                          
                                                                          $
                                                                          3,277,747
                                                                          
                                                                          
                                                                          $
                                                                          3,617,550





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


3


SULPHCO,
INC.


(A
Company in the Development Stage)


CONDENSED STATEMENTS OF
OPERATIONS


For the
Three and Nine Month Periods Ended September 30, 2010 and 2009


and for
the Period from Inception to September 30, 2010


(unaudited)





Three Months Ended
                                      
                                      
                                      Nine Months Ended
                                      
                                      
                                      Inception toSeptember 30,
                                      
                                      
                                      September 30,
                                      
                                      
                                      September 30,2010
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2009
                                      
                                      
                                      2010RevenueSales
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      42,967ExpensesSelling,
      general, and administrative expenses
                                      
                                      
                                      (1,115,834
                                      )
                                      
                                      
                                      (1,389,975
                                      )
                                      
                                      
                                      (4,138,459
                                      )
                                      
                                      
                                      (6,349,277
                                      )
                                      
                                      
                                      (79,545,732
                                      )Research
      and development expenses:Fujairah
      facility
                                      
                                      
                                      (7,704
                                      )
                                      
                                      
                                      (54,178
                                      )
                                      
                                      
                                      (31,477
                                      )
                                      
                                      
                                      (217,110
                                      )
                                      
                                      
                                      (23,881,381
                                      )Other
      research and development
                                      
                                      
                                      (414,146
                                      )
                                      
                                      
                                      (791,298
                                      )
                                      
                                      
                                      (1,835,653
                                      )
                                      
                                      
                                      (2,417,514
                                      )
                                      
                                      
                                      (22,031,719
                                      )Other
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (591,706
                                      )Total
      operating expenses
                                      
                                      
                                      (1,537,684
                                      )
                                      
                                      
                                      (2,235,451
                                      )
                                      
                                      
                                      (6,005,589
                                      )
                                      
                                      
                                      (8,983,901
                                      )
                                      
                                      
                                      (126,050,538
                                      )Loss
      from operations
                                      
                                      
                                      (1,537,684
                                      )
                                      
                                      
                                      (2,235,451
                                      )
                                      
                                      
                                      (6,005,589
                                      )
                                      
                                      
                                      (8,983,901
                                      )
                                      
                                      
                                      (126,007,571
                                      )Other income (expense)Interest
      income
                                      
                                      
                                      290
                                      
                                      
                                      
                                      863
                                      
                                      
                                      
                                      1,448
                                      
                                      
                                      
                                      19,108
                                      
                                      
                                      
                                      1,203,139Interest
      expense
                                      
                                      
                                      (9,231
                                      )
                                      
                                      
                                      (349,342
                                      )
                                      
                                      
                                      (27,712
                                      )
                                      
                                      
                                      (911,503
                                      )
                                      
                                      
                                      (8,867,335
                                      )Other
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (766,868
                                      )Net
      loss
                                      
                                      
                                      (1,546,625
                                      )
                                      
                                      
                                      (2,583,930
                                      )
                                      
                                      
                                      (6,031,853
                                      )
                                      
                                      
                                      (9,876,296
                                      )
                                      
                                      
                                      (134,438,635
                                      )Deemed
      dividend
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (28,856,835
                                      )Net loss
      attributable to common  Stockholders
                                      
                                      $
                                      (1,546,625
                                      )
                                      
                                      $
                                      (2,583,930
                                      )
                                      
                                      $
                                      (6,031,853
                                      )
                                      
                                      $
                                      (9,876,296
                                      )
                                      
                                      $
                                      (163,295,470
                                      )Loss
      per share: basic and diluted
                                      
                                      $
                                      (0.02
                                      )
                                      
                                      $
                                      (0.03
                                      )
                                      
                                      $
                                      (0.06
                                      )
                                      
                                      $
                                      (0.11
                                      )Weighted
      average shares: basic and diluted
                                      
                                      
                                      101,708,741
                                      
                                      
                                      
                                      89,944,029
                                      
                                      
                                      
                                      100,588,292
                                      
                                      
                                      
                                      89,941,007





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, 2010 and 2009


and
for the Period from Inception to September 30, 2010


(unaudited)





Nine Months Ended
                                              
                                              
                                              Inception toSeptember 30,
                                              
                                              
                                              September 30,2010
                                              
                                              
                                              2009
                                              
                                              
                                              2010Cash Flows From Operating
      ActivitiesNet
      loss
                                              
                                              $
                                              (6,031,853
                                              )
                                              
                                              $
                                              (9,876,296
                                              )
                                              
                                              $
                                              (134,438,635
                                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                              
                                              
                                              260,344
                                              
                                              
                                              
                                              181,327
                                              
                                              
                                              
                                              1,912,853Accretion
      of convertible notes payable discount
                                              
                                              
                                              -
                                              
                                              
                                              
                                              855,762
                                              
                                              
                                              
                                              6,736,550Stock-based
      compensation
                                              
                                              
                                              215,569
                                              
                                              
                                              
                                              1,183,691
                                              
                                              
                                              
                                              21,233,119Other
                                              
                                              
                                              85,708
                                              
                                              
                                              
                                              875
                                              
                                              
                                              
                                              1,444,889Changes
      in:Prepaid
      expenses and other
                                              
                                              
                                              477,132
                                              
                                              
                                              
                                              426,393
                                              
                                              
                                              
                                              (231,476
                                              )Accounts
      payable and accrued expenses
                                              
                                              
                                              75,112
                                              
                                              
                                              
                                              (1,029,435
                                              )
                                              
                                              
                                              627,608Refundable
      deposit
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              550,000Late
      registration penalty (including accrued interest)
                                              
                                              
                                              20,350
                                              
                                              
                                              
                                              (244,376
                                              )
                                              
                                              
                                              410,186Net
      cash used in operating activities
                                              
                                              
                                              (4,897,638
                                              )
                                              
                                              
                                              (8,502,059
                                              )
                                              
                                              
                                              (101,754,906
                                              )Cash Flows From Investing
      ActivitiesPurchase
      of property and equipment
                                              
                                              
                                              (37,553
                                              )
                                              
                                              
                                              (120,096
                                              )
                                              
                                              
                                              (1,561,261
                                              )Investments
      in joint ventures and subsidiaries
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (361,261
                                              )Investments
      in intangible assets
                                              
                                              
                                              (45,358
                                              )
                                              
                                              
                                              (64,091
                                              )
                                              
                                              
                                              (1,291,931
                                              )Net
      cash used in investing activities
                                              
                                              
                                              (82,911
                                              )
                                              
                                              
                                              (184,187
                                              )
                                              
                                              
                                              (3,214,453
                                              )Cash Flows from Financing
      ActivitiesProceeds
      from sales of stock, net of offering costs
                                              
                                              
                                              5,381,019
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              104,790,796Proceeds
      from  related party notes payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              11,000,000Proceeds
      from borrowings under line of credit
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              750,000Principal
      payments on related party notes payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (5,441,285
                                              )Decrease
      in related party receivable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,359,185Principal
      payments on line of credit
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (750,000
                                              )Principal
      payments on convertible notes payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (4,680,044
                                              )
                                              
                                              
                                              (4,680,044
                                              )Net
      cash provided (used) by financing activities
                                              
                                              
                                              5,381,019
                                              
                                              
                                              
                                              (4,680,044
                                              )
                                              
                                              
                                              107,028,652Net
      change in cash and cash equivalents
                                              
                                              
                                              400,470
                                              
                                              
                                              
                                              (13,366,290
                                              )
                                              
                                              
                                              2,059,293Cash
      and cash equivalents at beginning of period
                                              
                                              
                                              1,658,823
                                              
                                              
                                              
                                              17,567,848
                                              
                                              
                                              
                                              -Cash
      and cash equivalents at end of period
                                              
                                              $
                                              2,059,293
                                              
                                              
                                              $
                                              4,201,558
                                              
                                              
                                              $
                                              2,059,293Supplemental informationCash
      paid for interest
                                              
                                              $
                                              3,612
                                              
                                              
                                              $
                                              124,367
                                              
                                              
                                              $
                                              1,513,412Cash
      paid for income taxes
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -The
      Company had the following non-cashinvesting
      and financing activities:Extinguishment
      of related party note payable
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              5,000,000Extinguishment
      of convertible notes payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,680,044Issuance
      of stock for convertible notes payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              319,956Non-cash
      deemed dividend
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              28,856,835





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


5


SULPHCO,
INC.


(A
Company in the Development Stage)


NOTES TO THE INTERIM
CONDENSED FINANCIAL STATEMENTS


September
30, 2010


(unaudited)





1.
            Basis of
      Presentation




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





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





Use
of Estimates




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





Fair
Value of Financial Instruments




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





2.
            Loss Per
      Share




The
computations of basic and diluted loss per common share are based upon the
weighted average number of common shares outstanding and potentially dilutive
securities.  Potentially dilutive securities include options and
warrants to acquire the Company’s common stock and convertible
debt.  As of September 30, 2010, there were approximately
22.6 million shares issuable in connection with these potentially dilutive
securities.  These potentially dilutive securities were disregarded in
the computations of diluted net loss per share for the three and nine
month periods ended September 30, 2010 and 2009, because inclusion of such
potentially dilutive securities would have been anti-dilutive.


6




3.
            Capital
      Stock




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





4.
            Stock Plans and
      Stock-Based Compensation




In
accordance with the Stock Compensation Topic of the FASB Accounting Standards
Codification, the Company records stock-based compensation expense for all
share-based payment arrangements, including stock options, warrants and
restricted stock grants. The fair value of each option award granted is
estimated on the date of grant using a Black-Scholes option valuation model.
Expected volatilities are based on the historical volatility of the Company’s
stock. The expected term of options granted to employees is derived utilizing
the simplified method which represents the period of time that options granted
are expected to be outstanding. The Company utilizes the simplified method
because it does not have historical exercise data which is sufficient to provide
a reasonable basis to estimate the expected term. The Company expects to
continue utilizing the simplified method to determine the expected term until
such time as it accumulates historical exercise data that will provide a
sufficient basis for the Company to begin estimating the expected term for
option exercises. The risk-free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve at the time of
grant. Gross stock-based compensation expense for the three and nine month
periods ended September 30, 2010 and 2009 was approximately $0.1 million, $0.2
million, $0.2 million and $1.2 million, respectively.





During
the three and nine month periods ended September 30, 2010 and 2009, the Company
granted 1,275,000 , 7,000, 2,625,000 and 1,425,541 stock options, respectively,
to its directors, officers and employees.  The fair value of these
stock options was estimated using the Black-Scholes options pricing model with
the following assumptions:





Nine Months Ended September 30, 2010 and
                        2009
                      
                      2010
                      
                      
                      2009Valuation
      Assumptions:Expected
      Term (years)
                      
                      
                      5.0 - 5.6
                      
                      
                      
                      5.0 - 6.5Expected
      Volatility
                      
                      
                      123% - 124
                      %
                      
                      
                      126% - 143
                      %Expected
      Dividend Rate
                      
                      
                      -
                      
                      
                      
                      -Risk
      Free Interest Rate
                      
                      
                      1.46% - 2.39
                      %
                      
                      
                      1.45% - 2.75
                      %Grant
      Date Fair Value
                      
                      $
                      0.31 - $0.35
                      
                      
                      $
                      0.52 - $1.53





Three Months Ended September 30, 2010 and
                        2009
                      
                      2010
                      
                      
                      2009Valuation
      Assumptions:Expected
      Term (years)
                      
                      
                      5.2 - 5.6
                      
                      
                      
                      5.0Expected
      Volatility
                      
                      
                      123% - 124
                      %
                      
                      
                      129
                      %Expected
      Dividend Rate
                      
                      
                      -
                      
                      
                      
                      -Risk
      Free Interest Rate
                      
                      
                      1.46
                      %
                      
                      
                      2.37
                      %Grant
      Date Fair Value
                      
                      $
                      0.35
                      
                      
                      $
                      1.53




7




Of the
2,625,000 stock options granted to the Company’s directors, officers and
employees during the nine month period ended September 30, 2010, 1,150,000 were
performance-based stock options granted to the Company’s directors and executive
officers.  The performance-based stock options have an exercise price
of $0.37 with a grant date fair value of approximately $360,000, a term of ten
years from the grant date and vest on a graduated basis over the next 12 months
subject to the achievement of certain commercial milestones. If the commercial
milestones are not achieved within the graduated vesting periods, these
performance-based stock options will be forfeited. The Company assesses the
probability of the achievement of the commercial milestones at the end of each
reporting period. If the Company determines that achievement of the commercial
milestones before the end of a vesting period is probable, it records the fair
value of the awards over the remaining vesting period.  If the
Company’s assessment of the probability regarding achievement of the commercial
milestones changes, future accruals of stock-based compensation expense will be
adjusted and a cumulative catch-up adjustment will be recorded in that reporting
period. As of September 30, 2010, the Company has not recorded any stock-based
compensation expense related to the performance-based stock options granted
during the three and nine month periods ended September 30, 2010.





5.
            Commitments and
      Contingencies





Concentrations
of Credit Risk





Substantially
all of the Company’s cash and cash equivalents are maintained with two major
U.S. financial institutions.  The majority of the Company’s cash
equivalents are invested in a money market fund that invests primarily in U.S.
Treasury securities and repurchase agreements relating to those instruments.
Investments in this fund are not insured by or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.  Generally,
these deposits may be redeemed upon demand and therefore, management believes
that they bear minimal risks.  The Company has not experienced any
losses in such accounts, nor does management believe it is exposed to any
significant credit risk.





Litigation
and Other Contingencies





There are
various claims and lawsuits pending against the Company arising in the ordinary
course of the Company’s business. Although the amount of liability, if any,
against the Company is not reasonably estimable, the Company is of the opinion
that these claims and lawsuits will not materially affect the Company’s
financial position. In the past, the Company has expended significant
resources   for its legal defense.  In the future, the
Company will devote resources to its legal defense as necessary.





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


8


Clean Fuels
Litigation





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





Talisman
Litigation





In
Talisman Capital Talon Fund, Ltd. v. Rudolf W. Gunnerman and SulphCo, Inc., Case
No. 05-CV-N-0354-BES-RAM, the Company and Rudolf W. Gunnerman were named as
defendants in a legal action commenced in federal court in Reno, Nevada. The
plaintiff’s claims relate to the Company's ownership and rights to develop its
"sulfur removal technology." The Company regards these claims as without merit.
Following a trial, on May 14, 2009, the court entered a judgment in favor of the
Company and dismissed all claims with prejudice. On July 21, 2010, the Ninth
Circuit Court of Appeals affirmed the trial court’s judgment.  The
time frame within which the plaintiff had to file an appeal to the Ninth Circuit
Court’s affirmative ruling passed without any appeal being filed by the
plaintiff resulting in this matter becoming final and
non-appealable.  No liability has been accrued relative to this
action.





Hendrickson Derivative
Litigation





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




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


9





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




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




On June
30, 2010, the District Court preliminarily approved a proposed settlement
regarding the Texas Derivative Claim.  The District Court held a final
settlement hearing on August 13, 2010 at which time the settlement became
final.  The final settlement, among other actions, resulted in the
dismissal of the claims asserted in the Texas Derivative Claim with
prejudice.  The terms of the final settlement included an award of
$300,000, to the plaintiff’s counsel for fees and reimbursement of
expenses.  Since the Company has previously met its director and
officer liability insurance policy deductible, the monetary award made in
connection with the settlement was borne by the director and officer liability
insurance policy and therefore did not have any impact on the financial
condition of the Company.  The final settlement became non-appealable
40 days after the date the final settlement was entered by the District Court
and the payment of the award of $300,000 to the plaintiff’s counsel for fees and
reimbursement of expenses was made by the insurance company shortly
thereafter.  No relief is sought against the Company and no liability
has been accrued relative to this action.





NYSE Amex LLC Listing
Standards Deficiency





On June 30, 2010, we were notified of
our failure to comply with the NYSE Amex LLC’s (the “Exchange”) continued
listing standards under section 1003 of the Company
Guide.  Specifically, the Exchange noted our failure to comply with
section 1003(a) (iii) of the Exchange’s Company Guide because our
stockholders' equity was less than $6,000,000 and we had losses from continuing
operations and net losses in our five most recent fiscal years. The notice was
based on a review by the Exchange of our publicly available information,
including the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 2010 at which time the Company’s stockholders’ equity was
approximately $5.3 million.   As of June 30, 2010, the Company's
stockholders’ equity was approximately $3.3 million resulting in our
failure to comply with Section 1003(a)(ii) of the Company Guide because our
stockholders’ equity was less than $4,000,000 and we had losses from continuing
operations and net losses in three of our four most recent fiscal
years.  As of September 30, 2010, the Company's stockholders’ equity
was approximately $1.7 million resulting in our failure to comply with
Section 1003(a)(i) of the Company Guide because our stockholders’ equity was
less than $2,000,000 and we had losses from continuing operations and net losses
in two of our three most recent fiscal years.  During the week ended
July 30, 2010, we submitted to the Exchange a plan outlining our efforts to
regain compliance with the Exchange's continued listing
requirements.  The plan consisted of several elements, but primarily
focused on the sales of our products and services and raising additional equity
capital.  On September 20, 2010, the Company received notice from the
Exchange indicating that the Exchange had accepted the Company’s plan of
compliance.  In accepting the Company’s plan, the Exchange granted the
Company an extension until December 30, 2011 for the continued listing of the
Company’s common stock and for the Company to regain compliance with the
Exchange’s continued listing standards, subject to quarterly progress review by
the Exchange.  If (i) our plan is not accepted, (ii) we do not make
progress toward compliance consistent with the plan, or (iii) we are not in
compliance at the end of the plan period, then our shares of common stock may be
subject to delisting proceedings by the Exchange.  If the Exchange
delists our common stock, we anticipate that our common stock would be quoted on
the OTC Bulletin Board or possibly the so-called "pink sheets." Even if our
common stock is quoted on such systems, a delisting by the Exchange could harm
our investors by reducing the liquidity and market price of our common stock.
Additionally, a delisting could negatively affect us by reducing the number of
investors willing to hold or acquire our common stock, which could negatively
affect our ability to access public capital markets.  If the Company
is not listed on a national exchange and/or if our public float remains below
$75 million, it will be limited in its ability to file new shelf registration
statements on Form S-3 and/or to fully use one or more registration statements
on Form S-3 that have been filed with the Securities and Exchange
Commission.  Any such limitations may have a material adverse effect
on the Company’s ability to raise the capital needed to continue its
operations.


10


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





Overview





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





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





Research
and Development Activities Update




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




Development of Catalyst
Systems and Sulfur Removal Processes


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




A major
focus of the first nine-months of 2010 has been laboratory and pilot scale work
directed toward the desulfurization of natural gasoline, an important blend
stock for on-road gasoline.  The above mentioned catalyst system has
proven to be highly effective in the oxidation of the sulfur compounds contained
in the samples of natural gasoline evaluated during the first nine-months of
2010.  At least as important, the resulting oxidized sulfur species
are water soluble due to their small molecular size and can be removed by
employing a simple water wash. The primary objective of the initial lab work was
directed towards establishing suitable ranges of the additives to establish a
first indication of the commercial viability of the
process.  Follow-up lab and pilot scale work were performed to
understand the operating window and the robustness of the
process.  These laboratory and pilot scale results ultimately led to a
successful commercial validation trial with a mid-stream energy company (the
“Mid-Stream Energy Company”).  Key results of the commercial
validation trial are discussed in more detail below.




Our
research relating to sulfur removal for diesel and transmix streams focused on
adsorption and a new effort in extraction.  The bulk of the work in
the first nine months of 2010 relative to diesel finishing was conducted in the
context of a collaboration with a Brazilian oil company.  Adsorption
is a potential means of sulfur removal for product streams with low sulfur
content (100 ppm or less), while extraction is preferred for product streams
with wide range of sulfur content. At least two potential adsorbent alternatives
have been identified and characterized. Also, a suitable extraction solvent has
been identified. Ongoing work will be oriented towards process implementation
for the adsorption and extraction based processes.  SulphCo is
investigating a cooperation agreement or agreements with other companies to
design engineering and process packages for the adsorption and extraction
elements of the system.


11


Ultrasound Probe, Reactor
and Control Systems


During the first nine-months of 2010,
the collaborative research between SulphCo and Märkisches Werk Halver, GmbH
(“MWH”) continued to center around simplifying and enhancing the user
friendliness of the ultrasound probe system.  Highlights included the
development of a prototype forged probe to allow simplified mass production, a
prototype tool that simplifies ultrasound probe swap-out and the development of
an explosion proof transducer cooling jacket.  Also, high intensity
endurance testing of the current ultrasound probe/transducer assembly continued
with positive results.  Testing will continue throughout the remainder
of 2010.





Business
Development Activities Update




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




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




North
America


On June
23, 2010, SulphCo announced that it had executed a validation agreement (the
“Validation Agreement”) with a wholly owned subsidiary of a Mid-Stream Energy
Company.  Pursuant to the terms of the Validation Agreement, SulphCo
agreed to install a mobile SonocrackingTM unit at the Mid-Stream Energy Company’s
natural gas liquids (“NGL”) fractionation facility located in Mont Belvieu,
Texas for the purpose of evaluating the commercial scale performance of
SulphCo’s SonocrackingTM technology on certain natural gasoline streams produced
at the facility following laboratory tests on such streams.  The
installation and operational commissioning of the SonocrackingTM unit began
during the week of June 28, 2010 and was completed during the week ending August
27, 2010 with the two companies working together to jointly prepare the site at
the Mont Belvieu facility.  During this period, SulphCo’s installation
team, in conjunction with site engineers based at the Mont Belvieu facility,
successfully installed the mobile SonocrackingTM unit and conducted commissioning
tests to assure safe operations and equipment reliability.





Commercial
scale validation tests began during the week of August 30, 2010.  The
initial work involved a number of trials designed to define the operating
parameters within which different operating variables such as additive levels
and throughput rates could be optimized.  Over the course of the
commercial scale validation phase, a variety of natural gasoline streams with
starting sulfur levels ranging from less than 150 ppm to more than
400 ppm were treated successfully with resulting sulfur levels routinely
coming in at the sulfur reduction target of less than 45 ppm and with
volumetric throughput rates on a single processing line ranging from 1,000
barrels-per-day (“BPD”) to 3,000 BPD.  Five weeks of commercial scale
validation trials culminated during the week ended October 1, 2010 (after
approximately 120 hours of probe testing operation) with SulphCo then conducting
a continuous run of 42 hours on a single processing line with volumetric flow
rates ranging from 1,500 BPD to 2,000 BPD and resulting sulfur levels
consistently less than 45 ppm.


12




The two
companies jointly agreed that the results achieved during the commercial scale
validation phase met or exceeded the performance parameters that were
established in the Validation Agreement and had mutually agreed to move forward
with negotiations on a definitive commercial agreement.  Late in the
afternoon of October 27, 2010, SulphCo unexpectedly received notice from the
Mid-Stream Energy Company that it had elected to immediately terminate all
discussions pursuant to the Validation Agreement regarding any agreement,
including a proposed commercial agreement for the near term.




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




Since the
spring of 2010, SulphCo has been in discussions with a leading energy delivery
company to employ SulphCo’s SonocrackingTM technology to “sweeten” or convert
sulfur compounds in a plant condensate stream to address odor
issues.  SulphCo has made presentations to this potential customer’s
engineering staff that were followed by a site visit to review existing
infrastructure and options for installation.  This potential customer
is currently evaluating the SonocrackingTM technology for this sweetening
application.




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




On
September 15, 2009, SulphCo reported that it had executed a letter of intent
with Laguna Development Corporation ("Laguna") to move toward the installation
of SulphCo's desulfurization technology at Laguna's New Mexico trans-mix
facility.  In September  2010, SulphCo received notice from
Laguna that it had elected to terminate discussions pursuant to its letter of
intent.  On November 13, 2009, SulphCo reported that it had executed a
letter of intent with Golden Gate Petroleum (“Golden Gate”) to move toward the
installation of SulphCo’s technology at Golden Gate’s Nevada trans-mix
facility.  SulphCo continues to work with Golden Gate and other
companies in the trans-mix market to meet their technical and commercial
requirements to produce ultra-low sulfur diesel.  As of the end of the
third quarter, Golden Gate had not decided whether it wanted to go forward with
the proposal that had been presented to it by SulphCo.




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


13




There can
be no assurance that the Company will be successful in implementing any
commercial agreements relative to the opportunities discussed
above.




Europe


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





South
America


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




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




There can
be no assurance that the Company will be successful in implementing any
commercial agreements relative to the opportunities discussed
above.




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.As discussed below, the Company continues to be cash
constrained and unless new financing is obtained in the immediate future, the
Company’s operations and efforts to continue to develop its technology will be
severely curtailed. The Company continues to work to raise sufficient funding,
however, there can be no assurances that such a financing will be available, or
if it is available, that it can be obtained on terms that are deemed to be
acceptable to the Company. Such funding, if obtained, may take the form of
secured convertible debt, equity or any combination thereof.


14


Three
and nine months ended September 30, 2010 compared to the three and nine months
ended September 30, 2009




Selling,
General and Administrative Expenses





For the
three and nine month periods ended September 30, 2010, we incurred expenses of
approximately $1.1 million and $4.1 million, respectively, in selling, general
and administrative expenses. This compares to expenses of approximately $1.4
million and $6.3 million for the comparable periods in 2009.





Gross
stock-based compensation was approximately $0.1 million and $0.2 million,
respectively, for the three and nine month periods ended September 30, 2010.
This compares to stock-based compensation of approximately $0.2 million and $1.2
million for the comparable periods in 2009.





Legal
fees were approximately $0.1 million and $0.4 million, respectively, for the
three and nine month periods ended September 30, 2010.  This compares
to expenses of approximately $0.2 million and $0.9 million for the comparable
periods in 2009. The decrease in legal fees in the nine month period ended
September 30, 2010 relative to the nine month period ended September 30, 2009 is
primarily attributable to the resolution of outstanding litigation matters that
gave rise to significant legal fees in the first quarter of 2009. The Company
does not expect to incur significant litigation fees in the foreseeable
future.





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





Travel,
consulting, marketing and investor and public relations expenses were
approximately $22,000 and $0.2 million, respectively, for the three and nine
month periods ended September 30, 2010.  This compares to expenses of
approximately $0.2 million and $0.9 million for the comparable periods in
2009.





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





Research and Development
Expenses




For the
three and nine month periods ended September 30, 2010, we incurred expenses of
approximately $0.4 million and $1.8 million, respectively, related to research
and development of our SonocrackingTM technology. This compares to expenses of
approximately $0.8 million and $2.4 million for the comparable periods in
2009.  The ultrasonic probes and reactor assemblies have been
developed to a point suitable for their expected application and the Company
does not expect to incur significant expenses on further development of the
ultrasonic probes and reactor assemblies through the end of 2010.





During
the three and nine month periods ended September 30, 2010, we incurred expenses
of approximately $8,000 and $30,000, respectively, related to the facility in
Fujairah, UAE. This compares to expenses of approximately $0.1 million and $0.2
million for the comparable periods in 2009.





Interest
Expense




For the
three and nine month periods ended September 30, 2010 and 2009, the Company
recognized total interest expense of approximately $9,000, $0.3 million, $28,000
and $0.9 million, respectively. For the three and nine month periods ended
September 30, 2010 and 2009, total interest expense recognized by the
Company included incremental interest expense associated with discount accretion
of approximately zero, $0.3 million, zero, and $0.9 million, respectively.
On July 29, 2009, the Company made full cash payment of the outstanding
principal balance of its convertible notes payable and all accrued but unpaid
interest.


15





Liquidity and Capital
Resources





As discussed below, the Company
continues to be cash constrained and unless new financing is obtained in the
immediate future, the Company’s operations and efforts to continue to develop
our technology will be severely curtailed. The Company continues to work to
raise sufficient funding, however, there can be no assurances that such a
financing will be available, or if it is available, that it can be obtained on
terms that are deemed to be acceptable to the Company. Such funding, if
obtained, may take the form of secured convertible debt, equity or any
combination thereof.





On June 30, 2010, we were
notified of our failure to comply with the NYSE Amex LLC’s (the “Exchange”)
continued listing standards under section 1003 of the Company
Guide.  Specifically, the Exchange noted our failure to comply with
section 1003(a) (iii) of the Exchange’s Company Guide because our
stockholders' equity was less than $6,000,000 and we had losses from continuing
operations and net losses in our five most recent fiscal years. The notice was
based on a review by the Exchange of our publicly available information,
including the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 2010 at which time the Company’s stockholders’ equity was
approximately $5.3 million.   As of June 30, 2010, the Company's
stockholders’ equity was approximately $3.3 millionresulting in our
failure to comply with Section 1003(a)(ii) of the Company Guide because our
stockholders’ equity was less than $4,000,000 and we had losses from continuing
operations and net losses in three of our four most recent fiscal years.As of September
30, 2010, the Company's stockholders’ equity was approximately $1.7 million
resulting in our failure to comply with Section 1003(a)(i) of the Company Guide
because our stockholders’ equity was less than $2,000,000 and we had losses from
continuing operations and net losses in two of our three most recent fiscal
years.  During the week ended July 30, 2010, we submitted to the
Exchange a plan outlining our efforts to regain compliance with the Exchange's
continued listing requirements.  The plan consisted of several
elements, but primarily focused on the sales of our products and services and
raising additional equity capital.  On September 20, 2010, the Company
received notice from the Exchange indicating that the Exchange had accepted the
Company’s plan of compliance.  In accepting the Company’s plan, the
Exchange granted the Company an extension until December 30, 2011 for the
continued listing of the Company’s common stock and for the Company to regain
compliance with the Exchange’s continued listing standards, subject to quarterly
progress review by the Exchange.If (i) our
plan is not accepted, (ii) we do not make progress toward compliance consistent
with the plan, or (iii) we are not in compliance at the end of the plan period,
then our shares of common stock may be subject to delisting proceedings by the
Exchange.





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





As of
September 30, 2010, we had approximately $2.0 million in available cash
reserves. Based on the cash reserves at September 30, 2010 and the forecasted
monthly cash burn rate, we anticipate that our cash reserves will be sufficient
to fund our cash requirements into the first quarter of
2011.  Historically, we have been able to raise capital to continue
with our research and development and it is likely that we will need to raise
additional funds before we can generate enough revenue to become profitable. The
Company is evaluating various financing alternatives that may include, among
other things, secured convertible debt and additional equity issuances or any
combination thereof, the proceeds of which would be used to fund future research
and development activity.  There can be no assurance that the Company
will be successful in raising such financing.  If the Company is
unable to raise additional financing, its ability to continue to operate will be
significantly curtailed.  In addition if the Company is not listed on
a national exchange and/or if our public float remains below $75 million, it
will be limited in its ability to file new shelf registration statements on Form
S-3 and/or to fully use one or more registration statements on Form S-3 that
have been filed with the Securities and Exchange Commission.  Any such
limitations may have a material adverse effect on the Company’s ability to raise
the funding needed to continue its operations.


16


Forward-Looking
Statements





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





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





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





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


17


Item
3. Quantitative and Qualitative Disclosures About Market Risk.




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





Item
4. Controls and Procedures.





Evaluation of Disclosure
Controls and Procedures





Our
management, with the participation of the Company’s Chief Executive Officer and
Chief Financial Officer, have evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the “1934 Act”)) as of September 30,
2010, the end of the period covered by this Form 10-Q.  Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of September 30, 2010, the Company’s disclosure controls and procedures
were effective.




Changes in Internal
Controls





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the period ended
September 30, 2010, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




PART
II. OTHER INFORMATION





Item
1.  Legal Proceedings





See Note
5 of the Notes to the Financial Statements – Commitments and Contingencies (Part
I, Item 1) for information regarding legal proceedings involving the
Company.





Item
1A.  Risk Factors





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





On
September 30, 2010, we were notified of our failure to comply with the NYSE Amex
LLC’s (the “Exchange”) continued listing standards under section 1003(a)
(iii) of the Exchange’s Company Guide because our stockholders' equity was less
than $6,000,000 and we have had losses from continuing operations and net losses
in our five most recent fiscal years.  The notice was based on a
review by the Exchange of our publicly available information, including the
Company's quarterly report on Form 10-Q for the quarter ended March 31, 2010 at
which time the Company’s stockholders’ equity was approximately $5.3
million.As of September 30, 2010 our stockholders'
equity was approximately $3.3 million resulting in our failure to comply
with Section 1003(a)(ii) of the Company Guide because our stockholders’ equity
was less than $4,000,000 and we had losses from continuing operations and net
losses in three of our four most recent fiscal years. As of September 30, 2010,
the Company's stockholders’ equity was approximately $1.7 million resulting
in our failure to comply with Section 1003(a)(i) of the Company Guide because
our stockholders’ equity was less than $2,000,000 and we had losses from
continuing operations and net losses in two of our three most recent fiscal
years.  During the week ended July 30, 2010, we submitted to the
Exchange a plan outlining our efforts to regain compliance with the Exchange's
continued listing requirements.  The plan consisted of several
elements, but primarily focused on the sales of our products and services and
raising additional equity capital.  On September 20, 2010, the Company
received notice from the Exchange indicating that the Exchange had accepted the
Company’s plan of compliance.  In accepting the Company’s plan, the
Exchange granted the Company an extension until December 30, 2011 for the
continued listing of the Company’s common stock and for the Company to regain
compliance with the Exchange’s continued listing standards, subject to quarterly
progress review by the Exchange.  If (i) our plan is not accepted,
(ii) we do not make progress toward regaining compliance consistent with our
plan, or (iii) we are not in compliance at the end of the plan period, then our
shares of common stock may be delisted from the Exchange.  If the
Exchange delists our common stock, we anticipate that our common stock would be
quoted on the OTC Bulletin Board or possibly the so-called "pink sheets." Even
if our common stock is quoted on such systems, a delisting by the Exchange could
harm our investors by reducing the liquidity and market price of our common
stock. Additionally, a delisting could negatively affect us by reducing the
number of investors willing to hold or acquire our common stock, which could
negatively affect our ability to access public capital markets.  If
the Company is not listed on a national exchange and/or if our public float
remains below $75 million, it will be limited in its ability to file new shelf
registration statements on Form S-3 and/or to fully use one or more registration
statements on Form S-3 that have been filed with the Securities and Exchange
Commission.  Any such limitations may have a material adverse effect
on the Company’s ability to raise the capital needed to continue its
operations.


18


As of the date of this filing and other
than the risk factor described above, there have been no material changes from
the risk factors previously disclosed in our “Risk Factors” in the Form 10-K for
the period ended December 31, 2009. An investment in our common stock involves
various risks. When considering an investment in our common stock, you should
consider carefully all of the Risk Factors described here and in our most recent
Form 10-K. These risks and uncertainties are not the only ones facing us and
there may be additional matters that we are unaware of or that we currently
consider immaterial. All of these could adversely affect our business, financial
condition, results of operations and cash flows and, thus, the value of an
investment in our Company.





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





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





Item 3.  Defaults Upon
Senior Securities. - None





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





Item 5.  Other Information.
-None.





Item
6.  Exhibits


31.1
            Certifications
      pursuant to Rule 13a-14 under the Securities Exchange Act of
      1934.


31.2
            Certifications
      pursuant to Rule 13a-14 under the Securities Exchange Act of
      1934.


32.1
            Certifications
      of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906
      of the Sarbanes-Oxley Act of 2002.




19


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 9, 2010
                  /s/ Larry D. RyanBy:
                  Larry
      D. RyanChief
      Executive Officer(Principal
      Executive Officer)Date:   
       November 9, 2010
                  /s/ Stanley W. FarmerBy:
                  Stanley
      W. FarmerVice
      President, Chief Financial Officer,Treasurer
      and Corporate Secretary(Principal
      Financial and Accounting
Officer)




20