FILED PURSUANT TO RULE 424(B)(5)
FILE No. 333-145460
PROSPECTUS SUPPLEMENT NO. 1
(To Prospectus dated April 30, 2008)
SULPHCO, INC.
Up to 6,818,750 Shares of Common Stock
We are selling a maximum of 6,818,750 shares of our common stock to investors pursuant to this prospectus supplement and the accompanying prospectus. We will sell our common stock to these investors at the negotiated price of $3.20 per share of common stock.
Our common stock is listed on the American Stock Exchange (the “AMEX”), under the symbol “SUF.” On May 27, 2008, the last reported sale price for our common stock on the AMEX was $3.92 per share.
We anticipate that the net proceeds to us after expenses of this offering will be approximately $20.3 million. We expect the total offering expenses to be approximately $1.5 million.
Purchase of our securities involves a high degree of risk. See “Risk Factors” beginning at page 4 of the accompanying prospectus and on page S-5 of this prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Closing of our sale of shares pursuant to this prospectus supplement is subject to the approval by AMEX of the Company’s additional listing application of the shares. We expect to deliver the shares being sold under this prospectus supplement within two trading days of the closing following satisfaction of this condition.
The date of this prospectus supplement is May 27, 2008.
You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with different information. You should assume that the information appearing in this prospectus supplement is accurate only as of the date on the front cover of this prospectus supplement. Our business, financial condition, results of operations and prospects may have changed since that date.
TABLE OF CONTENTS
Prospectus Supplement | |
Page No. | |
| THE OFFERING | S-3 |
| ABOUT THIS PROSPECTUS SUPPLEMENT | S-4 |
| RISK FACTORS | S-5 |
| USE OF PROCEEDS | S-5 |
| PLAN OF DISTRIBUTION | S-6 |
| LEGAL MATTERS | S-6 |
Prospectus | |
Page No. | |
| SUMMARY | 3 |
| RISK FACTORS | 4 |
| FORWARD LOOKING STATEMENTS | 9 |
| USE OF PROCEEDS | 10 |
| PLAN OF DISTRIBUTION | 10 |
| DESCRIPTION OF WARRANTS | 15 |
| DESCRIPTION OF SHARE CAPITAL | 15 |
| EXPERTS | 17 |
| LEGAL MATTERS | 17 |
| DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES | 17 |
| WHERE YOU CAN FIND MORE INFORMATION | 18 |
S-2
| Common Stock to be sold | A maximum of 6,818,750 shares | |
| Common Stock to be outstanding after this offering | 89,621,504(1) | |
| Use of proceeds | We expect to use the net proceeds from this offering for general corporate purposes and working capital, including for research and development, general and administrative expenses, repayment of debt and potential acquisitions of technologies that complement our business. | |
| AMEX Symbol | SUF |
S-3
This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering. The second part is the accompanying prospectus, which gives more general information, some of which may not apply to this offering. If the description of this offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement. In addition, you should review the risks of investing in our common shares discussed beginning on page 4 of the accompanying prospectus and immediately below in this prospectus supplement prior to making an investment decision.
We incorporate important information into this prospectus supplement and the accompanying prospectus by reference to our filings with the Securities and Exchange Commission. You may request a copy of these filings, at no cost, upon request to SulphCo, Inc., 4333 W. Sam Houston Pkwy N., Suite 190, Houston, TX 77043, Attn: Mr. Stanley W. Farmer, Vice President and Chief Financial Officer, telephone number (713) 896-9100.
S-4
You should carefully consider and evaluate all of the information in this Prospectus Supplement in combination with the more detailed description of our business in our annual report on Form 10-K for the year ended December 31, 2007, which we filed with the Securities and Exchange Commission on March 12, 2008, and in our quarterly report on Form 10-Q for the three months ended March 31, 2008 we filed with the Securities and Exchange Commission on May 9, 2008, for a more complete understanding of the risks associated with an investment in our securities. The following risk factors are not the only risks that could potentially face our company. Additional issues not now known to us or that we may currently deem immaterial may also impair our ability to commercialize our technology and the therapies we believe are derivable therefrom resulting in our business outlook being compromised and the trading price of our common stock declining.
We Have a History of Losses; We Expect to Continue to Incur Losses. As of March 31, 2008, we had an accumulated deficit of approximately $126.9 million. We have operated at a loss since our inception, and we expect this to continue for some time. The amount of the accumulated deficit will continue to increase, as it will be expensive to continue our research and development efforts. If these activities are successful and if we achieve successful commercialization of our technology, then even more funding may be required to market and sell our products and services. The outcome of these matters cannot be predicted at this time. We are evaluating a variety of options to fund our operations, but there is no assurance we will be able to secure additional funding.
Sales of Substantial Amounts of Our Shares, or Even the Availability of Our Shares for Sale, in the Open Market Could Cause the Market Price of our Shares to Decline. Under our registration statement that the Securities and Exchange Commission, or the SEC, declared effective on September 4, 2007, we have registered with the SEC an aggregate of $150,000,000 of our equity securities that we may issue from time to time, in one or more offerings at prices and on terms that we will determine at the time of each offering. Under that so-called “shelf” registration statement, we have registered our common stock and warrants. Upon completion of the sale and issuance of the shares offered via this prospectus supplement, we will have sold securities in offerings from our shelf registration statement representing approximately 14.7% of the value of the aggregate equity securities from our shelf registration statement.
Sales of substantial amounts of our stock at any one time or from time to time by the investors to whom we have issued them, or even the availability of these shares for sale, could cause the market price of our common stock to decline.
Potential for Dilution
Under our shelf registration or in other offerings, we may offer shares of common stock and warrants or a combination of these securities in the future. We cannot assure you that we will be able to sell any of those securities in any future offering at a price per share of common stock or for an exercise or conversion price per share of common stock that is equal to or greater than the price per share of common stock paid by investors in this offering. If the price per share of common stock or the exercise or conversion price per share of warrants or convertible preferred stock which we sell in future transactions is less than the price per share of common stock in this offering, investors who purchase common stock in this offering will suffer a dilution of their investment.
The net proceeds to us from the sale of shares offered by this prospectus supplement will be approximately $20.3 million after deducting estimated offering expenses of approximately $1.5 million. We expect to use the net proceeds from this offering for general corporate purposes and working capital, including for research and development, general and administrative expenses, repayment of debt and potential acquisitions of technologies that complement our business.
S-5
Our authorized capitalization includes 110,000,000 shares of common stock, $0.001 par value per share, of which 82,802,754 shares were outstanding on May 27, 2008. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably dividends as may be declared by our board of directors out of the funds legally available therefore. Each holder of common stock is entitled to one vote for each share held of record by the holder. If we liquidate, dissolve or wind up the Company, holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any outstanding preferred stock. The outstanding shares of common stock have no preemptive, subscription, redemption or conversion rights. Cumulative voting for the election of directors is not authorized by our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock which we may designate in the future. All of the outstanding shares of common stock are, and the shares of common stock to be issued upon completion of this offering pursuant to this prospectus supplement will be, fully paid and nonassessable. Currently, there are no shares of preferred stock issued and outstanding.
Investors are referred to our prospectus dated April 30, 2008 which accompanies this prospectus supplement for further information on our common stock.
We and the investors in this offering have signed a securities purchase agreement dated May 27, 2008, governing the rights and obligations of the parties in connection with this offering. Under that agreement, we have agreed to issue and sell, and the investors have agreed to purchase for $3.20 per share, 6,818,750 shares of our common stock. Our obligation under the agreement to deliver the shares to the investors is subject to the approval by AMEX of the Company’s additional listing application for the shares and to the satisfaction of certain other conditions. Upon receipt of approval from the American Stock Exchange and the satisfaction of other closing conditions, the offering will close within two trading days.
We entered into a finder’s agreement with Olympus Securities, LLC, (“Olympus”), and have agreed to pay Olympus a finder’s fee in cash equal to 7.0% of the total amount raised from certain purchasers in this offer. We have also agreed to pay Olympus an additional fee in cash equal to 7.0% of the aggregate amount of one or more future purchases made by the same investors of this offer within one year from the closing date of the securities purchase agreement dated May 27, 2007.
Each investor has represented that they have complied with all applicable federal securities laws and regulations in connection with the transactions contemplated by the offer.
We estimate the total expenses of this offering, which will be payable by us, will be approximately $1.5 million, including reimbursement to the investors of up to $10,000 in aggregate for the fees and expenses of attorneys and advisors, including due diligence costs and the negotiation, preparation and execution of the definitive transaction documents.
The validity of the issuance of the shares offered in this prospectus will be passed upon for us by McDonald Carano Wilson LLP, Reno, Nevada.
S-6
$150,000,000
SULPHCO, INC.
WARRANTS
COMMON SHARES
SulphCo, Inc. from time to time may offer to sell warrants and common shares. The warrants may be exercisable for common shares of SulphCo, Inc.
The common shares of SulphCo, Inc. are listed on the American Stock Exchange and trade under the ticker symbol “SUF.” On April 29, 2008, the last reported sale price of our common stock on the American Stock Exchange was $3.57 per share.
The total amount of warrants and common shares will have an initial aggregate offering price of up to $150,000,000 or the equivalent amount in other currencies, currency units or composite currencies, although SulphCo, Inc. may increase this amount in the future.
The securities covered by this prospectus may be offered and sold to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis.
This prospectus describes some of the general terms that may apply to these securities and the general manner in which they may be offered. The specific terms of any securities to be offered, and the specific manner in which they may be offered, will be described in one or more supplements to this prospectus.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE ‘‘RISK FACTORS’’ BEGINNING ON PAGE 4. THE PROSPECTUS SUPPLEMENT APPLICABLE TO EACH TYPE OR SERIES OF SECURITIES WE OFFER MAY CONTAIN A DISCUSSION OF ADDITIONAL RISKS APPLICABLE TO AN INVESTMENT IN US AND THE PARTICULAR TYPE OF SECURITIES WE ARE OFFERING UNDER THAT PROSPECTUS SUPPLEMENT. THIS PROSPECTUS MAY NOT BE USED TO OFFER OR SELL ANY SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is April 30, 2008
TABLE OF CONTENTS
Page No. | |
| SUMMARY | 3 |
| RISK FACTORS | 4 |
| FORWARD LOOKING STATEMENTS | 9 |
| USE OF PROCEEDS | 10 |
| PLAN OF DISTRIBUTION | 10 |
| DESCRIPTION OF WARRANTS | 15 |
| DESCRIPTION OF SHARE CAPITAL | 15 |
| EXPERTS | 17 |
| LEGAL MATTERS | 17 |
| DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES | 17 |
| WHERE YOU CAN FIND MORE INFORMATION | 18 |
About this Prospectus
This prospectus is part of a registration statement that we filed with the SEC utilizing a “shelf” registration process. Under this shelf process, we may sell any combination of the securities described in this prospectus. This prospectus provides you with a general description of the securities we may offer. When we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the heading “Where You Can Find More Information.” THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE A SALE OF SECURITIES UNLESS IT IS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
We have not authorized any dealer, salesman or other person to give any information or to make any representation other than those contained or incorporated by reference in this prospectus and any accompanying supplement to this prospectus. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus or any accompanying prospectus supplement. This prospectus and any accompanying supplement to this prospectus do not constitute an offer to sell or the solicitation of an offer to buy any securities other than the registered securities to which they relate, nor do this prospectus and any accompanying supplement to this prospectus constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus and any accompanying prospectus supplement is accurate on any date subsequent to the date set forth on the front of the document or that any information we have incorporated by reference is correct on any date subsequent to the date of the document incorporated by reference, even though this prospectus and any accompanying prospectus supplement is delivered or securities are sold on a later date.
This summary highlights important information included in or incorporated by reference in this prospectus. This summary does not contain all of the information that you should consider before investing in the common stock. You should read the entire prospectus carefully, including the documents incorporated by reference in this prospectus.
References to "we," "us," "our company," “the Company” and "SulphCo" refer to SulphCo, Inc.
Our Company
We were incorporated in the State of Nevada in 1986. Our predecessor, GRD, Inc., commenced its current line of business in 1999. Our executive offices are located at 4333 W. Sam Houston Pkwy N., Suite 190, Houston, TX 77043. Our telephone number is (713) 896-9100. Our corporate website is www.sulphco.com. Information contained in our website is not part of this prospectus.
Our Business
Introduction
We are engaged in the business of developing and commercializing our patented and proprietary technology for the “upgrading” of crude oil by reducing its relative density, its viscosity, and its sulphur and nitrogen content. Our patented and proprietary process, which we refer to as Sonocracking, ™ is based upon the novel use of high power ultrasound - the application of high energy, high frequency sound waves - which alters the molecular structure of the crude oil. This decreases the relative density and the viscosity of crude oil and correspondingly increases the amount of lighter oils that can be recovered during the refining processes. Other beneficial changes to the crude oil as a result of the Sonocracking™ technology include a reduction in the weight percentage of sulphur as well as a reduction in the parts per million of nitrogen.
The potential markets for our Sonocracking™ technology and our Sonocracker™ units include crude oil producers (upstream markets), transporters and blenders (mid-stream markets) and refiners (down stream markets). The economic value of crude oil is driven largely by characteristics such as API gravity (relative density), sulphur content and total acid number (“TAN”). Because our technology is designed to decrease the relative density of crude oil and at the same time reduce the sulphur content in a cost-effective way, the successful commercialization of our technology can be expected to produce economic benefits to future customers in these markets.
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General Description of Our Technology
SulphCo's technology is designed to use high power ultrasound to alter naturally occurring molecular structures in water and hydrocarbons. Under certain conditions, ultrasonic waves can induce cavitation in a liquid. Cavitation involves the creation of bubbles at the sites of refraction owing to the tearing of the liquid from the negative pressure of intense sound waves in the liquid. The bubbles then oscillate under the effect of positive pressure, growing to an unstable size as the wave fronts pass. The ultrasound waves stress these bubbles, leading to their growth, contraction, and eventually bursting, generating excess heat and pressure in and around every micrometer and submicrometer-sized bubble. The entire process takes a few nanoseconds and each bubble can behave as a microreactor, accelerating the physical reactions owing to the heat released and localized pressures obtained. The high temperature (estimated to be as high as 5,000 degrees Kelvin) and pressure (estimated to be as high as 500 atm) reached can potentially cause disruption of molecular bonds.
The Sonocracking™ technology applies high-power ultrasonic energy to a mixture of crude oil and water in conjunction with inexpensive proprietary catalysts. In accordance with theory, free radicals can be formed as a result of the breaking of molecular bonds in the water vapor at the thermolic center of the cavitation bubbles. While a large portion of these free radicals rapidly reform into water vapor, a few can bring about the oxidation of some sulphur compounds in the hydrocarbons. It can also potentially result in cracking the bonds of residuum elements, thereby enhancing the crude quality. The transfer of hydrogen and hydroxide from water to the numerous petroleum streams can lead to the oxidation and subsequent removal from the crude oil of sulphur present in these streams. Aside from the potential oxidation of sulphur compounds, the process may also bring about the rupturing of the complex hydrocarbon bonds, which in turn may result in upgrading the overall hydrocarbon content by reducing the overall density and thereby increasing the American Petroleum Institute (API) gravity.
SulphCo's proprietary Sonocracking™ units are designed to treat large volumes of petroleum products at relatively low temperatures and pressures. The base design and capacity for the Sonocracking™ technology consists of a 5,000 barrel per day processing line. Successive lines can be added to scale capacities in multiples of 5,000 barrels per day. SulphCo has designed and implemented modular units with a 15,000 barrel per day capacity that are skid mounted and can be transported in a typical shipping container. These units possess smaller “footprints” and are expected to have lower capital costs when compared to the conventional hydrotreating equipment and other upgrading technologies. This mobility and relative low capital cost make installation of Sonocracking™ equipment in the upstream (production), midstream (blending and transportation) and downstream (refining) sectors very flexible, with the ability to match customer capacity needs while requiring a relatively small “footprint”.
We are a development stage company. From our inception through the date of this prospectus, we have not generated any material revenues and have not made a profit. As of December 31, 2007, we have an accumulated deficit of approximately $120.0 million. We are unable to predict when we will be able to generate revenues from commercial activities on a sustained basis or the amounts expected from such activities. Our ability to generate revenues and profits in the future is dependent upon the successful commercialization of our Sonocracking™ technology. We cannot assure you when or if our Sonocracking™ technology will be successfully commercialized or when or if we will be able to generate material revenues on a sustained basis or achieve or maintain profitability even if we succeed in commercializing our technology.
An investment in our securities involves a high degree of risk. Before you make a decision to invest in our securities, you should consider carefully the risks discussed in the section entitled “Risk Factors” contained herein and in the applicable prospectus supplement and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as filed with the SEC on March 12, 2008, which is incorporated herein by reference in its entirety, as well as any amendment or update thereto reflected in subsequent filings with the SEC. If any of these risks actually occur, our business, operating results, prospects or financial condition could be materially and adversely affected. This could cause the trading price of our securities to decline and you may lose part or all of your investment. Moreover, the risks described are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, operating results, prospects or financial condition.
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We are a development stage company with a limited operating history, which makes it more difficult to predict whether we will be able to successfully commercialize our technology and implement our business plan. Our auditors have included a “going concern” emphasis paragraph in their audit report.
We are a development stage company with a limited operating history, and our principal technologies and products are not yet commercially proven. Accordingly, there is a limited operating history upon which to base an assumption that we will be able to successfully implement our business plan. In addition to this, our auditors have included a “going concern” emphasis paragraph in their audit report relating to our financial statements as of December 31, 2007, indicating that as a result of significant recurring losses, substantial doubt exists about our ability to continue as a going concern.
Our technologies are not fully developed, are commercially untested, and therefore, the successful development and commercialization of our technologies remain subject to significant uncertainty.
Our activities, to date, have involved the research and development of our crude oil desulphurization and upgrading technologies and the construction of a test facility. We have not yet generated any material revenues since commencing these activities in January 1999. Commercial application of our technologies will require further investment, development and testing. We may be unable to complete the commercialization of our technologies on a timely basis, or at all.
Development and commercialization of a new technology, such as our Sonocracking™ process, is inherently subject to significant risks. Accordingly, we cannot assure that our technology will perform in a commercial scale setting as indicated in initial laboratory or small scale testing or that we will be able to successfully commercialize our technology. Introducing and enhancing a new technology involves numerous technical challenges, substantial financial and personnel resources, and often takes many years to complete. We cannot be certain that we will be successful at commercializing our technology on a timely basis, or in accordance with milestones, if at all. In addition, we cannot be certain that, once our processing unit is made operational in a commercial setting, the unit will perform as expected. Our technology is complex and, despite further vigorous testing and quality control procedures, may contain undetected errors. Any inability to timely deliver a commercially viable unit could have a negative effect on our business, revenues, financial condition and results of operations.
We have a history of operating losses and have not generated material revenues to date, and we are unable to predict when or if we will generate material revenues on a sustained basis or achieve profitability.
We have not generated any material revenues, and we have experienced significant operating losses in each period since we commenced our current line of business in January 1999. As of December 31, 2007, we had an accumulated deficit of approximately $120.0 million. These losses are principally associated with the research and development of our Sonocracking™ units for desulphurization and upgrading crude oil and other petroleum products, research and development of ultrasound technologies, development of pre-production prototypes and related marketing activity, and we expect to continue to incur expenses in the future for development, commercialization and sales and marketing activities related to the commercialization of our technology. We cannot predict when or to what extent our technology or resulting products will begin to produce revenues on a sustained basis, or whether we will ever reach profitability. If we are unable to achieve significant levels of revenue on a sustained basis, our losses will continue. If this occurs, we may be compelled to significantly curtail our business activities or suspend or cease our operations.
We may not have sufficient working capital in the future, and we may be unable to obtain additional capital, which could result in the curtailment, suspension or cessation of our business activity. If we obtain additional financing, you may suffer significant dilution.
In the past we have financed our research and development activities primarily through debt and equity financings from our principal shareholder, Rudolf W. Gunnerman, and equity financings from third parties. Our existing capital resources will not be sufficient to fund our cash requirements for the next 12 months based upon current levels of expenditures and anticipated needs. We expect that additional working capital will be required in the future. There is substantial doubt about our ability to continue as a going concern, as discussed in Note 1 to our financial statements. Our ability to continue as a going concern is dependent on our ability to implement our business plan and raise additional funds.
The extent and timing of our future capital requirements will depend upon several factors, including:
| · | Continued progress toward commercialization of our technologies; |
5
| · | Rate of progress and timing of product commercialization activities and arrangements, including the implementation of our venture with Fujairah Oil Technology; and |
| · | Our ability to establish and maintain collaborative arrangements with others for product development, commercialization, marketing, sales and manufacturing. |
Accordingly, our capital requirements may vary materially from those currently planned, and we may require additional financing sooner than anticipated.
Sources of additional capital, other than from future revenues (for which we presently have no commitments) include proceeds from the exercise of warrants issued to the investors in the March 2007 and November 2007 placements, funding through collaborative arrangements, licensing arrangements and debt and equity financings. We do not know whether additional financing will be available on commercially acceptable terms when needed. If we cannot raise funds on acceptable terms, we may not be able to successfully commercialize our technology, or respond to unanticipated requirements. If we are unable to secure such additional financing, we may have to curtail, suspend or cease all or a portion of our business activities. Further, if we issue equity securities, our shareholders may experience severe dilution of their ownership percentages, and the new equity securities may have rights, preferences or privileges senior to those of our common stock.
Commercial activities by us in foreign countries could subject us to political and economic risks which could impair future potential sources of revenue or impose significant costs.
We are currently engaged in activities outside the U.S., including the United Arab Emirates, Austria, Indonesia, Canada, South America and South Korea, and we expect to continue to do so in the future, either directly, or through partners, licensees or other third parties, in connection with the commercialization of our technologies. The transaction of business by us in a foreign country, either directly or through partners, licensees or other third parties, may subject us, either directly or indirectly, to a number of risks, depending upon the particular country. These risks may include, with respect to a particular foreign country:
| Government activities that may result in the curtailment of contract rights; | |
| · | Government activities that may restrict payments or limit the movement of funds outside the country; |
| · | Confiscation or nationalization of assets; |
| · | Confiscatory or other adverse foreign taxation regulations; |
| · | Acts of terrorism or other armed conflicts and civil unrest; |
| · | Currency fluctuations, devaluations and conversion restrictions; and |
| · | Trade restrictions or embargoes imposed by the U.S. or a foreign country. |
Many of these risks may be particularly significant in some oil producing regions, such as the Middle East and South America.
We may have difficulty managing our growth.
We expect to experience significant growth if we are successful in our efforts to rollout our Sonocracking™ units in Fujairah, United Arab Emirates and other parts of the world. This growth exposes us to increased competition, greater operating, marketing and support costs and other risks associated with entry into new markets and the development of new products, and could place a strain on our operational, human and financial resources. To manage growth effectively, we must:
| Attract and retain qualified personnel; | |
| · | Upgrade and expand our infrastructure so that it matches our level of activity; |
| · | Manage expansion into additional geographic areas; and |
| · | Continue to enhance and refine our operating and financial systems and managerial controls and procedures. |
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Our strategy for the development and commercialization of our technologies contemplates collaborations with third parties, making us dependent on them for our success.
We do not possess all of the capabilities to fully commercialize our desulphurization and upgrading technologies on our own. Our success may depend upon partnerships and strategic alliances with third parties, such as our joint venture with Fujairah Oil Technology. Collaborative agreements involving the development or commercialization of technology such as ours generally pose such risks as:
| · | Collaborators may not pursue further development or commercialization of products resulting from collaborations or may elect not to continue or renew research and development programs; |
| · | Collaborators may delay development activities, underfund development activities, stop or abandon development activities, repeat or conduct new testing or require changes to our technologies for testing; |
| · | Collaborators could independently develop, or develop with third parties, products that could compete with our future products; |
| · | The terms of our agreements with collaborators may not be favorable to us; |
| · | A collaborator may not commit enough resources, thereby delaying commercialization or limiting potential revenues from the commercialization of a product; |
| · | Collaborations may be terminated by the collaborator for any number of reasons, including failure of the technologies or products to perform in line with the collaborator’s objectives or expectations, and such termination could subject us to increased capital requirements if we elected to pursue further activities. |
We have very limited manufacturing, marketing and sales experience, which could result in delays to the implementation of our business plan.
We have very limited manufacturing, marketing and product sales experience. We cannot ensure you that contract manufacturing services will be available in sufficient capacity to supply our product needs on a timely basis. If we decide to build or acquire commercial scale manufacturing capabilities, we will require additional management and technical personnel and additional capital.
We rely on third parties to provide certain components for our products. If our vendors fail to deliver their products in a reliable, timely and cost-efficient manner, our business will suffer.
We currently depend on relationships with third parties such as contract manufacturing companies and suppliers of components critical for the product we are developing in our business. If these providers do not produce these products on a timely basis, if the products do not meet our specifications and quality control standards, or if the products are otherwise flawed, we may have to delay product delivery, or recall or replace unacceptable products. In addition, such failures could damage our reputation and could adversely affect our operating results. As a result, we could lose potential customers and any revenues that we may have at that time may decline dramatically.
We are highly dependent on our key personnel to manage our business, and because of competition for qualified personnel , we may not be able to recruit or retain necessary personnel. The loss of key personnel or the inability to retain new personnel could delay the implementation of our business plan.
Our success depends to a significant degree on the continued services of our senior management and other key employees, and our ability to attract and retain highly skilled and experienced scientific, technical, managerial, sales and marketing personnel. We cannot assure you that we will be successful in recruiting new personnel or in retaining existing personnel. None of our senior management or key personnel has long term employment agreements with us. We do not maintain key person insurance on any members of our management team or other personnel. The loss of one or more key employees or our inability to attract additional qualified employees could delay the implementation of our business plan, which in turn could have a material adverse effect on our business, results of operations and financial condition. In addition, we may experience increased compensation costs in order to attract and retain skilled employees.
The market for products utilizing our technologies is still developing and there can be no assurance that our products will ever achieve market acceptance. Because we presently have no customers for our business, we must convince petroleum producers, refiners and distributors to utilize our products or license our technology. To the extent we do not achieve market penetration, it will be difficult for us to generate meaningful revenue or to achieve profitability.
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The success of our business is highly dependent on our patents and other proprietary intellectual property, and we cannot assure you that we will be able to protect and enforce our patents and other intellectual property.
Our commercial success will depend to a large degree on our ability to protect and maintain our proprietary technology and know-how and to obtain and enforce patents on our technology. We rely primarily on a combination of patent, copyright, trademark and trade secrets law to protect our intellectual property. Although we have filed multiple patent applications for our technology, and we have seven issued patents in the U.S., our patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent. Accordingly, we cannot assure you that any patents will be issued pursuant to our current or future patent applications or that patents issued pursuant to such applications will not be invalidated, circumvented or challenged. Also, we cannot ensure you that the rights granted under any such patents will provide the competitive advantages we anticipate or be adequate to safeguard and maintain our proprietary rights. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries. Moreover, we cannot ensure you that third parties will not infringe, design around, or improve upon our proprietary technology.
We also seek to protect our proprietary intellectual property, including intellectual property that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventor's rights agreements with our employees and third parties. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons will not assert rights to intellectual property arising out of these relationships.
We are a new entrant in our business and we face significant competition.
We are a new entrant in the market for development and sale of upgrading and sulphur reduction technology to the oil industry. We face well-established and well-funded competition from a number of sources. Our competitors in this area include manufacturers of conventional refinery desulphurization equipment and major integrated oil companies and oil refineries. Most of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing, sales and service resources than we do.
Because of their experience and greater research and development capabilities, our competitors might succeed in developing and commercializing competing technologies or products which would render our technologies or products obsolete or non-competitive.
Regulatory developments could have adverse consequences for our business.
The regulatory environment that pertains to our business is complex, uncertain and changing rapidly. Although we anticipate that existing and proposed governmental mandates regulating the sulphur content of petroleum products will continue to provide an impetus for customers to utilize our Sonocracking™ technology for desulphurization, it is possible that the application of existing environmental legislation or regulations or the introduction of new legislation or regulations could substantially impact our ability to launch and promote our proprietary technologies, which could in turn negatively impact our business.
Rules and regulations implementing federal, state and local laws relating to the environment will continue to affect our business, including laws and regulations which may apply to the use and operation of our Sonocracker™ units, and we cannot predict what additional environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not been applied previously. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could have a materially adverse effect on our business.
To date, environmental regulation has not had a material adverse effect on our business, which is presently in the development stage. However, future activities may subject us to increased risk when as we seek to commercialize our units by reason of the installation and operation of these units at customer sites. We intend to address these risks by imposing contractual responsibility, whenever practicable, on third party users for maintaining necessary permits and complying with applicable environmental laws governing or related to the operation of our units. However, these measures may not fully protect us against environmental risks. Furthermore, although we may be entitled to contractual indemnification from third parties for environmental compliance liabilities, this would not preclude direct liability by us to governmental agencies or third parties under applicable federal and state environmental laws. We are presently unable to predict the nature or amount of additional costs or liabilities which may arise in the future related to environmental regulation. However, such future liabilities and costs could be material.
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We may be sued for product liability, which could result in liabilities which exceed our available assets.
We may be held liable if any product we develop, or any product which is made with the use of any of our technologies, causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or use. We currently have no product liability insurance. When we attempt to obtain product liability insurance, this insurance may be prohibitively expensive, or may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could inhibit the commercialization of products developed by us. If we are sued for any injury caused by our products, our liability could exceed our available assets.
We are the defendant in several lawsuits, in which an adverse judgment against us could result in liabilities which exceed our available assets.
Our stock price is volatile, which increases the risk of an investment in our common stock.
The trading price for our common stock has been volatile, ranging from a sales price of $0.21 in October 2003, to a sales price of over $19.00 per share in January of 2006. The price has changed dramatically over short periods with decreases of more than 50% and increases of more than 100% percent in a single day. An investment in our stock is subject to such volatility and, consequently, is subject to significant risk.
FORWARD-LOOKING STATEMENTS
This prospectus 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; |
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| · | 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. |
These 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. We are not required to and do not intend to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. Actual results, levels of activity, performance, achievements and events may vary significantly from those implied by the forward-looking statements. A description of risks that could cause our results to vary appears under “Risk Factors” and elsewhere in this prospectus.
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 “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.
In this prospectus, we refer to information regarding our potential markets and other industry data. We believe that we have obtained this information from reliable sources that customarily are relied upon by companies in our industry, but we have not independently verified any of this information.
Unless otherwise specified in a prospectus supplement accompanying this prospectus, the net proceeds from the sale of the securities by SulphCo to which this prospectus relates will be used for research and development and general corporate purposes. These purposes may include repayment of debt, acquisitions, additions to working capital and capital expenditures.
General
The securities being offered by this prospectus may be sold:
| · | through agents, |
· | to or through one or more underwriters on a firm commitment or best efforts basis, |
· | through put or call option transactions relating to the securities, |
· | through broker-dealers (acting as agent or principal), |
· | directly to purchasers, through a specific bidding or auction process or otherwise, or |
· | through a combination of any such methods of sale. |
The prospectus supplement will set forth the terms of the offering of such securities, including:
| · | the name or names of any underwriters, dealers or agents and the amounts of securities underwritten or purchased by each of them, and |
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· | the public offering price of the securities and the proceeds to us and any discounts, commissions or concessions allowed or reallowed or paid to dealers. |
Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.
The distribution of securities may be effected from time to time in one or more transactions, including block transactions and transactions on the American Stock Exchange or any other organized market where the securities may be traded. The securities may be sold at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices relating to the prevailing market prices or at negotiated prices. The consideration may be cash or another form negotiated by the parties. Agents, underwriters or broker-dealers may be paid compensation for offering and selling the securities. That compensation may be in the form of discounts, concessions or commissions to be received from us or from the purchasers of the securities. Any dealers and agents participating in the distribution of the securities may be deemed to be underwriters, and compensation received by them on resale of the securities may be deemed to be underwriting discounts. If such dealers or agents were deemed to be underwriters, they may be subject to statutory liabilities under the Securities Act of 1933.
Agents may from time to time solicit offers to purchase the securities. If required, we will name in the applicable prospectus supplement any agent involved in the offer or sale of the securities and set forth any compensation payable to the agent. Unless otherwise indicated in the prospectus supplement, any agent will be acting on a best efforts basis for the period of its appointment. Any agent selling the securities covered by this prospectus may be deemed to be an underwriter, as that term is defined in the Securities Act, of the securities.
If underwriters are used in a sale, securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale, or under delayed delivery contracts or other contractual commitments. Securities may be offered to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters. If an underwriter or underwriters are used in the sale of securities, an underwriting agreement will be executed with the underwriter or underwriters, as well as any other underwriter or underwriters, with respect to a particular underwritten offering of securities, and will set forth the terms of the transactions, including compensation of the underwriters and dealers and the public offering price, if applicable. The prospectus and prospectus supplement will be used by the underwriters to resell the securities.
If a dealer is used in the sale of the securities, we, or an underwriter will sell the securities to the dealer, as principal. The dealer may then resell the securities to the public at varying prices to be determined by the dealer at the time of resale. To the extent required, we will set forth in the prospectus supplement the name of the dealer and the terms of the transactions.
We may directly solicit offers to purchase the securities and may make sales of securities directly to institutional investors or others. These persons may be deemed to be underwriters within the meaning of the Securities Act with respect to any resale of the securities. To the extent required, the prospectus supplement will describe the terms of any such sales, including the terms of any bidding or auction process, if used.
Agents, underwriters and dealers may be entitled under agreements which may be entered into with us to indemnification by us against specified liabilities, including liabilities incurred under the Securities Act, or to contribution by us to payments they may be required to make in respect of such liabilities. If required, the prospectus supplement will describe the terms and conditions of the indemnification or contribution. Some of the agents, underwriters or dealers, or their affiliates may be customers of, engage in transactions with or perform services for us or our subsidiaries.
Under the securities laws of some states, the securities offered by this prospectus may be sold in those states only through registered or licensed brokers or dealers.
Any person participating in the distribution of common shares registered under the registration statement that includes this prospectus will be subject to applicable provisions of the Exchange Act, and the applicable SEC rules and regulations, including, among others, Regulation M, which may limit the timing of purchases and sales of any of our common shares by that person. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of our common shares to engage in market-making activities with respect to our common shares. These restrictions may affect the marketability of our common shares and the ability of any person or entity to engage in market-making activities with respect to our common shares.
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Certain persons participating in an offering may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids that stabilize, maintain or otherwise affect the price of the offered securities. For a description of these activities, see the information under the heading ‘‘Underwriting’’ in the applicable prospectus supplement.
Any common shares that qualify for sale pursuant to Rule 144 of the Securities Act, or Regulation S under the Securities Act, may be sold under Rule 144 or Regulation S rather than pursuant to this prospectus.
To the extent that we make sales to or through one or more underwriters or agents in at-the-market offerings, we will do so pursuant to the terms of a distribution agreement between us and the underwriters or agents. If we engage in at-the-market sales pursuant to a distribution agreement, we will issue and sell our common shares to or through one or more underwriters or agents, which may act on an agency basis or on a principal basis. During the term of any such agreement, we may sell shares on a daily basis in exchange transactions or otherwise as we agree with the underwriters or agents. The distribution agreement will provide that any common shares sold will be sold at prices related to the then prevailing market prices for our common shares. Therefore, exact figures regarding proceeds that will be raised or commissions to be paid cannot be determined at this time and will be described in a prospectus supplement. Pursuant to the terms of the distribution agreement, we also may agree to sell, and the relevant underwriters or agents may agree to solicit offers to purchase, blocks of our common shares or other securities. The terms of each such distribution agreement will be set forth in more detail in a prospectus supplement to this prospectus.
In the event that any underwriter or agent acts as principal, or broker-dealer acts as underwriter, it may engage in certain transactions that stabilize, maintain or otherwise affect the price of our securities. We will describe any such activities in the prospectus supplement relating to the transaction.
Offers to purchase the securities offered by this prospectus may be solicited, and sales of the securities may be made, by us of those securities directly to institutional investors or others, who may be deemed to be underwriters within the meaning of the Securities Act with respect to any resales of the securities. The terms of any offer made in this manner will be included in the prospectus supplement relating to the offer.
In connection with offerings made through underwriters or agents, we may enter into agreements with such underwriters or agents pursuant to which we receive our outstanding securities in consideration for the securities being offered to the public for cash. In connection with these arrangements, the underwriters or agents may also sell securities covered by this prospectus to hedge their positions in these outstanding securities, including in short sale transactions. If so, the underwriters or agents may use the securities received from us under these arrangements to close out any related open borrowings of securities.
One or more firms, referred to as ‘‘remarketing firms,’’ may also offer or sell the securities, if the prospectus supplement so indicates, in connection with a remarketing arrangement upon their purchase. Remarketing firms will act as principals for their own accounts or as agents for us. These remarketing firms will offer or sell the securities in accordance with a redemption or repayment pursuant to the terms of the securities. The prospectus supplement will identify any remarketing firm and the terms of its agreement, if any, with us and will describe the remarketing firm’s compensation. Remarking firms may be deemed to be underwriters in connection with the securities they remarket. Remarketing firms may be entitled under agreements that may be entered into with us to indemnification by us against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended, and may be customers of, engage in transactions with or perform services for us in the ordinary course of business.
Issuer Forward Sale. We may enter into derivative transactions with third parties or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, such third parties (or affiliates of such third parties) may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, such third parties (or affiliates of such third parties) may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of shares, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of shares. The third parties (or affiliates of such third parties) in such sale transactions will be underwriters and, if not identified in this prospectus, will be identified in the applicable prospectus supplement (or a post-effective amendment).
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Share Borrow Facility. We or a selling shareholder may loan or pledge securities to a financial institution or other third party that in turn may sell the securities using this prospectus. Such financial institution or third party may transfer its short position to investors in our securities or in connection with a simultaneous offering of other securities offered by this prospectus.
Equity Line of Credit
On April 30, 2008, we entered into what is sometimes termed an equity line of credit arrangement with Azimuth Opportunity Ltd. (“Azimuth”). Specifically, we entered into a Common Stock Purchase Agreement with Azimuth (the “Purchase Agreement”), which provides that, upon the terms and subject to the conditions set forth therein, Azimuth is committed to purchase up to the lesser of $60,000,000 of our common stock, or the number of shares which is one less than 20% of the issued and outstanding shares of our common stock as of the effective date of the Purchase Agreement over the 18-month term of the Purchase Agreement. From time to time over the term of the Purchase Agreement, and at our sole discretion, we may present Azimuth with draw down notices to purchase our common stock over ten consecutive trading days or such other period mutually agreed upon by us and Azimuth (the “Draw Down Period”), with each draw down subject to limitations based on the price of our common stock and a limit of 2.5% of our market capitalization at the time of such draw down. We are able to present Azimuth with up to 24 draw down notices during the term of the Purchase Agreement, with only one such draw down notice allowed per Draw Down Period and a minimum of five trading days required between each Draw Down Period.
Once presented with a draw down notice, Azimuth is required to purchase a pro-rata portion of the shares on each trading day during the trading period on which the daily volume weighted average price for our common stock exceeds a threshold price determined by us for such draw down (the “Threshold Price”). The per share purchase price for these shares equals the daily volume weighted average price of our common stock on each date during the draw down period on which shares are purchased, less a discount ranging from 3.75% to 5.5%, based on the trading price of our common stock. If the daily volume weighted average price of our common stock falls below the Threshold Price on any trading day during a Draw Down Period, the Purchase Agreement provides that Azimuth will not be required to purchase the pro-rata portion of shares of common stock allocated to that day. However, at its election, Azimuth could buy the pro-rata portion of shares allocated to that day at the Threshold Price less the discount described above.
The Purchase Agreement also provides that from time to time and at our sole discretion we may grant Azimuth the right to exercise one or more options to purchase additional shares of our common stock during each Draw Down Period for an amount of shares specified by us based on the trading price of our common stock. Upon Azimuth’s exercise of an option, we would sell to Azimuth the shares of our common stock subject to the option at a price equal to the greater of the daily volume weighted average price of our common stock on the day Azimuth notifies us of its election to exercise its option or the Threshold Price for the option determined by us, less a discount calculated in the same manner as it is calculated in the draw down notices.
In addition to our issuance of shares of common stock to Azimuth pursuant to the Purchase Agreement, our Registration Statement on Form S-3 (File No. 333-145460), or the Registration Statement, also covers the sale of those shares from time to time by Azimuth to the public. Azimuth is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
Azimuth has informed us that it will use an unaffiliated broker-dealer to effectuate all sales, if any, of common stock that it may purchase from us pursuant to the Purchase Agreement. Such sales will be made on the American Stock Exchange at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. Azimuth has informed us that each such broker-dealer will receive commissions from Azimuth which will not exceed customary brokerage commissions. Azimuth also will pay other expenses associated with the sale of the common stock it acquires pursuant to the Purchase Agreement.
The shares of common stock may be sold in one or more of the following manners:
| · | ordinary brokerage transactions and transactions in which the broker solicits purchasers; or |
| · | a block trade in which the broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction. |
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Azimuth has agreed that during the term of and for a period of 90 days after the termination of the Purchase Agreement, neither Azimuth nor any of its affiliates will, directly or indirectly, sell any of our securities except the shares that it owns or has the right to purchase pursuant to the provisions of a draw down notice. Azimuth has agreed that during the periods listed above neither it nor any of its affiliates will enter into a short position with respect to shares of our common stock except that Azimuth may sell shares that it is obligated to purchase under a pending draw down notice but has not yet taken possession of so long as Azimuth covers any such sales with the shares purchased pursuant to such draw down notice. Azimuth has further agreed that during the periods listed above it will not grant any option to purchase or acquire any right to dispose or otherwise dispose for value of any shares of our common stock or any securities convertible into, or exchangeable for, or warrants to purchase, any shares of our common stock, or enter into any swap, hedge or other agreement that transfers, in whole or in part, the economic risk of ownership of our common stock, except for the sales permitted by the prior two sentences.
In addition, Azimuth and any unaffiliated broker-dealer will be subject to liability under the federal securities laws and must comply with the requirements of the Securities Act and the Securities Exchange Act, including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of common stock by Azimuth or any unaffiliated broker-dealer. Under these rules and regulations, Azimuth and any unaffiliated broker-dealer:
| · | may not engage in any stabilization activity in connection with our securities; |
| · | must furnish each broker which offers shares of our common stock covered by the prospectus that is a part of our Registration Statement with the number of copies of such prospectus and any prospectus supplement which are required by each broker; and |
| · | may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Exchange Act. |
These restrictions may affect the marketability of the shares of common stock by Azimuth and any unaffiliated broker-dealer.
We have agreed to indemnify and hold harmless Azimuth, any unaffiliated broker-dealer and each person who controls Azimuth or any unaffiliated broker-dealer against certain liabilities, including certain liabilities under the Securities Act. We have agreed to pay up to an aggregate of $35,000 of Azimuth’s reasonable attorneys’ fees and expenses (exclusive of disbursements and out-of-pocket expenses) incurred by Azimuth in connection with the preparation, negotiation, execution and delivery of the Purchase Agreement and related transaction documentation. We have also agreed to pay expenses incurred by Azimuth in connection with ongoing due diligence of our company of up to $12,500 per calendar quarter. Further, we have agreed that if we issue a draw down notice and fail to deliver the shares to Azimuth on the applicable settlement date, and such failure continues for ten trading days, we will pay Azimuth liquidated damages in cash or restricted shares of our common stock, at the option of Azimuth.
Azimuth has agreed to indemnify and hold harmless us and each of our directors, officers and persons who control us against certain liabilities, including certain liabilities under the Securities Act that may be based upon written information furnished by Azimuth to us for inclusion in a prospectus or prospectus supplement related to this transaction.
Upon each sale of our common stock to Azimuth under the Purchase Agreement, we have also agreed to pay Reedland Capital Partners, an Institutional Division of Financial West Group, member FINRA/SIPC, a placement fee equal to 1.0% of the aggregate dollar amount of common stock purchased by Azimuth. We have agreed to indemnify and hold harmless Reedland against certain liabilities, including certain liabilities under the Securities Act.
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DESCRIPTION OF WARRANTS
We may issue warrants to purchase our equity securities. Warrants may be issued independently or together with any other securities and may be attached to, or separate from, such securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us and a warrant agent. The terms of any warrants to be issued and a description of the material provisions of the applicable warrant agreement will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the following terms of any warrants in respect of which this prospectus is being delivered:
| · | the title of such warrants; |
| · | the aggregate number of such warrants; |
| · | the price or prices at which such warrants will be issued; |
| · | the date on which the right to exercise such warrants shall commence and the date on which such right shall expire; |
| · | if applicable, the minimum or maximum amount of such warrants which may be exercised at any one time; and |
| · | any other terms of such warrants, including terms, procedures and limitations relating to the exchange and exercise of such warrants. |
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of 110,000,000 common shares, par value $0.001 per share, and 10,000,000 preferred shares, par value $0.001 per share. As of April 28, 2008, we had outstanding (i) 80,849,666 common shares, (ii) warrants and options to purchase an additional 6,002,068 common shares, (iii) options to purchase an additional 2,786,558 common shares, (iv) notes payable convertible into 1,231,592 common shares and (v) no preferred shares.
Common Shares
Generally. Generally, each shareholder is entitled to one vote for each common share held on all matters submitted to a vote of shareholders. Cumulative voting for the election of directors is not provided for in our Restated Articles of Incorporation or By-laws, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The common shares are not entitled to preemptive rights and are not subject to conversion or redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the holders of common shares would be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities, subject to any resolution of the shareholders providing otherwise and to any liquidation preference on any other class of shares that rank ahead of the common shares.
Issuance of Shares. Subject to our By-laws and Nevada law, our board of directors has the power to issue any of our unissued shares as it determines, including the issuance of any shares or class of shares with preferred, deferred or other special rights.
Our Board of Directors and Corporate Action. Our Restated Articles of Incorporation provide that our board of directors shall consist of not less than three (3) members, as the board of directors may determine. Our board currently consists of seven (7) directors. Currently, each director serves a one-year term. Pursuant to an amendment to our By-laws on April 9, 2008, we implemented a staggered board structure, whereby the board of directors is divided into three classes of approximately equal size, designated Class I, Class II and Class III. At the 2008 annual meeting of stockholders (the “2008 Annual Meeting”), our stockholders will be asked to elect directors to each class as recommended by the Corporate Governance and Nominating Committee of the board of directors. The initial term of the Class I directors terminates at the first annual meeting of stockholders following the 2008 Annual Meeting. The initial term of the Class II directors terminates at the second annual meeting of stockholders following the 2008 Annual Meeting. The initial term of the Class III directors terminates at the third annual meeting of stockholders following the 2008 Annual Meeting. After the initial term, each class of directors shall be elected to full 3 year terms. Stockholders may remove a director for cause at any time and only by the affirmative vote of sixty-six and two-thirds percent (66-2/3%).
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Generally, the affirmative votes of a majority of the votes cast at any meeting at which a quorum is present are required to authorize a resolution put to vote at a meeting of the board of directors. Corporate action may also be taken by a unanimous written resolution of the board of directors without a meeting. The quorum necessary for the transaction of business at a meeting of the board of directors shall be a majority of the directors then in office.
Shareholder Action. At the commencement of any general meeting, holders of our common stock present in person and representing, in person or by proxy, more than 50% of the total issued voting power of our shares shall constitute a quorum for the transaction of business. In general, except for the election of directors, actions that may be taken by resolution of our shareholders in a general meeting may be taken, without a meeting, by a resolution in writing signed by all of the shareholders entitled to attend the meeting and to vote on the resolution. In general, any questions proposed for the consideration of the shareholders at any general meeting shall be decided by the affirmative votes of a majority of the votes cast, in accordance with our By-laws.
Amendment. The By-laws may only be amended by a resolution adopted by the board of directors.
Transfer Agent and Registrar. Integrity Stock Transfer serves as transfer agent and registrar for our common shares.
Incorporation of Certain Information by Reference
The SEC allows this prospectus to "incorporate by reference" certain other information that we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update this information. In all cases, you should rely on the later information over different information included in this prospectus or the prospectus supplement. We incorporate by reference into this prospectus the documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until all of the securities that we have registered have been sold:
| Our Annual Report, on Form 10-K for the fiscal year ended December 31, 2007, filed with the SEC on March 12, 2008; | |
(2) | Our Current Reports on Form 8-K filed January 25, 2008, February 8, 2008, March 13, 2008, March 14, 2008, April 11, 2008 and April 30, 2008; |
| (3) | Our Current Report on Form 8-K/A filed April 15, 2008; |
| (4) | The description of our common stock contained in our report on Form 8-A filed on October 3, 2005; and |
| In addition, we also incorporate by reference into this prospectus additional information that we may subsequently file with the Securities and Exchange Commission under Section 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the termination of the offering. These documents include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements. |
If you make a request for such information in writing or by telephone, we will provide to you, at no cost, a copy of any or all of the information incorporated by reference in the registration statement of which this prospectus is a part. Requests should be addressed to us as follows:
SulphCo, Inc.
4333 W. Sam Houston Pkwy N., Suite 190
Houston, TX 77043
Attn: Mr. Stanley W. Farmer
Vice President and Chief Financial Officer
Telephone: (713) 896-9100
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You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We will not make an offer of the shares of our common stock in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents.
EXPERTS
The financial statements for the year ended December 31, 2007, incorporated by reference in this prospectus, have been so included in reliance on the report of Hein & Associates, independent certified public accountants and a registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. The financial statements as of December 31, 2006 and 2005 and for the years then ended, incorporated by reference in this prospectus, have been so included in reliance on the report of Marc Lumer & Company, independent certified public accountants and a registered public accounting firm, given on the authority of said firm as experts in accounting and auditing.
The validity of the issuance of the shares of common stock offered by this prospectus has been passed upon for us by McDonald Carano Wilson LLP, Reno, Nevada.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Nevada Revised Statutes
Section 78.7502 of the Nevada Revised Statutes Annotated ("Nevada RSA") provides that a Nevada corporation may indemnify its directors and officers against expenses, judgments, fines, and settlements actually and reasonably incurred by them in connection with any civil suit or action, except actions by or in the right of the corporation, or any administrative or investigative proceeding if, in connection with the matters in issue, they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation, and in connection with any criminal suit or proceeding, if in connection with the matters in issue, they had no reasonable cause to believe their conduct was unlawful. Section 78.7502 of the Nevada RSA further provides that, in connection with the defense or settlement of any action by or in the right of a Nevada corporation, a Nevada corporation may indemnify its directors and officers against expenses actually and reasonably incurred by them if, in connection with the matters in issue, they acted in good faith, in a manner they reasonably believed to be in, or not opposed to, the best interest of the corporation. Section 78.7502 of the Nevada RSA further permits a Nevada corporation to grant its directors and officers additional rights of indemnification through by-law provisions and otherwise.
Amended and Restated By-Laws
Article VI of our Amended and Restated By-Laws provides that we will indemnify our directors and officers and advance costs and expenses incurred by such officers and directors to the fullest extent permitted by Nevada law. Our Amended and Restated By-Laws also permit us to enter into agreements with any director or officer or to obtain insurance indemnifying directors and officers against certain liabilities incurred by them in the performance of their duties, including liabilities under the Securities Act of 1933. We currently maintain a policy of insurance indemnifying directors and officers against certain liabilities incurred by them in the performance of their duties.
Indemnification Agreements
We also enter into indemnification agreements with our directors and officers. The indemnification agreements provide indemnification to our directors and officers under certain circumstances for acts or omissions which may not be covered by directors’ and officers’ liability insurance.
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Liability Insurance
We have also obtained directors’ and officers’ liability insurance, which insures against liabilities that our directors or officers may incur in such capacities.
SEC Position on Indemnification
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may also read and copy any document we file at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public over the internet from the SEC's website at http://www.sec.gov, or at our website at http://www.sulphco.com.
This prospectus provides you with a general description of the common stock being registered. This prospectus is part of a registration statement that we have filed with the SEC. This prospectus does not contain all the information contained in the registration statement. Some items are contained in schedules and exhibits to the registration statement as permitted by the rules and regulations of the SEC. Statements made in this prospectus concerning the contents of any documents referred to in the prospectus are not necessarily complete. With respect to each such document filed with the SEC as an exhibit to the registration statement, please refer to the exhibit for a more complete description, and each such statement is qualified by such reference. To see more detail, you should read the exhibits and schedules filed with our registration statement.
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