PROSPECTUS
SUPPLEMENT NO. 1
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Filed
Pursuant to Rule 424(b)(5)
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(To
the prospectus dated October 26, 2010)
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Registration
No. 333-169062
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CALCULATION
OF REGISTRATION FEE
Title
of securities
to be registered
(1)
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Amount to
be
registered
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Proposed
maximum
offering
price
per share
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Proposed
maximum
aggregate
offering
price
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Amount of
registration
fee
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Common
Stock, par value $0.001 per share
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13,333,334
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$
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0.15
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$
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2,000,000.10
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$
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232.20
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Warrants
to purchase shares of Common Stock, par value $0.001 per share
(2)
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Common
Stock, par value $.001 per share, issuable upon exercise of
Warrants
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11,895,098
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$
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0.20
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(3)
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$
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2,379,019.60
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$
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276.20
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Total
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25,228,432
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$
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4,379,019.70
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$
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508.40
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(1)
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The Company is offering for sale
units of its securities (the “Units”). Each Unit is comprised of (i)
one share of the Company’s common stock, (ii) a warrant to purchase
approximately 0.45 shares of the Company’s common stock, and (iii) a
warrant to purchase approximately 0.24 shares of the Company’s common
stock. The offering price of each Unit is $0.15. The Company
is also amending certain warrants to purchase an aggregate of 2,745,098
shares of common stock, which were previously issued on January 29, 2010,
to change the exercise price to $0.20 and to change the term to 54
months.
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(2)
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Pursuant to Rule 457(i) under the
Securities Act, the registration fee for the warrants included in this
offering is to be calculated on the basis of the offering price of the
shares of Common Stock into which the Warrants may be converted (the
Exercise Shares). No separate filing fee is required for the
warrants. The registration fee corresponding to the Warrants is therefore
shown in the columns of the fee table across from the title “Exercise
Shares.”
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(3)
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$0.20 represents the exercise
price for the warrants described in footnote (1)
above.
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13,333,334
Shares
Warrants
to Purchase 11,895,098 Shares
We are
offering for sale up to (i) 13,333,334 shares of our common stock, (ii) warrants
to purchase 6,000,000 shares of our common stock, exercisable for a period of
five years (“5-Year Warrants”) and (iii) warrants to purchase 3,150,000 shares
of our common stock, with a term of sixty-six months, which shall not become
exercisable until 181 days after issuance (“66-Month Warrants”, and together
with the 5-Year Warrants, the “Investor Warrants”).
The
common stock and the Investor Warrants are being offered in units, each
consisting of (i) one share of common stock, (ii) a 5-Year Warrant to purchase
approximately 0.45 of a share of common stock for an exercise price of $0.20 and
(iii) a 66-Month Warrant to purchase approximately 0.24 of a share of
common stock for an exercise price of $0.20. The units will be offered to
investors at a price of $0.15 per unit. Units will not be issued or
certificated, and the shares of common stock and the Investor Warrants are
immediately separable and will be issued separately. The shares of common stock
issuable from time to time upon exercise of the Investor Warrants are also being
offered pursuant to this prospectus supplement and the accompanying
prospectus.
We are
also amending and reissuing warrants to purchase 2,745,098 shares of our common
stock (“Reissued Warrants”), which were previously issued on January 29, 2010,
to change the exercise price to $0.20 per share and to change the term of the
warrants to 54 months. The Reissued Warrants shall not become exercisable
until 181 days after the date of reissuance. The shares of common
stock issuable from time to time upon exercise of the Reissued Warrants are also
being offered pursuant to this prospectus supplement and the accompanying
prospectus.
Our
common stock is listed on the NYSE Amex under the symbol “SUF.” On January 31,
2011, the last reported sale price of our common stock was $0.19 per share.
There is no established public trading market for the Investor Warrants and we
do not expect a market to develop. In addition, we do not intend to apply for
listing of the Investor Warrants on any national securities
exchange.
As of
January 31, 2011, the aggregate market value of common stock held by
non-affiliates was approximately $27.4 million based on 101,708,741 shares of
outstanding common stock, of which 101,520,544 shares were held by
non-affiliates, and a per share price of $0.27 based on the closing sale price
of our common stock on January 11, 2011. During the period of 12 calendar
months immediately prior to and including, the date of this prospectus, we have
not sold any securities pursuant to General Instruction I.B.6 of Form S-3. The
securities being offered have an aggregate market value, based upon the offering
price, of $2,000,000.10.
Purchase
of our securities involves a high degree of risk. Please see the sections
entitled “Risk Factors” beginning on, respectively, page S-7 of this prospectus
supplement and page 6 of the accompanying prospectus.
Chardan Capital Markets, LLC will act
as placement agent for the offering. The placement agent will not purchase or
sell any of the securities offered pursuant to this prospectus supplement and
the accompanying prospectus, nor is it required to sell any specific number or
dollar amount of the securities. The placement agent is required to use its best
efforts to sell the common stock and Investor Warrants being offered hereby. We
will hold in escrow payments received by us prior to the date of delivery of the
securities will be placed in an escrow account maintained on our behalf.
Delivery of the securities offered pursuant to this prospectus supplement is
expected to be made on February 4, 2011.
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Per Unit
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Total
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Offering
price
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$
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0.15
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$
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2,000,000.10
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Placement
agent fees
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$
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0.01
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$
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120,000.00
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Proceeds,
before expenses, to us
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$
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0.14
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$
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1,880,000.10
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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.
The date
of this prospectus supplement is February 3, 2011
TABLE
OF CONTENTS
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Page
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PROSPECTUS
SUPPLEMENT
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ABOUT
THIS PROSPECTUS SUPPLEMENT
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S-2
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PROSPECTUS
SUPPLEMENT SUMMARY
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S-3
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THE
OFFERING
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S-6
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RISK
FACTORS
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S-7
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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S-9
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USE
OF PROCEEDS
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S-10
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DILUTION
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S-10
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DESCRIPTION
OF SECURITIES WE ARE OFFERING
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S-11
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PLAN
OF DISTRIBUTION
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S-15
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LEGAL
MATTERS
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S-16
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EXPERTS
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S-16
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WHERE
YOU CAN FIND MORE INFORMATION
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S-16
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
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S-17
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Page
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PROSPECTUS
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SUMMARY
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3
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RISK
FACTORS
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6
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FORWARD-LOOKING
STATEMENTS
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12
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USE
OF PROCEEDS
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13
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PLAN
OF DISTRIBUTION
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13
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DESCRIPTION
OF WARRANTS
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15
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DESCRIPTION
OF SHARE CAPITAL
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16
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INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
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16
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CERTAIN
ERISA CONSIDERATIONS
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17
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EXPERTS
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17
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LEGAL
MATTERS
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18
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WHERE
YOU CAN FIND MORE INFORMATION
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18
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You
should rely only on information contained in or incorporated by reference into
this prospectus supplement and the accompanying prospectus and any free writing
prospectuses prepared by us or on our behalf. We have not authorized anyone to
provide you with information that is different, and if anyone provides you with
different or inconsistent information, you should not rely on it. You should not
assume that the information in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date on the front of this
prospectus supplement or the accompanying prospectus or that any document
incorporated by reference into this prospectus supplement or the accompanying
prospectus is accurate as of any date other than its filing date. You should not
consider this prospectus supplement or the accompanying prospectus to be an
offer or solicitation relating to the securities in any jurisdiction in which
such an offer or solicitation relating to the securities is not authorized.
Furthermore, you should not consider this prospectus supplement or the
accompanying prospectus to be an offer or solicitation relating to the
securities if the person making the offer or solicitation is not qualified to do
so, or if it is unlawful for you to receive such an offer or
solicitation.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This
prospectus supplement and the accompanying base prospectus are part of a
registration statement on Form S-3 (No. 333-169062) that we filed with the
Securities and Exchange Commission, or SEC, using a shelf registration process.
Under the shelf registration process, we may offer and sell any combination of
securities described in the accompanying base prospectus in one or more
offerings, up to a total dollar amount of $122,180,000. The accompanying base
prospectus, dated October 26, 2010, provides you with a general description of
the securities we may offer. Each time we use the accompanying base prospectus
to offer securities, we will provide a prospectus supplement that will contain
specific information about the terms of that offering. A prospectus supplement
may also add, update or change information contained in the base prospectus.
Generally, when we refer to this “prospectus,” we are referring to both
documents combined.
This
prospectus supplement provides the specific details of this offering. Some of
the information in the base prospectus may not apply to this offering. This
prospectus supplement, the accompanying base prospectus and the documents
incorporated by reference herein and therein include important information about
us, our common stock and warrants being offered and other information you should
know before investing.
In this
prospectus supplement, unless the context otherwise requires, “SulphCo” “we,”
“us,” “our”, the “Company,” or the “company” refer to SulphCo, Inc., a Nevada
corporation. “Chardan” or the “placement agent” refer to Chardan Capital
Markets, LLC, the placement agent for this offering. Unless otherwise
noted, references to “our securities” refer to securities issued by us
generally, references to “common stock” refer to shares of our common stock, par
value $0.001 per share, and references to “the securities” are to the shares of
common stock, Investor Warrants and Reissued Warrants being offered by us
pursuant to this prospectus supplement and the accompanying
prospectus.
You
should also read and consider the information in the documents that we have
referred you to in “Where You Can Find More Information” on page S-16 of this
prospectus supplement and the information described under “Incorporation of
Certain Documents by Reference” on page S-17 of the accompanying prospectus
before investing in our common stock. The information incorporated by reference
is considered to be part of this prospectus supplement, and information that we
file later with the SEC will automatically update and supersede this
information.
If
information in this prospectus supplement is inconsistent with the base
prospectus, you should rely on this prospectus supplement. We have not
authorized anyone to provide information different from that contained or
incorporated in this prospectus supplement and the accompanying prospectus. We
are offering the securities only in jurisdictions where offers and sales are
permitted. The information contained or incorporated in this prospectus
supplement and the accompanying prospectus is accurate only as of the date of
such information, regardless of the time of delivery of this prospectus
supplement and the accompanying prospectus or of any sale of the
securities.
This
prospectus supplement, the accompanying prospectus and the documents we
incorporate by reference into this prospectus supplement and the accompanying
prospectus contain trademarks, trade names and service marks of ours, including
our company logo.
PROSPECTUS
SUPPLEMENT SUMMARY
This
summary highlights selected information about the Company, this offering and
information appearing elsewhere in this prospectus supplement, in the
accompanying prospectus and in the documents we incorporate by reference. This
summary is not complete and does not contain all of the information that you
should consider before investing in our securities. To fully understand this
offering and its consequences to you, you should read this entire prospectus
supplement and the accompanying prospectus carefully, including the information
under the heading “Risk Factors” in this prospectus supplement beginning on page
S-7, and the financial statements and other information incorporated by
reference in this prospectus supplement and the accompanying prospectus when
making an investment decision.
About
SulphCo, Inc.
Our
Business
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 Sonocracking™ 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.
We
maintain our principal executive offices and facilities at 4333 W. Sam Houston
Pkwy N., Suite 190, Houston, Texas 77043. Our telephone number is (713)
896-9100. Our corporate website is www.sulphco.com. The information
contained on our website is not part of this prospectus.
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.
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 Sonocracking™ 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 Sonocracking™ 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 Sonocracking™ technology on certain natural gasoline streams produced
at the facility following laboratory tests on such streams. The
installation and operational commissioning of the Sonocracking™ 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 Sonocracking™ 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.
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 Sonocracking™ 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 Sonocracking™ 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
Sonocracking™ technology for this sweetening application.
We have
presented in-house laboratory and third-party data with respect to the
performance of the Sonocracking™ 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 Sonocracking™
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
Sonocracking™ technology in their respective systems.
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
Sonocracking™ 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.
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 ™ 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.
Company
Information
The
Company’s internet address is
www.sulphco.com
. Our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports are available,
without charge, on our website, as soon as reasonably practicable after they are
filed with the SEC. Copies are also available without charge, from our
principal executive office at 4333 W. Sam Houston Pkwy N., Suite 190, Houston,
TX 77043.
Reports
filed with the SEC may be viewed at
www.sec.gov
or
obtained at the SEC Public Reference Room located at 100 F Street, N.E., Room
1580, Washington, D.C. 20549. Information regarding the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
References to our website addressed in this prospectus are provided as a
convenience and do not constitute, and should not be viewed as, an incorporation
by reference of the information contained on, or available through, the
website. Therefore, such information should not be considered part of this
prospectus.
THE
OFFERING
Common
stock offered
|
|
13,333,334
shares
|
|
|
|
5-Year
Warrants offered
|
|
5-Year
Warrants to purchase 6,000,000 shares of common stock, exercisable for a
period of five years at an exercise price of $0.20. The 5-Year Warrants
are immediately exercisable. This prospectus also relates to the offering
of the shares of common stock issuable upon exercise of the 5-Year
Warrants. For additional information regarding the 5-Year Warrants, see
“Description of the Securities We Are Offering – Description of Investor
Warrants” below.
|
66-Month
Warrants offered
|
|
66-Month
Warrants to purchase 3,150,000 shares of common stock, with a term of 66
months and exercisable for a period of five years at an exercise price of
$0.20. The 66-Month Warrants are exercisable beginning 181 days after
issuance. This prospectus also relates to the offering of the shares of
common stock issuable upon exercise of the 66-Month Warrants. For
additional information regarding the 66-Month Warrants, see “Description
of the Securities We Are Offering – Description of Investor Warrants”
below.
|
|
|
|
Reissued
Warrant offered
|
|
Reissued
Warrant to purchase 2,745,098 shares of common stock, with a term of 54
months at an exercise price of $0.20. The Reissued Warrant are exercisable
beginning 181 days after reissuance. This prospectus also relates to the
offering of the shares of common stock issuable upon exercise of the
Reissued Warrant. For additional information regarding the Reissued
Warrant, see “Description of the Securities We Are Offering – Description
of Reissued Warrant” below.
|
|
|
|
Common
stock to be outstanding immediately after this offering
|
|
115,042,875
shares
(assuming
none of the 5-Year Warrants are immediately exercised)
|
|
|
|
Offering
price
|
|
$0.15
per unit.
Each
unit is comprised of (i) one share of common stock, (ii) a 5-Year Warrant
to purchase approximately 0.45 of a share of common stock and (iii) a
66-Month Warrant to purchase approximately 0.24 of a share of common
stock.
|
|
|
|
Use
of Proceeds
|
|
General
corporate purposes, including for research and development, general and
administrative expenses and potential ordinary course acquisitions of
technologies that complement our business.
|
|
|
|
Risk
Factors
|
|
See
“Risk Factors” beginning on page S-7 of this prospectus supplement, page 6
of the accompanying prospectus and the risk factors set forth in our
annual report on Form 10-K for the year ended December 31, 2009 and our
quarterly reports on Form 10-Q for the quarters ended March 31, 2010, June
30, 2010 and September 30, 2010 for a discussion of factors you should
carefully consider before deciding to invest in our
securities.
|
|
|
|
Listing
|
|
Our
common stock is listed on the NYSE Amex under the symbol “SUF.” There is
no established public trading market for the offered warrants and we do
not expect a market to develop. In addition, we do not intend to apply for
listing of the offered warrants on any national securities
exchange.
|
As an inducement to participate in the
offering, we have agreed to amend and re-issue warrants to purchase 2,745,098
shares (“Reissued Warrants”) of our common stock currently held by one of the
investors. The Reissued Warrants shall be equal in number to the original
warrants, which were issued on January 29, 2010, and will allow the holders of
the Reissued Warrants to purchase shares of our common stock at a price of $0.20
per share with a term of 54 months. The Reissued Warrants are not exercisable
until 181 days after the date of reissuance. If exercised for cash, the
Investor Warrants and Reissued Warrants are expected to generate additional
gross proceeds of up to approximately $2.4 million.
The number of shares of common stock to
be outstanding immediately after this offering is based on 101,708,741 shares
outstanding as of January 31, 2011. Unless we specifically state otherwise, the
share information in this prospectus supplement excludes (i) shares of our
common stock issuable upon exercise or conversion of our warrants and/or options
outstanding as of February 3, 2011, (ii) shares of our common stock available
for future issuance under our 2006 Stock Option Plan, if any, and (iii) shares
of our common stock available for future issuance under our 2008 Omnibus
Long-Term Incentive Plan, if any.
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, 2009, which we
filed with the Securities and Exchange Commission on February 25, 2010, and in
our quarterly reports on Form 10-Q for the three months ended March 31, 2010,
June 30, 2010 and September 30, 2009, which we filed with the Securities and
Exchange Commission on May 5, 2010, July 22, 2010 and November 9, 2010,
respectively, 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 resulting in our business outlook being
compromised and the trading price of our common stock
declining.
Risks
Related to this Offering and our Common Stock
We may be
delisted from the NYSE Amex LLC resulting in a more limited market for our
common stock.
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(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 June 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. At the request of the Exchange, on December 28, 2010, the
Company submitted an update of the plan initially submitted to the Exchange in
July 2010. 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.
Since We Have
Broad Discretion in How We Use the Proceeds from this Offering, We May Use the
Proceeds in Ways With Which You Disagree.
We
have not allocated specific amounts of the net proceeds from this offering for
specific purposes (see the section entitled “Use of Proceeds” on page S-9
of this prospectus
supplement). Accordingly, our management will have significant flexibility
in applying the net proceeds of this offering. Therefore, you will be relying on
the judgment of our management with regard to the use of these net proceeds, and
you will not have the opportunity, as part of your investment decision, to
assess whether the proceeds are being used appropriately. It is possible
that the net proceeds will be invested in a way that does not yield a favorable,
or any, return for our Company. The failure of our management to use such
funds effectively could have a material adverse effect on our business,
financial condition, operating results and prospects.
We Have a History
of Losses; We Expect to Continue to Incur Losses.
As of
September 30, 2010, we had an accumulated deficit of approximately $163.3
million. We have operated at a loss since our inception, and we expect this to
continue for some time. If our efforts 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 the Form S-3 registration statement that
we filed with the SEC on August 15, 2007, hereinafter sometimes referred to as
the “2007 shelf registration statement,” 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. We have completed two offerings of
securities from the 2007 shelf registration statement pursuant to the Prospectus
Supplement No. 1 filed with the SEC on May 29, 2008, which involved
approximately 4.6% of the value of the aggregate equity securities included in
the 2007 shelf registration statement, and Prospectus Supplement No. 2 filed
with the SEC on January 28, 2010, which involved approximately 15.9% of the
value of the aggregate equity securities included in the 2007 shelf registration
statement. Under the Form S-3 registration statement that we filed with
the SEC on August 26, 2010, hereinafter sometimes referred to as the “2010 shelf
registration statement,” we have registered with the SEC an aggregate of
$122,180,000 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. Upon completion of issuance and sale of the securities
offered pursuant to this prospectus supplement, we will have sold securities
representing approximately 18.4% of the value of the aggregate equity securities
from our 2010 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 2010 shelf registration statement
or in other offerings, we may offer for sale shares of common stock and warrants
to purchase shares of common stock 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 Price and
Trading Volume of Our Common Stock Has Been, and May Continue To Be,
Volatile.
The market price and trading volume of our
common stock price has fluctuated over a wide range. Since inception, the sale
price of our common stock ranged from a low of $.14 per share (in 2010) to a
high of $19.50 per share (in 2006), and the daily trading volume ranged from
less than 100,000 shares to approximately 14,864,000 shares. It is likely
that the price and trading volume of our common stock will continue to fluctuate
in the future. The securities of small capitalization companies, including
our Company, from time to time experience significant price and volume
fluctuations, often unrelated to the operating performance of these
companies. It is possible that we may become the target of securities
class action litigation of the type sometimes brought against a company
following periods of volatility in the market price of its securities and,
regardless of whether such litigation is with or without merit, it could result
in substantial costs and divert management’s attention and resources, which
could harm our business, financial condition and operating results, as well as
the market price of our common stock.
Other Risk
Factors; Risks Related to Our Business and Financial Condition
.
Information about other
risk factors which may affect our business or financial condition, and, by
extension, the price or value of our securities, can be found under Item 1A
“Risk Factors” of our annual report for the year ended December 31, 2009, which
was filed with the SEC on February 25, 2010 and is incorporated into this
prospectus supplement by reference.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement, the accompanying prospectus and the documents
incorporated by reference herein and therein, contain 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 the “Risk Factors” section contained herein, as well as
the risk factors and those set forth from time to time in our filings with the
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. We assume no
obligation to update forward-looking statements to reflect actual results or
changes in factors or assumptions affecting such forward-looking statements,
except if we otherwise are required by law.
USE
OF PROCEEDS
We
estimate that the net proceeds we will receive from this offering will be
approximately $1.8 million, after deducting estimated offering expenses of
approximately $0.2 million. We will not receive any proceeds from the sale of
common stock issuable upon exercise of the Investor Warrants and the Reissued
Warrant unless and until such warrants are exercised. If the Investor Warrants
are fully exercised for cash, we will receive additional proceeds of
approximately $1.8 million, and if the Reissued Warrant is exercised along
with the Investor Warrants, we will receive total proceeds of approximately $2.4
million. We will not pay the placement agent any fee with respect to shares of
our common stock issued upon exercise of Investor Warrants or the Reissued
Warrant.
We intend
to use the net proceeds from this offering for general corporate purposes and
working capital, including for research and development, general and
administrative expenses, and potential ordinary course acquisitions of
technologies that complement our business.
We have
not specifically identified the precise amounts we will spend on each of these
areas or the timing of these expenditures. The amounts actually expended for
each purpose may vary significantly depending upon numerous factors, including
assessments of potential market opportunities and competitive developments. In
addition, expenditures may also depend on the establishment of new collaborative
arrangements with other companies, the availability of other financing, and
other factors.
DILUTION
If you
invest in our securities in this offering, your interest will be diluted to the
extent of the difference between the public offering price per unit and the net
tangible book value per share of our common stock immediately after this
offering.
As of
September 30, 2010, we had a net tangible book value of approximately $1.0
million, or $0.01
per share of common
stock based upon 101,708,741 shares outstanding. Net tangible book value per
share is equal to our total tangible assets (total assets less intangible
assets) less total liabilities, divided by the number of shares of our
outstanding common stock.
Dilution
in net tangible book value per share represents the difference between the
amount per unit paid by purchasers of securities in this offering and the net
tangible book value per share of common stock immediately after the completion
of this offering. Without taking into account any other changes in our net
tangible book value since September 30, 2010, after giving effect to the sale of
units in this offering of (i) 13,333,334 shares of common stock, (ii) 5-Year
Warrants to purchase 6,000,000 shares of common stock and (iii) 66-Month
Warrants to purchase 3,150,000 shares of common stock at the public offering
price of $0.15 per unit and the offering of the Reissued Warrant and after
deducting the placement agent’s fee and estimated offering expenses payable by
us (but excluding any proceeds received upon exercise of warrants), our pro
forma net tangible book value as of September 30, 2010 would have been
approximately $2.7 million, or $0.02
per share. This amount
represents an immediate increase in net tangible book value of $0.01
per share to our
existing shareholders and an immediate dilution in net tangible book value of
$0.13
per share to
new investors purchasing our securities in this offering.
The
following table illustrates this per share dilution:
Offering
price per unit
|
|
|
|
|
$
|
0.15
|
|
Net
tangible book value per share as of September 30, 2010
|
|
$
|
0.01
|
|
|
|
|
|
Increase
in net tangible book value per share attributable to this
offering
|
|
$
|
0.01
|
|
|
|
|
|
Pro
forma net tangible book value per share as of September 30, 2010, after
giving effect to this offering
|
|
|
|
|
|
$
|
0.02
|
|
Dilution
in net tangible book value per share to new investors in this
offering
|
|
|
|
|
|
$
|
0.13
|
|
These
calculations exclude (i) shares of our common stock issuable upon exercise or
conversion of our warrants and/or options outstanding as of January 31, 2010,
including under our 2006 Stock Option Plan and our 2008 Omnibus Long-Term
Incentive Plan, (ii) shares of our common stock available for future issuance
under our 2006 Stock Option Plan and our 2008 Omnibus Long-Term Incentive Plan;
and (iii) 11,895,098 shares of common stock issuable upon exercise of the
warrants to be issued in this offering. To the extent that any of these options
or warrants are exercised, there will be further dilution to new
investors.
To the
extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of these securities could result in
further dilution to our shareholders.
DESCRIPTION
OF THE SECURITIES WE ARE OFFERING
We are
offering for sale up to (i) 13,333,334 shares of our common stock, (ii) warrants
to purchase 6,000,000 shares of our common stock, exercisable for a period of
five years (“5-Year Warrants”) and (iii) warrants to purchase 3,150,000 shares
of our common stock, with a term of 66 months and exercisable for a
period of five years beginning 181 days after issuance (“66-Month Warrants”, and
together with the 5-Year Warrants, the “Investor Warrants”).
The
common stock and the Investor Warrants are being offered in units, each
consisting of (i) one share of common stock, (ii) a 5-Year Warrant to purchase
approximately 0.45 of a share of common stock for an exercise price of $0.20 and
(iii) a 66-Month Warrant to purchase 0.24 of a share of common stock for an
exercise price of $0.20. Each unit will be offered to investors at a negotiated
price of $0.15 per unit. Units will not be issued or certificated, and the
shares of common stock and the Investor Warrants are immediately separable and
will be issued separately. The shares of common stock issuable from time to time
upon exercise of the Investor Warrants are also being offered pursuant to this
prospectus supplement and the accompanying prospectus.
As an
inducement to participate in the offering, we have agreed to amend and re-issue
warrants to purchase 2,745,098 shares (“Reissued Warrant”) of our common stock.
The Reissued Warrant shall be equal in number to the original warrants, which
were issued on January 29, 2010, and will allow the holders of the Reissued
Warrant to purchase shares of our common stock at a price of $0.20 per share
with a term of 54 months. The Reissued Warrant are not exercisable until 181
days after the date of reissuance. The shares of common stock issuable
from time to time upon exercise of the Reissued Warrant are also being offered
pursuant to this prospectus supplement and accompanying prospectus.
Description
of Common Stock
The
following summary of the material terms of our common stock and certain
provisions of our corporate organizational documents. Because it is a
summary, it does not include all of the information that is included in our
restated articles of incorporation or amended and restated bylaws and applicable
law. The following description does not purport to be complete and is qualified
by reference to our restated
articles of
incorporation and amended and restated
bylaws and applicable
law. For information on how to obtain copies of our restated articles of
incorporation and amended and restated bylaws, see the information below under
the heading “Where You Can Find More Information” on page S-16 of this
prospectus supplement.
Authorized Capital
Stock
.
Our
authorized capitalization consists of 150,000,000 shares of common stock, $0.001
par value per share, and 10,000,000 shares of preferred stock, par value $0.001
per share. As of January 31, 2011 (prior to this offering), we had
outstanding (i) 101,708,741shares of common stock, (ii) warrants to purchase an
additional 16,088,480 shares of common stock, (iii) options to purchase an
additional 5,536,385 shares of common stock, and (iv) no shares of preferred
stock.
Dividends
.
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.
Voting
.
Generally,
each holder of common stock is entitled to one vote for each share held on all
matters submitted to a vote of shareholders. Cumulative voting for the election
of directors is not authorized by our restated articles 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.
Liquidation or
Dissolution
.
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 or other class
of shares that ranks ahead of the common stock.
Other Rights and
Restrictions
.
The
shares of our common stock have no preemptive, subscription, redemption or
conversion rights.
Anti Takeover
Provisions
.
Certain
provisions of our corporate organizational documents, as well as Nevada law,
could make it more difficult for a third party to acquire the Company, even if
doing so would be beneficial to our shareholders. These provisions include that:
(i) cumulative voting is not authorized by our restated
articles of
incorporation; (ii) additional shares of common stock are authorized for
issuance and could be issued by our board of directors to increase the number of
outstanding shares and thwart a takeover attempt; (iii) our shareholders may not
act by written consent in lieu of a shareholder meeting; (iv) our by-laws may
only be amended by resolution adopted by our board of directors.
Our
restated articles of incorporation do not opt out of Nevada's anti-takeover law,
and, therefore, the Company is subject to its provisions. This law provides that
any person who is: (a) the direct or indirect beneficial owner of 10% or more of
outstanding voting stock of a Nevada corporation; or (b) an affiliate or
associate of a Nevada corporation who, at any time within three years, was the
direct or indirect owner of 10% or more the corporation's outstanding voting
stock, is an interested stockholder who cannot engage in specified business
combinations with the corporation for a period of three years after the date on
which the person became an interested stockholder. Business combinations
encompass a wide variety of transactions with or caused by an interested
stockholder, including mergers, asset sales, and other transactions in which the
interested stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders. Provisions of this law have an anti-takeover
effect on transactions not approved in advance by our board of
directors.
Nevada
law also provides that, in certain circumstances, a stockholder who acquires a
controlling interest in a corporation, defined in the statute as an interest in
excess of a 1/5, 1/3, or 1/2 interest in the voting power of the corporation in
the election of directors, has only such voting rights in the shares acquired
that caused the stockholder to exceed any such threshold as are conferred by a
majority vote of the corporation's stockholders at an annual or special
stockholders' meeting. Our restated articles of incorporation and restated
by-laws do not opt out of this statute.
Board of Directors and
Corporate Action.
Our
restated articles of incorporation provide that our board of directors shall
consist of not less than three members, as the board of directors may determine
from time to time. Shareholders may remove a director for cause at any time and
only by the affirmative vote of sixty-six and two-thirds percent of the
outstanding common stock.
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 is 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 constitute a quorum for the transaction of
business. In general, any questions proposed for the consideration of the
shareholders at any general meeting are decided by the affirmative votes of a
majority of the votes cast, in accordance with our by-laws.
Listing
.
Our
common stock is listed on the NYSE Amex under the symbol “SUF.”
Transfer Agent and
Registrar
.
The
transfer agent and registrar for our common stock is Integrity Stock
Transfer.
Description
of Investor Warrants
The following is a summary of the
material terms and provisions of the Investor Warrants. Because it is a summary,
it does not include all of the information that is included in the Investor
Warrants. The following description does not purport to be complete and is
qualified by reference to the forms of the Investor Warrants, which will be
filed as exhibits to a current report on Form 8-K contemporaneously with the
filing of this prospectus supplement. For information on how to obtain copies of
the Form 8-K or our other filings or report with the SEC, see the information
below under the heading “Where You Can Find More Information” in this prospectus
supplement.
Each
5-Year Warrant will be exercisable to purchase approximately 0.45 shares of
common stock at an exercise price of $0.20 per share, subject to adjustment as
summarized below, will be exercisable at any time after issuance until the close
of business on the five-year anniversary of its issuance, after which time any
portion of the warrant not exercised will be automatically exercised via
cashless exercise.
Each
66-Month Warrant will be exercisable to purchase approximately 0.24 shares of
common stock at an exercise price of $0.20 per share, subject to adjustment as
summarized below, will be exercisable at any time beginning 181 days after
issuance until the close of business on the 66-month anniversary of its
issuance, after which time any portion of the warrant not exercised will be
automatically exercised via cashless exercise.
Certificates
for the Investor Warrants will be issued in fully registered form and a register
of holders will be maintained at our principal offices in Houston, Texas. One or
more certificates may be exchanged for one or more certificates of different
denominations evidencing in the aggregate the same number of 5-Year Warrants or
66-Month Warrants, as the case may be, as the certificates being
exchanged.
Adjustment of Exercise
Price
.
|
The
exercise price of each Investor Warrant will be subject to adjustment in the
event of a subdivision or combination of our common stock, or in the event of a
stock dividend on our common stock or other distribution on any class of common
stock or other equity or equity equivalent security that is payable in shares of
common stock or upon an issuance by reclassification of shares of our common
stock any shares of capital stock of the Company. Simultaneously with any of the
aforementioned adjustments to the exercise price of a warrant, the number of
shares of common stock that may be purchased upon exercise of the Investor
Warrant will be increased or decreased proportionately, so that the aggregate
exercise price payable under the Investor Warrant or will remain the
same. The exercise price of each Investor Warrant will also be
subject to adjustment if we make a dilutive issuance or a pro rata distribution
to our shareholders of property or assets, including but not limited to
evidences of indebtedness, securities and rights or warrants to subscribe for or
purchase securities.
Fundamental
Transactions; Change of
Control
.
|
Following
the occurrence of any of the following events (each, a “fundamental
transaction”):
•
|
we
effect any merger or consolidation with or into another
entity;
|
•
|
we
effect any sale or other distribution of all or substantially all of our
assets in one or a series of related
transactions;
|
•
|
any
purchase offer, tender offer or exchange offer is completed pursuant to
which holders of our common stock are permitted to sell, tender or
exchange their shares for other securities, cash or property and has been
accepted by 50% or more of the holders of our common
stock;
|
•
|
we
effect any reclassification, reorganization or recapitalization of our
common stock or any compulsory share exchange pursuant to which our common
stock is effectively converted into or exchanged for (other than a
subdivision or combination of shares) other securities, cash or property;
or
|
•
|
we
consummate, in one or more related transactions, a stock or share purchase
agreement or other business combination with another entity pursuant to
which such other entity acquires more than 50% of our outstanding shares
of common stock,
|
a holder
who exercises an Investor Warrant will have the right to receive, for each share
of our common stock that would have been issuable upon exercise of the Investor
Warrant immediately prior to the fundamental transaction, the number of shares
of common stock of the surviving entity and any additional consideration
receivable as a result of the fundamental transaction by a holder of the number
of shares of common stock for which the warrant is exercisable immediately
before the fundamental transaction occurs. If holders of common stock
are given any choice as to the securities, cash or property to be received, then
the holder of an Investor Warrant will be given the same choice upon exercise of
the Investor Warrant.
If any
fundamental transaction that is an all-cash transaction, a “Rule 13e-3”
transaction as defined in Rule 13e-3 under the Exchange Act of 1934, as amended,
or which involves a person or entity not traded on a national securities
exchange, then upon request by the holder of an Investor Warrant, we (or our
successor) will purchase the Investor Warrant from the holder for a cash
purchase price equal to the Black-Scholes value of the remaining unexercised
portion of the Investor Warrant.
To the
extent that a holder of an Investor Warrant would otherwise be entitled to
purchase a fraction of a share of our common stock, we may, at our option,
either pay a cash adjustment in respect of such final fraction or round up the
fraction to the nearest whole share.
No Rights as
Shareholders
.
Holders
of Investor Warrants do not have any voting or pre-emptive rights or any other
rights as our shareholders prior to the exercise of the Investor
Warrants.
Notice of Certain
Corporate Events
.
|
We will
give each holder of an Investor Warrant written notice at least 20 calendar days
prior to the record date or effective date, as the case may be, of any
declaration of a dividend or any other distribution of cash, securities or other
property in respect of our common stock (including a grant of rights or warrants
to subscribe for or purchase any of our capital stock or that of a subsidiary),
any authorization, approval, or entry into any agreement contemplating or
soliciting shareholder approval for any fundamental transaction, or
authorization of the voluntary dissolution, liquidation or winding up of our
affairs. We will take all steps reasonably necessary in order to ensure that
each holder is given the practical opportunity to exercise his Investor Warrant
prior to such time so as to participate in or vote with respect to the
transaction. The failure to deliver such a notice or any defect in the notice
will not affect the validity of the corporate action which is required to be
described in the notice.
In the
event that the registration statement to which this prospectus supplement
relates (or any other registration statement covering the shares issuable
pursuant to the Investor Warrants) is not effective at the time of exercise of
an Investor Warrant, then the holder will be able to exercise the Investor
Warrant on a cashless basis. Additionally, the Investor Warrants
shall be automatically exercised via cashless exercise pursuant on the
expiration date.
Description
of Reissued Warrant
The following is a summary of the
material terms and provisions of the Reissued Warrant. Because it is
a summary, it does not include all of the information that is included in the
Reissued Warrant. The following description does not purport to be complete and
is qualified by reference to the forms of the Reissued Warrant, which was filed
as an exhibits to a current report on Form 8-K on January 29, 2010. For
information on how to obtain copies of the Form 8-K or our other filings or
report with the SEC, see the information below under the heading “Where You Can
Find More Information” in this prospectus supplement.
The Reissued Warrant will be
exercisable to purchase 2,745,098 shares of common stock at an exercise price of
$0.20 per share, subject to adjustment as summarized below, will be exercisable
at any time beginning 181 days after issuance until the close of business on the
54-month anniversary of its issuance, after which time any portion of the
warrant not exercised become void and of no value.
A
certificate for the Reissued Warrant will be issued in fully registered form and
a register of holders will be maintained at our principal offices in Houston,
Texas. One or more certificates may be exchanged for one or more certificates of
different denominations evidencing in the aggregate the same number of Reissued
Warrant as the certificates being exchanged.
Adjustment of Exercise
Price
.
|
The
exercise price of the Reissued Warrant will be subject to adjustment in the
event of a subdivision or combination of our common stock, or in the event of a
stock dividend on our common stock or other distribution on any class of common
stock that is payable in shares of common stock. The exercise price of the
Reissued Warrant will also be subject to adjustment if we make a pro rata
distribution to our shareholders of property or assets, including but not
limited to evidences of indebtedness, securities and rights or warrants to
subscribe for or purchase securities. As an alternative to the exercise price
adjustment, upon request by a warrant holder, we will deliver the distributed
property that the holder would have been entitled to receive if the holder had
exercised the Reissued Warrant immediately prior to the record date for the
distribution. Simultaneously with any of the aforementioned adjustments to the
exercise price of the Reissued Warrant, the number of shares of common stock
that may be purchased upon exercise of the Reissued Warrant will be increased or
decreased proportionately, so that the aggregate exercise price payable under
the Reissued Warrant will remain the same.
Fundamental
Transactions; Change of
Control
.
|
Following
the occurrence of any of the following events (each, a “fundamental
transaction”):
•
|
we
effect any merger or consolidation in which we are not the surviving
entity;
|
•
|
we
effect any sale of all or substantially all of our assets in one or a
series of related transactions;
|
•
|
any
tender offer or exchange offer is completed pursuant to which holders of
our common stock are permitted to tender or exchange their shares for
other securities, cash or property;
or
|
•
|
we
effect any reclassification of our common stock or any compulsory share
exchange pursuant to which our common stock is effectively converted into
or exchanged for (other than a subdivision or combination of shares) other
securities, cash or property,
|
a holder
who exercises the Reissued Warrant has the right to receive, in lieu of our
common stock, the same amount and kind of securities, cash or property that the
holder would have been entitled to receive in the fundamental transaction if the
holder had exercised the Reissued Warrant immediately prior to the fundamental
transaction. If holders of common stock are given any choice as to the
securities, cash or property to be received, then the holder of the Reissued
Warrant will be given the same choice upon exercise of the Reissued
Warrant.
If any
fundamental transaction constitutes or results in a change of control, then upon
request by the holder of the Reissued Warrant, we (or our successor) will
purchase the Reissued Warrant from the holder for a cash purchase price equal to
the Black-Scholes value of the remaining unexercised portion of the Reissued
Warrant. A “change of control” includes the following events:
•
|
acquisition
by any person or group of a majority of our voting rights or equity
interests;
|
•
|
a
change in the majority of members of our Board of Directors within a
24-month period unless the election or nomination of each new director was
approved by a vote of two-thirds of the directors then still in office who
were also in office at the beginning of the 24-month
period;
|
•
|
a
merger or consolidation of the company or a sale of all or substantially
all of our assets in one or a series of related transactions, unless
following such transaction or series of transactions, the holders of our
securities prior to the first such transaction continue to hold at least a
majority of the voting rights and equity interests in the surviving entity
or acquirer of such assets;
|
•
|
a
recapitalization, reorganization or other transaction involving the
company or any of our significant subsidiaries that constitutes or results
in a transfer of more than a majority of our voting rights or equity
interests in the Company; or
|
•
|
consummation
by us of a “going private”
transaction.
|
To the
extent that a holder of the Reissued Warrant would otherwise be entitled to
purchase a fraction of a share of our common stock, in lieu of issuing a
fractional share, the number of shares to be issued will be rounded down to the
nearest whole share.
No Rights as
Shareholders
.
The
holder of the Reissued Warrant does not have any voting or pre-emptive rights or
any other rights as our shareholder prior to the exercise of the Reissued
Warrant.
Notice of Certain
Corporate Events
.
|
We will
give the holder of the Reissued Warrant written notice at least 10 days prior to
the record date or effective date, as the case may be, of any declaration of a
dividend or any other distribution of cash, securities or other property in
respect of our common stock (including a grant of rights or warrants to
subscribe for or purchase any of our capital stock or that of a subsidiary), any
authorization, approval, or entry into any agreement contemplating or soliciting
shareholder approval for any fundamental transaction, or authorization of the
voluntary dissolution, liquidation or winding up of our affairs. We will take
all steps reasonably necessary in order to ensure that the holder is given the
practical opportunity to exercise his Reissued Warrant prior to such time so as
to participate in or vote with respect to the transaction. The failure to
deliver such a notice or any defect in the notice will not affect the validity
of the corporate action which is required to be described in the
notice.
In the
event that the registration statement to which this prospectus supplement
relates (or any other registration statement covering the shares issuable
pursuant to the Reissued Warrant) is not effective at the time of exercise of
the Reissued Warrant, then the holder will be able to exercise the Reissued
Warrant on a cashless basis.
There
is no established trading market through which the Investor Warrants or the
Reissued Warrant may be sold and purchasers may not be able to resell the
Investor Warrants or the Reissued Warrant purchased under this prospectus
supplement and the accompanying prospectus. This may affect the pricing of the
Investor Warrants and the Reissued Warrant in the secondary market, the
transparency and availability of trading prices, the liquidity of the Investor
Warrants and the Reissued Warrant, and the extent of issuer regulation. See
“Risk Factors” above.
PLAN
OF DISTRIBUTION
We have
entered into a placement agency agreement (the “Placement Agency Agreement”),
dated as of February 1, 2011, with Chardan Capital Markets, LLC as placement
agent (the “Placement Agent”). Subject to the terms and conditions contained in
the Placement Agency Agreement, the Placement Agent has agreed to act as our
placement agent in connection with this offering.
The
Placement Agent is not purchasing or selling any securities offered by this
prospectus supplement and the accompanying prospectus, nor is the Placement
Agent required to arrange the purchase or sale of any specific number or dollar
amount of the securities, but the Placement Agent has agreed to use its best
efforts to arrange for the direct sale of all of the securities in this offering
pursuant to this prospectus supplement and the accompanying prospectus. There is
no requirement that any minimum number of units or dollar amount of units be
sold in this offering and there can be no assurance that we will sell all or any
of the units being offered.
We
negotiated the offering price for the units offered in this offering with the
investors. The factors considered in determining the price included the recent
market price of our common stock, the general condition of the securities market
at the time of this offering, the history of, and the prospects for the industry
in which we compete, our past and present operations and our prospects for
future revenues.
We
currently anticipate that the closing of this offering will take place on
February 4, 2011, on which date, the following will occur:
|
•
|
we will receive funds in the
amount of the aggregate purchase
price;
|
|
•
|
the Placement Agent will receive
the placement agent fees in accordance with the terms of the Placement
Agency Agreement; and
|
|
•
|
we will deliver the units to the
investors.
|
In
connection with this offering, the Placement Agent may distribute this
prospectus supplement and the accompanying prospectus
electronically.
We will
pay the Placement Agent an aggregate cash fee of 6.0% of the gross proceeds from
the sale of the units in this offering. The following table shows the per unit
offering price, per unit fee and aggregate fees we will pay in cash to the
Placement Agent in connection with the sale of the units pursuant to this
prospectus supplement and the accompanying prospectus:
Per
unit offering price
|
|
$
|
0.15
|
|
Per
unit placement agent fees (6%)
|
|
$
|
0.009
|
|
Aggregate
placement agent fees
|
|
$
|
120,000.00
|
|
In
accordance with rules promulgated by the Financial Industry Regulatory Authority
(“FINRA”), in no event will the maximum or total commission to be received by
any FINRA member or independent broker/dealer in connection with this offering
and with the sale of any securities being registered herein pursuant to
Securities and Exchange Commission Rule 415 be greater than eight percent (8%)
of the gross proceeds thereof.
We
estimate the total expenses of this offering (not including the fees payable to
the Placement Agent) will be approximately $0.1 million, which includes legal,
accounting and filing fees and various other fees and expenses associated with
registering the securities and listing the common stock on the NYSE Amex. After
deducting the fees due to the Placement Agent and our estimated offering
expenses, we expect the net proceeds from this offering to be approximately $1.8
million, assuming the maximum number of Units is sold.
The
Placement Agent will not engage in passive market making transactions,
stabilizing transactions or syndicate covering transactions in connection with
this offering.
LEGAL
MATTERS
The
validity of the securities offered hereby will be passed upon for us by McDonald
Carano Wilson LLP, Reno, Nevada.
EXPERTS
The
financial statements and management’s assessment of the effectiveness of
internal control over financial reporting (which is included in Management’s
Report on Internal Control over Financial Reporting) incorporated in this
prospectus supplement by reference to our annual report on Form 10-K for the
year ended December 31, 2009, have been so incorporated in reliance on the
report of Hein & Associates LLP, an independent registered public accounting
firm, given on the authority of said firm as experts in auditing and
accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any document we file at the SEC’s public
reference rooms located at 100 F Street, N.E., Room 1580, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our filings with the SEC are also available to the
public on the SEC’s Internet web site at http://www.sec.gov.
We also
provide information on our website: http://www.sulphco.com. Our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports are available, without charge, on our website, as
soon as reasonably practicable after they are filed with the SEC. Copies are
also available without charge, at our principal offices:
SulphCo,
Inc.
4333 W.
Sam Houston Pkwy N., Suite 190
Houston,
TX 77043
References
to our website addressed in this prospectus supplement are provided as a
convenience and do not constitute, and should not be viewed as, an incorporation
by reference of the information contained on, or available through, the
website. Therefore, none of the information on our website is part of this
prospectus supplement or the accompanying prospectus.
This
prospectus supplement and the accompanying prospectus are part of a registration
statement on Form S-3 that we filed with the SEC registering the securities that
may be offered and sold hereunder. The registration statement, including
exhibits thereto, contains additional relevant information about us and these
securities that, as permitted by the rules and regulations of the SEC, we have
not included in this prospectus supplement or the accompanying prospectus. A
copy of this prospectus supplement, the prospectus and a copy of any or all of
the information that has been incorporated by reference herein or therein can be
obtained at no cost to the requester upon an oral or written request made to us
at the address listed above or by telephone at (713)-896-9100.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC
allows us to “incorporate by reference” the information we file with it, which
means that we can disclose important information to you by referring you to
those documents. The information in the documents incorporated by reference is
considered to be part of this prospectus supplement. Information in
documents that we file with the SEC after the date of this prospectus supplement
will automatically update and supersede information in this prospectus
supplement. We incorporate by reference herein the documents previously
referenced in this prospectus supplement, the prospectus included below as filed
with the SEC as part of the Company’s 2010 shelf registration and any future
filings we may make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus supplement and before the
termination of the offering.
We are
not, however, incorporating by reference any documents or portions of documents
that are not deemed “filed” with the SEC.
Information
contained in this prospectus supplement supplements, modifies or supersedes, as
applicable, the information contained in earlier-dated documents incorporated by
reference. Information contained in later-dated documents incorporated by
reference supplements, modifies or supersedes, as applicable, the information
contained in this prospectus supplement or in earlier-dated documents
incorporated by reference.
You
should rely only on the information contained in this prospectus supplement and
the accompanying prospectus, including information incorporated by reference as
described above. We have not authorized anyone else to provide you with
different information. You should not assume that the information in this any
prospectus supplement or the accompanying prospectus is accurate as of any date
other than the date on the front of those documents or that any document
incorporated by reference is accurate as of any date other than its filing date.
You should not consider this prospectus supplement to be an offer or
solicitation relating to the securities in any jurisdiction in which such an
offer or solicitation relating to the securities is not authorized. Furthermore,
you should not consider this prospectus supplement to be an offer or
solicitation relating to the securities if the person making the offer or
solicitation is not qualified to do so, or if it is unlawful for you to receive
such an offer or solicitation.
Registration
No. 333-169062
Filed
Pursuant to Rule 424(b)(2)
PROSPECTUS
$122,180,000
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 NYSE Amex LLC and trade under
the ticker symbol “SUF.”
The total
amount of warrants and common shares will have an initial aggregate offering
price of up to $122,180,000 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.
As of
September 28, 2010, the aggregate market value of our outstanding common stock
held by non-affiliates was approximately $44.7 million, based on 101,708,741
shares of outstanding common stock, of which 101,520,544 shares were held by
non-affiliates, and a per share price of $0.44 based on the closing sale price
of our common stock on August 31, 2010. During the period of 12 calendar months
immediately prior to, and including, the date of this prospectus, we have sold
securities in the amount of $11,305,882 pursuant to General Instruction I.B.6.
of Form S-3.
Investing
in our securities involves risks. See ‘‘Risk Factors’’ beginning on
page 6. 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.
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 the prospectus. Any representation to the contrary is a
criminal offense.
The
date of this prospectus is October 26, 2010
TABLE
OF CONTENTS
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Page
No.
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SUMMARY
|
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3
|
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RISK
FACTORS
|
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6
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FORWARD
LOOKING STATEMENTS
|
|
12
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USE
OF PROCEEDS
|
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13
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PLAN
OF DISTRIBUTION
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13
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DESCRIPTION
OF WARRANTS
|
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15
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DESCRIPTION
OF SHARE CAPITAL
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16
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|
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INCORPORATIO
OF CERTAIN INFORMATION BY REFERENCE
|
|
16
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CERTAIN
ERISA CONSIDERATIONS
|
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17
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EXPERTS
|
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17
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LEGAL
MATTERS
|
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18
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WHERE
YOU CAN FIND MORE INFORMATION
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18
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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.”
SUMMARY
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
Overview
SulphCo
is an energy technology company focused on the development and commercialization
of an oxidative desulfurization (“ODS”) process for crude oil products, crude
oils, natural gasoline and condensate streams. SulphCo’s oxidative
desulfurization process consists of (1) the ultrasound assisted conversion of
the sulfur compounds to their oxidized analogs employing its patented and
proprietary Sonocracking™ technology, and (2) the subsequent removal of these
oxidized compounds via adsorption, extraction, water wash or other similar
separation techniques (the “SulphCo Process”).
Ever
increasing environmental regulations are mandating the reduction of sulfur
content in many fuels, including gasoline, diesel fuel, and bunker
fuel. For example, the sulfur specification for finished diesel fuel
in certain jurisdictions is less than 10 parts per million (“ppm”), while
typical starting concentrations are in the thousands of ppm. The currently
practiced method for desulfurization is hydrodesulfurization
(“HDS”). HDS requires a large capital investment and suffers from
high hydrogen and energy consumption as severe operating conditions have to be
employed to treat the most refractory sulfur compounds. In contrast, the SulphCo
Process allows for comparably mild reaction conditions such as
ambient temperatures and mild pressures, resulting in a potentially more cost
effective and energy efficient alternative to HDS for certain applications
within the refining, transportation, and blending market segments.
Research and Development
Activities
The
following is an update of the Company’s more significant research and
development activities conducted in the first six-months of 2010.
Development of Catalyst
Systems and Sulfur Removal Processes
Activities
in the first six-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 also excels for natural gasoline and condensate
streams.
We also
continued dedicated work on sulfur removal for diesel and transmix streams,
which included ongoing work in adsorption and a new effort in
extraction. Adsorption is the preferred means of sulfur removal for
product streams with low sulfur content (100 ppm or less), while extraction is
preferred for product streams with higher 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.
The most
promising work during the first six-months of 2010 has been directed towards
desulfurization of natural gasoline, an important blend stock for on-road
gasoline. The above mentioned catalyst system has proven to be highly
effective in the oxidation of the sulfur compounds contained in the samples of
natural gasoline evaluated during the first six-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.
Ultrasound Probe, Reactor
and Control Systems
During
the first six-months of 2010, the collaborative work between SulphCo and
Märkisches Werk Halver, GmbH (“MWH”) continued to center around simplifying and
enhancing the user friendliness of the equipment towards commercial operation as
well as long-term endurance testing. Highlights include development
of a prototype forged probe to allow simplified mass production and a prototype
tool that simplifies ultrasound probe swap-out. Also, high intensity
endurance testing of the current ultrasound probe/transducer assembly continued
with positive results. Testing will continue 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 six months of 2010.
With
respect to the Company’s ongoing commercial efforts, we continue to see a high
level of interest in the Sonocracking™ process as potential customers see the
value that can be driven by the technology. We are pursuing what we
believe are opportunities presenting the highest likelihood of near-term success
for the technology (i.e., crude oil product streams such as diesel fuel, natural
gasoline, and naphtha as well as low to moderate sulfur-containing crude oils
and condensates) and are working with several potential customers to achieve
this goal.
Europe
SulphCo
and OMV Refining and Marketing GmbH (“OMV”) entered into a technology agreement
in the first quarter of 2009 and have been working together since that time to
jointly evaluate SulphCo’s Sonocracking™ technology in several of OMV’s refining
applications. During the first quarter of 2010, SulphCo’s efforts
with OMV have centered on the evaluation of certain 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. While the Company is encouraged by the recent
progress in Europe, there can be no assurance that the Company will be
successful in implementing any commercial agreements.
North
America
During
the later part of 2009 and into the first quarter of 2010, SulphCo was pursuing
a specific condensate application with an integrated major oil company with a
facility located in North America. We have performed several lab-scale trials to
demonstrate the effectiveness of our technology in this particular
application. Technical representatives from this company visited our
Houston offices in June 2009 to confirm the lab-scale results and subsequently
recommended the installation of a Sonocracking™ unit at this company’s facility
in North America. In November 2009, this potential customer changed the process
requirements associated with this condensate application. In response to this
change, SulphCo formulated a proposed solution that met the new technical
requirements and provided it to this potential customer. Late in the
first quarter of 2010, the potential customer notified SulphCo that it had
completed its evaluation of investment and process options for this condensate
application and had decided not to use the SulphCo Process for this particular
application. Notwithstanding this application specific decision, discussions
with technical representatives of this company continue with respect to other
applications of the SulphCo Process in its facilities around the
world.
We have
presented in-house laboratory and third-party data with respect to the
performance of the Sonocracking™ 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. On November 13, 2009, SulphCo reported that it had executed a letter
of intent with Golden Gate Petroleum (“Golden Gate”) to move toward the
installation of SulphCo’s technology at Golden Gate’s Nevada trans-mix
facility. SulphCo continues to work with Laguna, Golden Gate and
other companies in the trans-mix market to meet their technical and commercial
requirements to produce ultra-low sulfur diesel. As of the end of the
second quarter, neither of Laguna or Golden Gate has decided whether they want
to go forward with the proposals that have been presented to them by
SulphCo.
On June
23, 2010, SulphCo announced that it had executed a validation agreement (the
“Validation Agreement”) with Enterprise Products Operating LLC (“Enterprise”), a
wholly owned subsidiary of Enterprise Products Partners L.P. Pursuant
to the terms of the Validation Agreement, SulphCo will install a mobile
Sonocracking™ unit at Enterprise’s natural gas liquids (“NGL”) fractionation
facility located in Mont Belvieu, Texas for the purpose of evaluating the
commercial scale performance of SulphCo’s Sonocracking™ technology on certain
Enterprise natural gasoline streams produced at the facility following
laboratory tests on such streams. SulphCo expects that the
installation will be completed by the end of July with commercial scale
evaluations to follow during the ensuing eight to ten week
period. Concurrent with the execution of the Validation Agreement,
SulphCo and Enterprise commenced negotiations on a definitive commercial
agreement (the “Operating Agreement”). While SulphCo expects that the
Operating Agreement will be executed as soon as practicable after the successful
completion of the commercial evaluation, there can be no guarantees that the
evaluation phase will lead to a definitive commercial agreement.
In
addition to the ongoing discussions described above, we have been contacted by
several new potential customers expressing interest in the Sonocracking™
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 Sonocracking™ technology in their respective
systems.
While the
Company is encouraged by the recent progress in North America, there can be no
assurance that the Company will be successful in implementing any commercial
agreements.
South
America
Based on
technical data presented by SulphCo at meetings with 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 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 ™ 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.
While the
Company is encouraged by the recent progress in South America, there can be no
assurance that the Company will be successful in implementing any commercial
agreements.
RISK
FACTORS
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.
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.
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
desulfurization and oxidative desulfurization technologies. 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 SulphCo 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 technology is made operational in a commercial setting, it 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 product
or service 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 June 30, 2010, we had an accumulated deficit
of approximately $161.7 million. These losses are principally
associated with the research and development of our Sonocracking™ units for
desulfurization and upgrading of 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,
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 third parties. We expect our existing
capital resources will be sufficient to fund our cash requirements into the
first quarter of 2011 based upon projected levels of expenditures and
anticipated needs. However, we expect that additional working capital
will be required in the future.
The
extent and timing of our future capital requirements will depend upon several
factors, including:
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continued progress toward
commercialization of our
technologies;
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rate of progress and timing of
product commercialization activities and arrangements;
and
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our ability to establish and
maintain collaborative arrangements with others for product development,
commercialization, marketing, sales and
manufacturing.
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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 November 2007, May 2008, and January 2010 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 Middle East,
Austria, Europe, North America, 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:
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government activities that may
result in the curtailment of contract
rights;
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government activities that may
restrict payments or limit the movement of funds outside the
country;
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confiscation or nationalization
of assets;
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confiscatory or other adverse
foreign taxation
regulations;
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acts of terrorism or other armed
conflicts and civil unrest;
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currency fluctuations,
devaluations and conversion restrictions;
and
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trade restrictions or embargoes
imposed by the U.S. or a foreign
country.
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Many of
these risks may be particularly significant in some oil producing regions, such
as the Middle East and South America.
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 desulfurization and
upgrading technologies on our own. Our success may depend upon
partnerships and strategic alliances with third
parties. Collaborative agreements involving the development or
commercialization of technology such as ours generally pose such risks
as:
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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;
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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;
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collaborators could independently
develop, or develop with third parties, products that could compete with
our future products;
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the terms of our agreements with
collaborators may not be favorable to
us;
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a collaborator may not commit
enough resources, thereby delaying commercialization or limiting potential
revenues from the commercialization of a product;
and
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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.
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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 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.
Our
business is subject to the risk of supplier concentration.
We depend
on a limited number of third party suppliers and vendors for the manufacturing
and development of our Sonocracker™ units. As a result of this
concentration in our supply chain, our business and operations would be
negatively affected if any of our key suppliers were to experience significant
disruption affecting the price, quality, availability or timely delivery of
their products. The partial or complete loss of one of these
suppliers, or a significant adverse change in our relationship with any of these
suppliers, could have a material adverse effect on our business, results of
operations and financial condition.
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.
Because
the market for products utilizing our technologies is still developing and is
highly competitive, we may not be able to compete successfully in the highly
competitive and evolving desulfurization and upgrading market.
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.
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 laws to protect our intellectual
property. Although we have filed multiple patent applications for our
technology, and we have nine 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 utilizing
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 sulfur
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 desulfurization
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 sulfur content of petroleum products will
continue to provide an impetus for customers to utilize our Sonocracking™
technology for desulfurization, 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 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.
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.
Details
of the current status of outstanding litigation involving the Company are
available in the Form 10-K for the fiscal year ended December 31, 2009 and the
Forms 10-Q for the quarterly periods ended March 31, 2010 and June 30,
2010. An adverse judgment in any of these cases could result in
material harm to our business or result in liabilities that 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 $0.18 in July 2010, to a sales price of over $19.00 per share in January
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.
Sales
of our common stock, or market expectations of such sales, may have an adverse
impact on the market price of our common stock.
This
prospectus relates to the sale of up to $122,180,000 in shares of common stock
or warrants by the Company. Large sales volumes by the Company or market
expectations of such sales could adversely affect the market price of our common
stock.
The
potential exercise of outstanding options and warrants could adversely affect
the market price of our common stock, dilute the holdings of existing
stockholders and impede our ability to obtain additional equity
financing.
As of
September 29, 2010, we had outstanding options and warrants to purchase
approximately 22.6 million shares of our common stock. If the option
and warrant holders exercise their options and warrants, we will be obligated to
issue additional shares of common stock at the stated exercise
price. The existence of such rights to acquire common stock at fixed
prices may prove a hindrance to our efforts to raise future equity funding, and
the exercise of such rights will dilute the percentage ownership interest of our
stockholders and may dilute the value of their ownership. Future sales of shares
issuable on the exercise of outstanding warrants and options at fixed prices
below prevailing market prices, or expectations of such sales, could adversely
affect the prevailing market price of our common stock, particularly since such
warrants or options may be exercised at a fixed price and resold. Further, the
holders of the outstanding options or warrants may exercise them at a time when
we would otherwise be able to obtain additional equity capital on terms more
favorable to us.
We
do not expect to pay dividends on our common stock in the foreseeable
future.
Although
our stockholders may receive dividends if, as and when declared by our board of
directors, we do not presently intend to pay dividends on our common stock until
we are able to generate revenues and profits on a sustained basis and available
cash exceeds our working capital requirements. Therefore, you should not
purchase our common stock if you need immediate or future income by way of
dividends from your investment.
In
certain cases, our board of directors has the ability to issue additional shares
of our common stock without obtaining the approval of our stockholders, which
issuances may result in further dilution to our stockholders.
Our
corporate charter currently authorizes our board of directors to issue up to
150,000,000 shares of common stock, of which 101,708,741 shares were outstanding
as of October 26, 2010. In certain cases, the power of the board of directors to
issue shares of common stock or warrants to purchase shares of common stock is
not subject to stockholder approval under Nevada state law, the state of our
corporate organization. Any additional issuance of our common stock may have the
effect of further diluting the equity interest of our stockholders.
Our board
of directors has the authority to issue up to 10,000,000 shares of preferred
stock, none of which are issued or outstanding, and to determine the price, and
the rights, preferences, privileges and restrictions, without any further vote
or action by our stockholders. The rights of the holders of common stock may be
adversely affected by the rights of the holders of any preferred stock that may
be issued in the future. Rights, preferences and privileges applicable to future
preferred stock issuances could include dividend, liquidation and voting rights
which are greater than rights afforded our common stockholders. Because the
holders of preferred stock may be entitled to vote on some matters as a class,
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change of control of our company. The issuance of preferred stock,
while providing desirable flexibility, could have the effect of making it more
difficult for a third party to acquire control of our company.
We may be delisted from the NYSE
Amex LLC resulting in a more limited market for our common
stock
.
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(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 June 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. 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 extension
deadline, 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.
Because
our common stock may be subject to rules governing low priced securities, market
liquidity for our common stock could be adversely impacted.
If our
common stock trades below $5.00 per share and is not listed on the NYSE Amex LLC
or a national or regional securities exchange, our common stock is subject to
the low priced security or so-called "penny stock" rules that impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors. For any
transaction involving a penny stock, unless exempt, the rules require, among
other things, the delivery, prior to the transaction, of a disclosure schedule
required by the Securities and Exchange Commission relating to the penny stock
market. These rules also require that the broker determine, based upon
information obtained from the investor, that transactions in penny stocks are
suitable for the investor, and require the broker to obtain the written consent
of the investor prior to effecting the penny stock transaction. The
broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. So long as our common stock is characterized as
a penny stock, the market liquidity for these shares could be severely affected.
The regulations relating to penny stocks could limit the ability of
broker-dealers to sell these securities and, in turn, the ability of
stockholders to sell their shares in the secondary market.
We
may have difficulty managing our growth.
We expect
to experience significant growth if we are successful in our efforts to roll out
our Sonocracking units on a worldwide basis. 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:
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attract and retain qualified
personnel;
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upgrade and expand our
infrastructure so that it matches our level of
activity;
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manage expansion into additional
geographic areas; and
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improve and refine our operating
and financial systems and managerial controls and
procedures.
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If we do
not effectively manage our growth, we will not be successful in executing our
business plan, which could materially adversely affect our business, results of
operations and financial condition.
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:
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implementing our business
strategy;
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development, commercialization
and marketing of our
products;
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our intellectual
property;
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our estimates of future revenue
and profitability;
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our estimates or expectations of
continued losses;
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our expectations regarding future
expenses, including research and development, sales and marketing,
manufacturing and general and administrative
expenses;
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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;
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attracting and retaining
customers and employees;
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sources of revenue and
anticipated revenue; and
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competition in our
market.
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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.
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.
USE
OF PROCEEDS
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 general corporate purposes. These purposes
may include repayment of debt, acquisitions, additions to working capital,
capital expenditures and investments in our subsidiaries.
PLAN
OF DISTRIBUTION
The
securities being offered by this prospectus may be sold:
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to or through one or more
underwriters on a firm commitment or best efforts
basis,
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through put or call option
transactions relating to the
securities,
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through broker-dealers (acting as
agent or principal),
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directly to purchasers, through a
specific bidding or auction process or otherwise,
or
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through a combination of any such
methods of sale.
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The
prospectus supplement will set forth the terms of the offering of such
securities, including:
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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.
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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 NYSE Amex LLC
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.
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).
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.
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:
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the title of such
warrants;
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the aggregate number of such
warrants;
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the price or prices at which such
warrants will be issued;
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the date on which the right to
exercise such warrants shall commence and the date on which such right
shall expire;
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if applicable, the minimum or
maximum amount of such warrants which may be exercised at any one time;
and
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any other terms of such warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such warrants.
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DESCRIPTION
OF SHARE CAPITAL
Our
authorized share capital consists of 150,000,000 common shares, par value $0.001
per share, and 10,000,000 preferred shares, par value $0.001 per
share. As of September 29, 2010, we had outstanding
(i) 101,708,741 common shares, (ii) warrants to purchase an
additional 16,088,480 common shares, (iii) options to purchase an
additional 6,489,885 common shares and (iv) 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
six (6) directors. Each director serves a one-year
term. Shareholders may only remove a director for cause at any time
and only by the affirmative vote of sixty-six and two-thirds
percent (66-2/3%).
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, 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. Shareholders do not have the ability to
take action by written request.
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:
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Our Annual Report on Form 10-K
for the fiscal year ended December 31, 2009, filed with the SEC on
February 25, 2010;
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Our Quarterly Reports on Form
10-Q for the quarter ended March 31, 2010, filed with the SEC on May 5,
2010 and for the quarter ended June 30, 2010, filed with the SEC on July
22, 2010;
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Our Current Reports on Form 8-K
filed January 29, 2010*, February 4, 2010*, June 11, 2010, June 23, 2010*,
July 7, 2010* and September 24,
2010*;
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The description of our common
stock contained in our report on Form 8-A filed on October 3, 2005;
and
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In addition, we also incorporate
by reference in to 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.
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* The
Regulation FD disclosure is not incorporated by reference into this registration
statement.
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, Chief Financial Officer,
Treasurer
and Corporate Secretary
Telephone: (713)
896-9100
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.
CERTAIN
ERISA CONSIDERATIONS
We and
our affiliates may each be considered a party in interest within the meaning of
the Employee Retirement Income Security Act of 1974 (ERISA), or a disqualified
person under corresponding provisions of the Internal Revenue Code of 1986 (the
Code), relating to an employee benefit plan. Prohibited transactions
within the meaning of ERISA and the Code may result if any securities offered by
this prospectus are acquired by or with the assets of a pension or other
employee benefit plan relating to which we or any of our affiliates is a service
provider, unless those securities are acquired under an exemption for
transactions effected on behalf of that plan by a ‘‘qualified professional asset
manager’’ or an ‘‘in-house asset manager’’ or under any other available
exemption. Additional special considerations may arise in connection
with the acquisition of capital securities by or with the assets of a pension or
other employee benefit plan. The assets of a pension or other
employee benefit plan may include assets held in the general account of an
insurance company that are deemed to be ‘‘plan assets’’ under
ERISA. Any employee benefit plan or other entity subject to such
provisions of ERISA or the Code proposing to acquire the offered securities
should consult with its legal counsel.
EXPERTS
The
financial statements as of December 31, 2009 and 2008 and for the three
years ended December 31, 2009, incorporated by reference in this prospectus,
have been so included in reliance on the report of Hein & Associates LLP,
independent certified public accountants and a registered public accounting
firm, given on the authority of said firm as experts in accounting and
auditing.
LEGAL
MATTERS
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.
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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