**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**Form
      10-Q/A**


______





Amendment
      No. 1




**[****Ö****]** **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**





For
      the
      quarterly period ended.................................................March
      31,
      2007




OR





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


**SECURITIES
      EXCHANGE ACT OF 1934**





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





**Commission
      file number 001-32636**





**S** **ULPH** **C** **O, INC.**


(Exact
      Name of Registrant as Specified in its Charter)





**Nevada**
              (State
                or other jurisdiction of incorporation or organization)
            
            **88-0224817**
              (I.R.S.
                Employer Identification Number)




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





**(713)
      896-9100**


Registrant's
      telephone number, including area code





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





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




Large Accelerated Filer __
            Accelerated
                Filer ü
            Non-accelerated
                filer
                __




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





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




Class
            Outstanding
                at May 15,
                2007Common
                Stock, par value $.001
            76,355,478
                shares









**EXPLANATORY
      NOTE**




SulphCo,
      Inc. (the "Company") is filing this Form 10-Q/A ("Amendment No. 1") to amend
      its
      Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007,
      in
      order to re-file in its entirety Part I, Item 1. Financial Statements
      to properly state the deemed dividend incurred in connection with the March
      2007 Warrant Exercises.




On
      August
      7, 2007, the management of the Company in consultation with the Company’s Audit
      Committee, concluded that its previously issued financial statements as of
      and
      for the three-month period ended March 31, 2007, as included in its Quarterly
      Report on Form 10-Q as filed with the Securities and Exchange Commission on
      May
      15, 2007 (the “Q1 2007 Form 10-Q”), should no longer be relied upon as a result
      of the Company's determination that it had incorrectly accounted for the
      non-cash deemed dividend resulting from the inducements provided to the 2004
      Warrant Holders and the 2006 Warrant Holders in March 2007. The misstatement
      had
      the effect of understating the Company's Net Loss Attributable to Common
      Stockholders by approximately $11.4 million or $0.16 per share. After giving
      effect to the full amount of the non-cash deemed dividend (approximately $11.5
      million), the Company’s Net Loss Attributable to Common Stockholders is
      approximately $14.5 million versus approximately $3.0 million as originally
      reported. On a per share basis, the Company’s Net Loss Attributable to Common
      Stockholders is $0.20 per share versus $0.04 per share as originally reported.
      See Note 1 and Note 11 for additional discussion.




This
      Amendment No. 1 also amends Part I, Item 2, Management’s Discussion and Analysis
      of Financial Condition and Results of Operations, and Part I, Item 4, Controls
      and Procedures. The Original Filing is hereby superseded and amended with
      respect to the information set forth in this Amendment No. 1.




2




**PART
      I.**





**Item
      1.Financial
      Statements**




SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      BALANCE SHEETS


March
      31,
      2007 and December 31, 2006


(unaudited)






**March
                31, 2007**
            
            **December
                31, 2006****(restated)****Current
                Assets**Cash
                and cash equivalents
            
            $
            9,672,253
            
            $
            6,004,992Loan
                receivable
            
            
            275,000
            
            
            275,000Advance
                to related party
            
            
            95,627
            
            
            95,627Deposits
            
            
            62,657
            
            
            36,822Current
                assets held for sale (net of accumulated depreciation of $86,303)
                (Note
                3)
            
            
            5,046
            
            
            6,073Prepaid
                expenses and other
            
            
            192,569
            
            
            166,845Total
                current assets
            
            
            10,303,152
            
            
            6,585,359**Property
                and equipment, net (Note 5)**
            
            
            170,977
            
            
            200,884**Other
                Assets**Intangible
                assets (net of accumulated amortization of $53,284 in 2007 and $44,692
                in
                2006)
            
            
            556,120
            
            
            508,216Investment
                in Joint Venture (Note 6)
            
            
            -
            
            
            -Deferred
                  tax asset (net of valuation allowance of $22,167,592 in2007 and
                  $20,157,917 in 2006)
            
            
            -
            
            
            -Total
                other assets
            
            
            556,120
            
            
            508,216Total
                assets
            
            $
            11,030,249
            
            $
            7,294,459**Current
                Liabilities**Accounts
                payable and accrued liabilities
            
            $
            2,462,752
            
            $
            3,709,302Refundable
                deposit (Note 8)
            
            
            550,000
            
            
            550,000Accrued
                fees and interest
            
            
            1,071,109
            
            
            957,828Related
                party note payable (Note 9)
            
            
            5,000,000
            
            
            5,000,000Total
                current liabilities
            
            
            9,083,861
            
            
            10,217,130**Commitments
                and Contingencies (Note 14)**
            
            
            -
            
            
            --
            
            
            -**Stockholders'
                Equity (Deficiency)**Preferred
                stock: 10,000,000 shares authorized ($0.001 par value) none
                issued
            
            
            -
            
            
            -Common
                stock: 100,000,000 shares authorized ($0.001 par value)76,572,978
                and 72,620,910 shares issued and outstanding at
              March
                31, 2007 and December 31, 2006 respectively.
            
            
            76,573
            
            
            72,621Paid
                in capital
            
            
            75,714,843
            
            
            67,864,451Deficit
                accumulated during the development stage
            
            
            (73,845,028
            )
            
            (70,856,288
            )Accumulated
                other comprehensive loss
            
            
            -
            
            
            (3,455
            )Total
                stockholders' equity(deficiency)
            
            
            1,946,388
            
            
            (2,922,671
            )Total
                liabilities and stockholders' equity(deficiency)
            
            $
            11,030,249
            
            $
            7,294,459




The
      Accompanying Notes are an Integral Part of the Financial Statements




3




SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      STATEMENTS OF OPERATIONS


For
      the
      Periods ended March 31, 2007, 2006 and from Inception


(unaudited)






**Three
                Months Ended March 31**
            
            **Inception****2007**
            
            **2006**
            
            **to
                date****(restated)**
            
            
            
            **(restated)****Revenue**Sales
            
            $
            -
            
            $
            -
            
            $
            42,967**Expenses**Selling,
                general, and administrative expenses
            
            
            (1,953,670
            )
            
            (3,475,486
            )
            
            (42,411,014
            )Research
                and development expensesFujairah
                test facility
            
            
            (156,757
            )
            
            (5,117,640
            )
            
            (21,629,886
            )Other
            
            
            (816,764
            )
            
            (514,429
            )
            
            (7,955,135
            )Loss
                on joint venture
            
            
            -
            
            
            -
            
            
            (136,095
            )Loss
                on disposal of asset
            
            
            -
            
            
            -
            
            
            (221,711
            )Loss
                on impairment of asset
            
            
            -
            
            
            -
            
            
            (233,900
            )Total
                operating expenses
            
            
            (2,927,191
            )
            
            (9,107,555
            )
            
            (72,587,741
            )Loss
                from operations
            
            
            (2,927,191
            )
            
            (9,107,555
            )
            
            (72,544,774
            )**Other
                income (expense)**Interest
                income
            
            
            52,759
            
            
            53,092
            
            
            781,229Gain
                on sale of assets
            
            
            -
            
            
            -
            
            
            2,532Interest
                expense
            
            
            (113,281
            )
            
            (125,199
            )
            
            (1,322,748
            )Late
                registration fees
            
            
            -
            
            
            -
            
            
            (760,240
            )Loss
                before taxes
            
            
            (2,987,713
            )
            
            (9,179,662
            )
            
            (73,844,001
            )Income
                tax benefit (provision)
            
            
            -
            
            
            -
            
            
            -Loss
                from continuing operations
            
            
            (2,987,713
            )
            
            (9,179,662
            )
            
            (73,844,001
            )Income
                (loss) from discontinued operations
            
            
            (1,027
            )
            
            -
            
            
            (1,027
            )**Net
                loss**
            
            $
            (2,988,740
            )
            $
            (9,179,662
            )
            $
            (73,845,028
            )Deemed
                dividend (See Note 11)
            
            
            (11,523,885
            )
            
            -
            
            
            (11,523,885
            )**Net loss
                attributable to common stockholders**
            
            $
            (14,512,625
            )
            $
            (9,179,662
            )
            
            (85,368,913
            )Loss
                per share: basic and diluted
            
            $
            (0.20
            )
            $
            (0.14
            )Weighted
                  average sharesbasic and diluted
            
            
            73,938,266
            
            
            65,354,635




The
      Accompanying Notes are an Integral Part of the Financial Statements




4




SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      STATEMENTS OF CASH FLOWS


For
      the
      Periods ended March 31, 2007


(unaudited)






**March
                31**
            
            **Inception****2007**
            
            **2006**
            
            **to
                date****Cash
                Flows From Operating Activities**Net
                loss
            
            $
            (2,988,740
            )
            $
            (9,179,662
            )
            $
            (73,845,028
            )Adjustments
                  to reconcile net loss to cash usedin operating
                  activities:Depreciation
                & amortization
            
            
            42,514
            
            
            63,312
            
            
            1,040,078Stock
                and options issued for services
            
            
            66,670
            
            
            1,214,250
            
            
            10,215,512Stock
                issued for interest expense
            
            
            -
            
            
            -
            
            
            296,000Contribution
                from stockholder
            
            
            -
            
            
            -
            
            
            555,000Loss
                from joint venture
            
            
            -
            
            
            776
            
            
            136,096Loss
                on disposal and impairment of asset
            
            
            -
            
            
            -
            
            
            455,611Decrease
                in legal settlement
            
            
            -
            
            
            -
            
            
            -Deposit
                used for expense
            
            
            -
            
            
            100,000
            
            
            100,000(Increase)
                decrease in accounts receivable
            
            
            955
            
            
            (547
            )
            
            (117,702
            )(Increase)
                decrease in prepaid expenses and other
            
            
            (26,680
            )
            
            41,005
            
            
            (170,496
            )Increase
                  (decrease) in accounts payableand accrued
                  liabilities
            
            
            (1,129,814
            )
            
            790,665
            
            
            2,501,678Increase
                in refundable deposit
            
            
            (25,835
            )
            
            -
            
            
            524,165Increase
                in accrued fees and interest
            
            
            -
            
            
            115,199
            
            
            545,985Net
                cash used in operating activities
            
            
            (4,060,930
            )
            
            (6,855,002
            )
            
            (57,763,101
            )**Cash
                Flows From Investing Activities**Advances
                for loan receivable
            
            
            -
            
            
            (100,000
            )
            
            (100,000
            )Purchase/sale
                of property and equipment
            
            
            (2,988
            )
            
            (20,648
            )
            
            (1,018,528
            )Investments
                in joint ventures and subsidiaries
            
            
            -
            
            
            -
            
            
            (357,806
            )Return
                / (payment) of deposits
            
            
            -
            
            
            (7,850
            )
            
            (36,822
            )Investments
                in intangible assets
            
            
            (56,495
            )
            
            (88,074
            )
            
            (625,245
            )Net
                cash used in investing activities
            
            
            (59,483
            )
            
            (216,572
            )
            
            (2,141,856
            )**Cash
                Flows from Financing Activities**Proceeds
                from issuance of stock
            
            
            7,787,674
            
            
            35,389,927
            
            
            58,786,850Proceeds
                from stock subscriptions
            
            
            -
            
            
            -
            
            
            4,240,887Proceeds
                from issuance of related party notes payable
            
            
            -
            
            
            -
            
            
            11,000,000Proceeds
                from issuance of line of credit
            
            
            -
            
            
            -
            
            
            750,000Return
                on capital
            
            
            -
            
            
            -
            
            
            (118,427
            )Principal
                payments on related party notes payable
            
            
            -
            
            
            -
            
            
            (3,250,000
            )Decrease
                in related party receivable
            
            
            -
            
            
            -
            
            
            1,359,185Payments
                on contract payable
            
            
            -
            
            
            -
            
            
            (250,000
            )Principal
                payments on line of credit
            
            
            -
            
            
            -
            
            
            (750,000
            )Principal
                payments on advance from related party
            
            
            -
            
            
            -
            
            
            (2,191,285
            )Net
                cash provided by financing activities
            
            
            7,787,674
            
            
            35,389,927
            
            
            69,577,210Net
                increase (decrease) in cash and cash equivalents
            
            
            3,667,261
            
            
            28,318,353
            
            
            9,672,253Cash
                and cash equivalents at beginning of period
            
            
            6,004,992
            
            
            6,874,653
            
            
            -Cash
                and cash equivalents at end of period
            
            $
            9,672,253
            
            $
            35,193,006
            
            $
            9,672,253**Supplemental
                Information and non cash transactions**Total
                interest payments included in operations
            
            $
            -
            
            $
            334,251The
                Company paid no income taxes during 2007 and 2006.Noncash
                investing and financing activity: The Company incurred a deemed dividend
                of $11,523,885 (see Note 11)




The
      Accompanying Notes are an Integral Part of the Financial Statements




5




SULPHCO,
      INC.


(A
      Company in the Development Stage)


NOTES
      TO THE INTERIM FINANCIAL STATEMENTS


March
      31,
      2007


(unaudited)







**1.** **Basis
      of Presentation**




The
      accompanying unaudited interim financial statements of Sulphco, Inc., (the
      “Company”) have been prepared by the Company in accordance with generally
      accepted accounting principles for interim financial statements in the United
      States of America, pursuant to the Securities and Exchange Commission rules
      and
      regulations. In management’s opinion, all adjustments necessary for a fair
      presentation of the results for the interim periods have been reflected in
      the
      interim financial statements. The results of operations for any interim period
      are not necessarily indicative of the results for a full year. All adjustments
      to the financial statements are of a normal recurring nature.




Certain
      information and footnote disclosures normally included in audited financial
      statements prepared in accordance with generally accepted accounting principles
      for audited financial statements have been condensed or omitted. Such
      disclosures are those that would substantially duplicate information contained
      in the most recent audited financial statements of the Company, such as recent
      accounting pronouncements. Management presumes that users of the interim
      statements have read or have access to the audited financial statements and
      notes thereto included in the Company’s most recent annual report on Form
      10-K.




**Restatement**




On
      August
      7, 2007, the management of the Company in consultation with the Company’s Audit
      Committee, concluded that its previously issued financial statements as of
      and
      for the three-month period ended March 31, 2007, as included in its Quarterly
      Report on Form 10-Q as filed with the Securities and Exchange Commission on
      May
      15, 2007 (the “Q1 2007 Form 10-Q”), should no longer be relied upon as a result
      of the Company's determination that it had incorrectly accounted for the
      non-cash deemed dividend resulting from the inducements provided to the 2004
      Warrant Holders and the 2006 Warrant Holders in March 2007. The misstatement
      had
      the effect of understating the Company's Net Loss Attributable to Common
      Stockholders by approximately $11.4 million or $0.16 per share. After giving
      effect to the full amount of the non-cash deemed dividend (approximately $11.5
      million), the Company’s Net Loss Attributable to Common Stockholders is
      approximately $14.5 million versus approximately $3.0 million as originally
      reported. On a per share basis, the Company’s Net Loss Attributable to Common
      Stockholders is $0.20 per share versus $0.04 per share as originally reported.
      See Note 11 for additional discussion.




**Going
      Concern**




The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the settlement of liabilities
      and commitments in the normal course of business.  As reflected in the
      accompanying financial statements, as of March 31, 2007, the Company has cash
      on
      hand of approximately $9.67 million, working capital of approximately $1.2
      million, a current quarterly net loss to common shareholders of approximately
      $3
      million and an accumulated deficit of approximately $73.8 million.  These
      factors raise substantial doubt about its ability to continue as a going
      concern.  The ability of the Company to continue as a going concern is
      dependent on the Company’s ability to raise additional funds and implement its
      business plan.




In
      April
      2007, the Company entered into an amendment to a promissory note (see Notes
      9
& 16), which allows for the note to be converted into common stock as well
      as extending the maturity date from December 31, 2007 to December 31, 2008,
      which will improve the liquidity position of the Company for the remainder
      of
      2007.




6




**Reclassification**




For
      comparative purposes, certain amounts previously included in selling, general
      and administrative expenses have been restated as research and development
      expenses for prior periods from the beginning of 2006.




The
      following summarizes the reclassifications made:





Quarter
                ended
            
            March,
                2006Sales,
                general, & administrative expenses
            
            (restated)Original
                filing
            
            $
            3,770,144Depreciation
                & amortization
              (separately stated in original filing)
            
            
            -Reclassifications
            
            
            (294,658
            )Reclassified
            
            $
            3,475,486Research
                & developmentOriginal
                filing
            
            $
            219,771Reclassifications
            
            
            294,658Reclassified
            
            $
            514,429





**2.** **Loans
      Receivable and Accrued Interest**





On
      February 16, 2006 the Company committed to a loan agreement with SulphCo KorAsia
      (formerly known as OIL-SC, Ltd.) of South Korea. The agreement called for
      advances of $50,000 per month through May 15, 2006. A total of $150,000 was
      advanced through May, 2006. An additional $50,000 was advanced June 6, 2006
      under the same terms as the original note and in November 2006, an additional
      $75,000 was advanced, with a revision to the loan agreement that the full
      $275,000 in advances and related interest would be immediately repaid from
      revenues or from proceeds of any equity financings. Interest accrues at prime
      rate plus 1% per annum. Interest accrued since February 16, 2006 totals $20,186.
      The Company also holds a refundable deposit of SulphCo KorAsia, which could
      be
      used to offset the loan receivable, should it be determined that SulphCo KorAsia
      could not repay the loan and accrued interest.(see Note 8).





In
      July
      2006 the Company advanced $191,352 (690,000 Dirhams) to Fujairah Oil Technology,
      LLC (the “LLC”) to more easily pay for Company expenditures in Fujairah. See
      Note 6. Funds totaling 338,674 Dirhams have been expended by the LLC on behalf
      of the Company. The net amount of 351,326 Dirhams, or approximately $95,627,
      is
      reflected as a related party loan receivable. As the LLC holds this amount
      in
      cash on behalf of the Company, no allowance has been taken for
      collectibility.





**3.** **Current
      Assets Held For Sale**





In
      the
      first quarter of 2007, the Company concluded that its probe manufacturing
      operations would be conducted by outside vendors and that all probe
      manufacturing at its Sparks, Nevada location would be discontinued. The assets
      associated with these discontinued operations will be sold beginning in the
      second quarter of 2007.




7




The
      following is a summary of those assets held for sale - at cost, less accumulated
      depreciation:





**March
                31, 2007**
            
            **December
                31, 2006**Equipment
                in Nevada
            
            $
            58,064
            
            $
            58,064Computers
            
            
            33,285
            
            
            33,285Office
                furniture
            
            
            0
            
            
            0Leasehold
                improvements
            
            
            0
            
            
            091,349
            
            
            91,349Less:
                Accumulated depreciation
            
            
            (86,303
            )
            
            (85,276
            )Total
            
            $
            5,046
            
            $
            6,073





Depreciation
      expense was $1,027 and $3,963 for the three months ended March 31, 2007 and
      for
      the three months ended March 31, 2006, respectively.





**4.** **Prepaid
      Expenses**





Prepaid
      expenses and other includes $80,852 in prepaid insurance, which is amortized
      over the duration of the policies. The insurance policies expire in 2007. Also
      included in prepaid expenses is a legal retainer in the amount of $58,000 and
      a
      prepayment of $18,500 for the services of a consultant.





**5.** **Property
      and Equipment**





The
      following is a summary of property, plant, and equipment - at cost, less
      accumulated depreciation:





**March
                31, 2007**
            
            **December
                31, 2006**Equipment
                in Nevada
            
            $
            714,321
            
            $
            714,321Computers
            
            
            169,285
            
            
            166,297Office
                furniture
            
            
            57,116
            
            
            57,116Leasehold
                improvements
            
            
            90,941
            
            
            90,9411,031,663
            
            
            1,028,675Less:
                Accumulated depreciation
            
            
            (860,686
            )
            
            (827,791
            )Total
            
            $
            170,977
            
            $
            200,884





Depreciation
      expense was $32,895 and $53,683 for the three months ended March 31, 2007 and
      for the three months ended March 31, 2006, respectively.




The
      following is a summary of intangible assets—at cost, less accumulated
      amortization.




**March
                31, 2007**
            
            **December
                31, 2007**Patents
                and trademarks
            
            $
            609,404
            
            $
            552,908Less:
                Accumulated amortization
            
            
            (53,284
            )
            
            (44,692
            )Total
            
            $
            556,120
            
            $
            508,216




8




**6.** **Investment
      in Joint Venture**





In
      November 2005, the Company and Trans Gulf Petroleum Co., a Government of
      Fujairah company, formed Fujairah Oil Technology LLC (the “LLC”), a United Arab
      Emirates limited liability company, to implement the Company’s SonocrackingTM
desulfurization technology. The LLC is 50% owned by Trans Gulf Petroleum and
      50%
      owned by SulphCo, Inc. Fujairah is one of the seven Emirates of the United
      Arab
      Emirates.




The
      formation agreement called for each shareholder to contribute 500,000 Dirhams
      for a 50% ownership in the LLC. On December 14, 2005, the Company wired to
      the
      LLC its 500,000 Dirhams, which equaled $139,550. The 50% contribution by Trans
      Gulf Petroleum was received by the LLC in January, 2006.




The
      LLC’s
      operations began in 2006. In the three months ended March 31, 2007, its
      financial activities consisted primarily of leasing office space, and acquiring
      leasehold improvements and office furniture and equipment. The lease commenced
      March 15, 2006. There was a loss of 103,685 Dirhams of which 50% (US $51,843)
      has been reflected by the Company.




Depreciation
      expense was $32,895 and $53,683 for the three months ended March 31, 2007 and
      for the three months ended March 31, 2006, respectively.




The
      Company entered into an agreement to construct a building for $1.6 million
      for
      the LLC operations. Subsequently the building plans were expanded requiring
      an
      additional $600,000 for construction. The Company has paid $1.9 million to
      the
      construction company. Although it is anticipated that the cost of the building
      will be borne by the LLC, there is no agreement currently in place.




As
      of
      March 31, 2007 and for the three months then ended, the LLC had the following
      condensed balance sheet and operating statement converted to US
      dollars:





Condensed
                Balance Sheet, March 31, 2007:Current
                assets
            
            $
            217,217Depreciable
                assets (net)
            
            
            90,622Other
                assets
            
            
            1,633Total
                assets
            
            $
            309,472Current
                liabilities
            
            $
            34,372Due
                to SulpCo
            
            
            95,648Members’
                equity
            
            
            179,452Total
                liabilities and members’ equity
            
            $
            309,472Operating
                Statement, Three Months Ended March 31, 2007:Revenue
            
            $
            -0-Operating
                expenses
            
            
            (61,159
            )Non-operating
                expense
            
            
            (3,397
            )Net
                loss
            
            $
            (64,556
            )




The
      Company’s 50% share of distributions made by the joint venture will also be
      subject to other costs and expenses incurred directly by the Company from time
      to time, including commissions payable directly by the Company to third parties,
      presently estimated at up to 10% of the Company’s net joint venture profits. The
      Company is uncertain that it will be able to recover its investment in the
      LLC.
      Accordingly, the carrying value of the investment has been reduced to
      $0.




9




**7.** **Deposits**





The
      Company had a deposit of $36,822, as of March 31, 2007, on the lease of
      facilities in Nevada. The Company also had a deposit of $27,500 for services
      related to the construction of the Fujairah test facility.





**8.** **Refundable
      Deposit**





In
      2005,
      we received $550,000 from SulphCo KorAsia (formerly known as OIL-SC, Ltd.),
      pursuant to our Equipment Sale and Marketing Agreement. As this amount is fully
      refundable if the pilot plant does not meet the agreed specifications, no
      portion of the purchase price has been or will be recorded as revenue in our
      financial statements until the pilot plant meets all agreed specifications.
      We
      do not have an equity interest in SulphCo KorAsia.





**9.** **Note
      Payable**





The
      Company’s note payable as of March 31, 2007 is as follows:





On
      December 31, 2004, under the Board’s approval, the Company borrowed $7,000,000
      in the form of a long-term note from the then Chairman and CEO. Interest on
      the
      note is adjusted quarterly based on a London Inter-Bank Offering Rate (“LIBOR”)
      plus 0.5% per annum, with payments due on December 31 of 2005, and 2006, and
      the
      remaining accrued interest and principal due on December 31, 2007 when the
      note
      matures. On May 15, 2006, under Board approval, the Company paid $2,000,000
      in
      principal on the note. Interest related to this note of $72,820 has been accrued
      as of March 31, 2007 at the adjusted rate for the quarter of
      5.82563%.





The
      annual payment obligations related to this note based on the current 2007
      interest rates, assuming no early retirements of principal, are as
      follows:





Principal
            
            Interest
            
            Total2007:Principal
                due
            
            $
            5,000,000
            
            
            
            
            $
            5,000,000Interest
                due
            
            
            -
            
            $
            291,282
            
            
            291,282Totals
            
            $
            5,000,000
            
            $
            291,282
            
            $
            5,291,282Thereafter
            
            
            None
            
            
            None
            
            
            NoneTotals
            
            $
            5,000,000
            
            $
            291,282
            
            $
            5,291,282





On
      April
      27, 2007, this promissory note was assigned to various investors (the
“Investors”). The assigned notes were amended by an amendment to the note, which
      extended the maturity date from December 31, 2007 to December 31, 2008.
      Additionally, the notes may be converted into shares of common stock at a
      conversion price of $3.80 per share. (see Note 16)





10





**10.** **Capital
      Stock**





Other
      than the compensation transactions disclosed in Note 13 and the related party
      transactions disclosed in Note 15, the Company had the following transactions
      related to its common stock during the three months ended March 31,
      2007:




On
      March
      12, the Company raised $7,899,689.00 through an exercise of outstanding
      warrants. All but 25,412 of the warrants issued pursuant to the Securities
      Purchase Agreements, dated as of June 1, 2004 and June 14, 2004, were exercised
      at their stated exercise prices of $1.125 and $1.5625, respectively. 2,000,000
      warrants issued pursuant to the Securities Purchase Agreement, dated as of
      March
      29, 2006 (the “2006 Warrants”), were exercised at $2.68, which was a reduction
      from the original exercise price of $6.805 resulting in a deemed dividend (See
      Note 11). The warrant holders received 2,000,000 additional warrants (the
“Additional Warrants”) to replace all of the warrants that were exercised on a
      one to one basis. Each Additional Warrant expires on March 12, 2010 and entitles
      the holder to purchase one share of common stock at $2.68.





**11.** **Deemed
      Dividend**





On
      March
      12, 2007, the Company executed Amendment No. 1 to Securities Purchase Agreements
      and Warrants (the “Agreement”) with the Warrant Holders that provided
      inducements to compel the Warrant Holders to exercise their respective warrants.
      As consideration for Warrant Holders exercising their shares, the Company agreed
      that it would:





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





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





As
      a
      result of the inducements included in the Agreement described above, during
      the
      quarter ended March 31, 2007, 1,952,068 warrants held by the 2004 Warrant
      Holders and 2,000,000 warrants held by the 2006 Warrant Holders were exercised
      resulting in the grant of 3,952,068 Additional Warrants. As a result of the
      inducements, the Company recorded a non-cash deemed dividend equal to
      $11,523,885. The amount of the deemed dividend was estimated to be equal to
      the
      sum of the fair value of the inducements as the sum of (1) the incremental
      fair
      value conveyed to the 2006 Warrant Holders via the reduction of the exercise
      price of the 2006 Warrants determined as provided in paragraph 51 of SFAS 123R
      utilizing the Black-Scholes Valuation Model and (2) the fair value of the
      3,952,068 Additional Warrants estimated using the Black-Scholes Valuation
      Model.





**12.** **Loss
      Per Share**





The
      computations of basic and diluted loss per common share are based upon the
      weighted average number of common shares outstanding and potentially dilutive
      securities. Potentially dilutive securities include stock options and unvested
      shares of restricted stock. Options to purchase 4,654,912 and 4,964,912 shares
      of common stock were not included in the March 31, 2007 and 2006 computations
      of
      diluted net loss per share, respectively, because inclusion of such shares
      would
      have an anti-dilutive effect on net loss per share.





**13.** **Stock
      Plans and Share-Based Compensation**





The
      Company records compensation in the form of grants of common stock and options
      for common stock at fair value in accordance with the Statement of Financial
      Accounting Standards No. 123 R.




11




Effective
      January 1, 2006 in consideration of Michael Applegate’s agreement to join the
      Company as Chief Operating Officer, he was granted 50,000 restricted shares
      of
      the Company’s common stock valued at $636,000 or $12.72 per share, the closing
      value on January 3, 2006, the first trading day after the effective date of
      the
      contract. This grant vested at the end of the 90 day period beginning January
      1,
      2006 and was thus an expense for the first quarter of 2006.




In
      February 2006, the Company granted to Michael Heffner 50,000 restricted shares
      of common stock valued at $8.80 per share, the closing price on February 6,
      2006, the effective date of his appointment to the Board of Directors, for
      services valued at $440,000.




Effective
      February 1, 2006, the Company entered into a consulting agreement with Thomas
      J.
      Nardi to provide engineering-construction consulting services on a
      month-to-month basis.  The consulting agreement provides that for each
      month the consulting agreement is in effect, Mr. Nardi will receive options
      to
      purchase 1,000 shares of our common stock, exercisable within one year, at
      an
      exercise price of $7.00 per share. During the quarter ended March 31, 2006,
      Mr.
      Nardi earned options to purchase 2,000 shares at $7.00 per share under this
      agreement. The fair value of these options totaled $8,050 based on the
      Black-Scholes valuation model using the assumptions described below. This
      consulting agreement ended in March 2006.




On
      March
      29, 2006 the Company entered into a contract with Mustang International, L.P.
      (“Mustang”) for program management, engineering, procurement, construction
      management, and other services to be performed. Initially it oversees
      engineering and construction for the project in Fujairah, United Arab Emirates.
      Mustang’s fee for these services includes stock grants and options as follows:
      (i) 17,500 of the Company’s shares of common stock, with a provision for
      reimbursement to the Company by Mustang of the value of the grant if the
      contract is terminated by Mustang, and (ii) options to acquire 52,500 shares
      of
      the Company’s common stock at $6.00 per share, exercisable by April 1, 2010. The
      value of these services is included in research and development expense as
      it
      relates to plant and equipment construction-in-progress which has been restated.
      The 17,500 shares are valued at the $7.44 closing price on March 29, 2006,
      or
      $130,200. The options were valued at $357,525 based on the Black-Scholes
      valuation model using the assumptions described below.




On
      January 12, 2007, the Company granted to Larry Ryan, CEO, options to purchase
      150,000 restricted shares of common stock valued at $3.54 per share, the closing
      price that day, the effective date of the grant. The 150,000 options are
      comprised of three groups of options of 50,000 units, each vesting on January
      12
      over three consecutive years, 2008, 2009, and 2010 and are issued under the
      stock option plan approved by the shareholders in June 2006. The option expense
      for the first quarter of 2007 was valued at $47,520 based on the Black-Scholes
      valuation model using the assumptions described below.




On
      March
      9, 2007, the Company granted to Brian Savino, President, options to purchase
      200,000 restricted shares of common stock valued at $2.66 per share, the closing
      price that day, the effective date of the grant. The 200,000 options are
      comprised of three groups of options (66,666, 66,667 and 66,667 units), each
      vesting on March 9 over three consecutive years, 2008, 2009, and 2010 and are
      issued under the stock option plan approved by the shareholders in June 2006.
      The option expense for the first quarter of 2007 was $13,240 based on the
      Black-Scholes valuation model using the assumptions described
      below.




The
      tables below describe the assumptions used in the Black-Scholes calculations
      for
      valuing options. In every case expected volatility is based upon calculated
      historical volatility of Company stock over the same term or expected term
      used
      to calculate the option value.




For
      Larry
      Ryan’s options:


Dates
                of options
            1/12/07
            1/12/07
            1/12/07Vesting
                Date
            1/12/08
            1/12/09
            1/12/10Term
            10
                years
            10
                years
            10
                yearsExpected
                volatility
            117%
            138%
            150%Expected
                dividends
            None
            None
            NoneRisk-free
                interest rate
            4.8%
            4.8%
            4.8%Discount
                for post-vesting restrictions
            None
            None
            None




12




For
      Brian
      Savino’s options:


Dates
                of options
            3/9/07
            3/9/07
            3/9/07Vesting
                Date
            3/9/08
            3/9/09
            3/9/10Term
            10
                years
            10
                years
            10
                yearsExpected
                volatility
            114%
            138%
            146%Expected
                dividends
            None
            None
            NoneRisk-free
                interest rate
            4.6%
            4.6%
            4.6%Discount
                for post-vesting restrictions
            None
            None
            None




The
      timing and amount of revenues generated by the Company is subject to various
      risks and uncertainties. For further information regarding risks and
      uncertainties, please refer to the other information in this Report together
      with previous reports on Form 10-K for the year ended December 31, 2006, and
      amended Form 10-Q/A for the quarter ended March 31, 2006.




**14.Commitments
          and
          Contingencies**


Financial
      instruments, which potentially subject the Company to concentrations of credit
      risk, consist mainly of cash equivalents. The Company maintains amounts in
      three
      U.S. accounts, two checking accounts and a money market account on deposit
      with
      two financial institutions, which exceed federally insured limits by
      approximately $9.37 million at March 31, 2007. The Company has not experienced
      any significant losses in such accounts, nor does management believe it is
      exposed to any significant credit risk.




At
      March
      31, 2007, the Company has a $550,000 refundable deposit in connection with
      an
      agreement with KorAsia (formerly OIL-SC) for a pilot plant in South Korea.
      Until
      KorAsia accepts in writing the results of the pilot plant, the $550,000 is
      refundable at their option. KorAsia has agreed to pay the remaining payment
      of
      $450,000 within seven days after the first commercial license agreement for
      the
      SonocrackingTM technology between the Company and a Korean refining company,
      provided that KorAsia uses the funds for continued marketing activities
      regarding the Sonocracking technology in Korea.




On
      January 31, 2007, the Company entered into an agreement to extend the lease
      of
      the facility in Sparks, Nevada. The lease, which was set to expire on February
      28, 2007, was extended through May 31, 2007 at $42,608 per month to allow the
      Company and its new management to explore its options of remaining at the
      facility or moving its offices to a new location.




There
      are
      various claims and lawsuits pending against the Company arising in the normal
      course of the Company’s business. Although the amount of liability at March 31,
      2007 cannot be ascertained, management is of the opinion that these claims
      and
      lawsuits will not materially affect the Company’s financial position. We have
      and will continue to devote significant resources to our defense, as necessary.
      The following paragraphs set forth the current status of
      litigation.




In *Clean
      Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc. and SulphCo,
      Inc.* ,
      the
      Company, Rudolf Gunnerman, Peter Gunnerman, and RWG, Inc., were named as
      defendants in a legal action commenced in Reno, Nevada. The Plaintiff alleged
      claims relating to “sulfur removal technology” originally developed by Professor
      Teh Fu Yen and Dr. Gunnerman with financial assistance provided by Dr.
      Gunnerman, and subsequently assigned to the Company. On December 18, 2006,
      following a trial, the jury found in the Company’s favor on both claims asserted
      against the Company by the Plaintiff. The Plaintiff has since requested
      equitable relief, including the imposition of a constructive trust, from the
      Judge who presided over the trial. On May 3, 2007, the Court denied Plaintiff’s
      request for equitable relief And constructive trust.




13




In *The
      Matter of the Arbitration between Stan L. McLelland v. SulphCo,
      Inc.* ,
      Mr.
      McLelland, who was the Company's president from August 13, 2001, until he
      resigned on September 12, 2001, is seeking to exercise options to purchase
      two
      million (2,000,000) shares of the Company’s common stock at 50 cents per share.
      It is the Company’s position that those options had not vested prior to Mr.
      McLelland's resignation. Mr. McLelland also seeks salary for the six months
      following his resignation and $20,000 of alleged unpaid commuting expenses,
      as
      well as attorneys' fees and costs. Discovery is closed, and the arbitrator
      recently denied the parties’ cross-motions for summary judgment on the options
      issue. The arbitration hearing is set to take place on June 12,
      2007.




On
      October 20, 2006, Mark Neuhaus filed a lawsuit against the Company and Rudolf
      W.
      Gunnerman, *Mark
      Neuhaus v. SulphCo, Inc., Rudolph W. Gunnerman* ,
      in the
      Second Judicial District Court, in and for the County of Washoe, Case No. CV06
      02502, Dept. No. 1. The lawsuit is based on a purported Non-Qualified Stock
      Option Agreement and related Consulting Agreement between Mark Neuhaus and
      the
      Company dated March of 2002. Mark Neuhaus claims that according to the terms
      of
      the Non-Qualified Stock Option Agreement, he was granted an option to purchase
      three million (3,000,000) shares of the Company’s common stock at the exercise
      price per share of $0.01. On or about February of 2006, Mark Neuhaus attempted
      to exercise the option allegedly provided to him under the Non-Qualified Stock
      Option Agreement. At that time, the Company rejected Mr. Neuhaus’s attempt to
      exercise the option. Thereafter, Mr. Neuhaus filed this lawsuit seeking to
      enforce the Non-qualified Stock Option Agreement. In his suit, Mr. Neuhaus
      includes claims for specific performance, breach of contract, contractual breach
      of the covenant of good faith and fair dealing, and tortious breach of the
      covenant of good faith and fair dealing. He requests the Court to compel the
      Company to issue the shares or alternatively to award him damages equal to
      the
      fair market value of the three million (3,000,000) shares of stock when he
      purported to exercise the options, minus the exercise price. On December 7,
      2006, the Company moved to dismiss the lawsuit. On January 4, 2007, the Court
      issued an Order denying the motion on the ground that there were factual issues
      to be resolved which prevented dismissal at that time. The Company filed an
      Answer to the Complaint, as well as a counterclaim against Mr. Neuhaus and
      a
      cross claim against Rudolf Gunnerman on March 29, 2007. Mr. Neuhaus filed a
      motion to dismiss the counterclaim on April 11, 2007. We opposed the motion
      on
      April 27, 2007. Briefing has not yet been completed. Trial in this matter is
      scheduled for September 24, 2007.




On
      January 26, 2007, Thomas Hendrickson filed a shareholder derivative claim
      against certain current and former officers and directors or the Company in
      the
      Second Judicial District Court of the State of Nevada, in and for the County
      of
      Washoe. The case is known as *Thomas
      Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf W. Gunnerman,
      Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert Henri Charles
      Van
      Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E. Urquhart, Lawrence
      G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
      Henkel* ,
      Case
      No. CV07 00137, Dept. No. B6. The complaint alleges, among other things, that
      the defendants breached their fiduciary duty to the Company by failing to act
      in
      good faith and diligence in the administration of the affairs of the Company
      and
      in the use and preservation of its property and assets, including the Company’s
      credibility and reputation. The Company and the Board intend to file a Motion
      for Dismissal with the Court, based upon the Plaintiff’s failure to make a
      demand upon the Board.




On
      June
      26, 2006, the Company filed an action, *SulphCo,
      Inc. v. Cullen* ,
      in the
      Second Judicial District Court of the State of Nevada, in and for the County
      of
      Washoe, Case No. CV06-01490, against Mark Cullen arising out of Mr. Cullen’s
      alleged breach of a secrecy agreement that he had executed when employed by
      GRD,
      Inc., whose claims have accrued to the Company. The lawsuit seeks damages,
      a
      constructive trust, and an order requiring Mr. Cullen to assign to the Company
      certain intellectual property in the form of patent applications (as well as
      a
      now-issued patent) that he filed following his departure from the Company.
      On
      October 23, 2006, Mr. Cullen moved to dismiss the Company’s complaint; the
      motion was denied. On February 26, 2007, Mr. Cullen filed an amended answer
      to
      the Company’s complaint. That Answer included counterclaims for breach of
      contract, unfair competition, interference with contractual relations, and
      interference with prospective economic advantage. The case was dismissed without
      prejudice on April 25, 2007, but the Company retains the ability to revive
      its
      claims at a later date.




14


**15.** **Subsequent
      Events**





On
      April
      15, 2007, the Company entered into a lease agreement with Michael Heffner,
      a
      director of the Company. Under the lease agreement, the Company leases a
      furnished apartment for officer’s use in Reno, Nevada for $1,500 per month and
      can be cancelled at any time by either party.




On
      April
      4, 2007, the board of directors approved stock options for members of the board,
      and for the CEO and Interim CFO of the Company under the 2006 Stock Option
      Plan
      approved by shareholders at the 2006 shareholder meeting (See Note 13). The
      options, totaling 360,000 shares, are exercisable after April 4, 2008 at $3.86
      per share, the closing price of the Company’s stock the day the options were
      granted, and have an expiration date of April 4, 2017.




On
      April
      27, 2007, the Company entered into an amendment to a promissory note (see Note
      9) with various investors (the “Investors”). The Investors purchased the
      promissory notes pursuant to an assignment of the note, which was originally
      issued to Rudolf Gunnerman, the former CEO of the Company in the principal
      amount of $7,000,000 and paid down $2,000,000 by the Company in 2006. The
      assigned notes were amended by the amendment by extending the maturity date
      from
      December 31, 2007 to December 31, 2008. Additionally, the notes may be converted
      into shares of common stock at a conversion price of $3.80 per
      share.





**16.** **Recent
      Accounting Pronouncements**





The
      Fair
      Value Option for Financial Assets and Financial Liabilities—Including an
      amendment of FASB Statement No. 159





This
      Statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. The objective is to improve financial
      reporting by providing entities with the opportunity to mitigate volatility
      in
      reported earnings caused by measuring related assets and liabilities differently
      without having to apply complex hedge accounting provisions. The company intends
      to measure financial instruments using this fair value method.





On
      January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting
      for
      Uncertainty in Income Taxes (FIN 48). Implementation of FIN 48 did not result
      in
      a cumulative effect adjustment to retained earnings. At January 1, 2007, the
      Company did not have unrecognized tax liabilities. During the quarter, no impact
      income tax expense was recorded as a result of FIN 48
      implementation.




15


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





**Results
      of Operations**





As
      a
      development stage company, we have not generated any material revenues since
      we
      commenced our current line of business in 1999. When we emerge from the
      development stage, our reporting will change to reflect costs of sales against
      revenues. As revenue increases and prior tax losses are offset, the deferred
      tax
      estimate will require revision.





***Three
      months ended March 31, 2007 compared to the three months ended March 31,
      2006***





**Research
      and Development Expenses**




For
      the
      three months ended March 31, 2007, we incurred expenses of approximately
      $970,000 related to research and development of our Sonocracking technology.
      These compare to approximately $5.6 million for the comparable period in 2006
      as
      reclassified (see note 1 of the financial statements). Approximately $153,000
      was spent on the test facility in Fujairah, UAE. Approximately $200,000 for
      construction of a testing unit to be utilized in Austria was expensed in the
      first quarter of 2007.




For
      the
      three months ended March 31, 2007, approximately $68,000 was paid to our
      engineers and other research and development employees as wages and related
      benefits and for design and testing of our Sonocracker units. For those periods
      approximately $398,000 in expenses, respectively, was incurred for the
      procurement of control panels, probes, centrifuges, and generators related
      to
      the ongoing research and development of our units. The remainder of our research
      and development costs are recurring monthly expenses related to the maintenance
      of our warehouse facilities.




We
      expect
      our research and development expenses to decrease significantly as we
      successfully transition into generating revenue. Thereafter, research and
      development will continue as needed to enhance our technology. During the first
      quarter of 2007, we incurred approximately $153,000 of expenditures relating
      to
      development of the Fujairah facility. We expect to incur approximately an
      additional $1 million in 2007 in connection with the fabrication and
      installation of our Sonocracking equipment and completion of stage one of the
      infrastructure associated with the facility.





**Selling,
      General and Administrative Expenses**




For
      the
      three months ended March 31, 2007, we incurred approximately $1.9 million in
      selling, general and administrative expenses. These compare to approximately
      $3.5 million for the comparable period in 2006.




Legal
      fees were approximately $618,000 for the three months ended March 2007,
      reflecting decreases over comparable periods in 2006 of approximately $1.1
      million. These decreases were primarily due to the resolution of a lawsuit
      against the Company late in 2006. We expect to continue to incur significant
      litigation fees through the end of 2007.




Consulting
      fees, payroll and related expenses were approximately $815,000 for the three
      months ended March 31, 2007, reflecting decreases over the comparable period
      in
      2006 of approximately $1.4 million. In the first quarter of 2006, $636,000
      in
      stock grant expense was incurred. Excluding the stock grants and options, our
      consulting fees, payroll and related expenses increased 29% for the respective
      period.




Travel
      and travel related expenses were approximately $232,000 for the three months
      ended March 31, 2007, reflecting increases over a comparable period in 2006
      of
      approximately $261,000. These decreases were due to the implementation of new
      travel policies for meetings of the Board of Directors, meetings with the
      European manufacturers of our equipment, and meetings with our joint venture
      partner in Fujairah, United Arab Emirates.




16




There
      were no director fees for the three months ended March 31, 2007. In the first
      quarter of 2006, 100,000 shares valued at $1.1 million were granted to Lawrence
      G. Schafran and Edward E. Urquhart as incentive awards for joining the Board
      of
      Directors, and options for 350,000 shares were granted to directors Hannes
      Farnleitner, Robert van Maasdijk, Raad Alkadiri and Christoph Henkel, with
      $66,670 of option expense being allocated to the first quarter of
      2007.




On
      January 31, 2007, the Company entered into an agreement to extend the lease
      of
      the facility in Sparks, Nevada, The lease, which was set to expire on March
      31,
      2007, was extended through May 31, 2007 at $42,608 per month, an increase of
      15%
      over the previous lease amount, as the company evaluates whether to move to
      another facility.




On
      April
      15, 2007, the Company entered into a lease agreement with Michael Heffner,
      a
      director of the Company. Under the lease agreement, the Company leased a
      furnished apartment in Reno, Nevada for $1,500 per month, beginning April 15,
      and can be cancelled at any time by either party.




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




**Interest
      Expense**




Interest
      expense was approximately $113,000 for the three months ended March 31, 2007.
      This reflects a decrease of approximately $12,000 or 10% for the comparable
      three month period. The decrease for the three month periods is primarily a
      result of the payments of debt principal to Dr. Rudolf Gunnerman in the second
      quarter of 2006. This included paying off a $500,000 note bearing interest
      of 8%
      and paying $2,000,000 against the $7,000,000 note which has a variable interest
      rate (5.82563% during the first quarter of 2007).




**Late
      Registration**




In
      accordance with the terms of our 2004 private placement, we accrued late fees
      of
      approximately $760,000, during the first two quarters of 2005, due to a delay
      in
      the effective date of our registration statement filed with the SEC. Our
      registration statement was declared effective by the SEC in June 2005.
      Accordingly, we have not accrued any additional late registration fees in 2007
      other than interest of approximately $34,000, which accrues on the unpaid amount
      at the rate of 18% per annum. However, as of the date of this report no formal
      demands have been made by investors to pay these fees.




**Depreciation
      and Amortization**




For
      the
      three months ended March 31, 2007, we expended approximately $61,000 for
      equipment and to maintain exclusivity for the sale and/or licensing of our
      Sonocracking technology in the United States and abroad. Our depreciation and
      amortization expense related to these additions, and to our previously
      capitalized equipment and rights, for the three months ended March 31, 2007
      were
      approximately $41,000, reflecting a decrease of approximately $12,000, compared
      to the first three months of 2006. We expect to continue our pursuit of
      exclusive distribution and licensing of our technology and purchasing equipment
      for the manufacture and upgrading of our Sonocracking technology.




**Deemed
      Dividend**




On
      March
      12, 2007, the Company executed Amendment No. 1 to Securities Purchase Agreements
      and Warrants (the “Agreement”) with the Warrant Holders that provided
      inducements to compel the Warrant Holders to exercise their respective warrants.
      As consideration for Warrant Holders exercising their shares, the Company agreed
      that it would:




17




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





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





As
      a
      result of the inducements included in the Agreement described above, during
      the
      quarter ended March 31, 2007, 1,952,068 warrants held by the 2004 Warrant
      Holders and 2,000,000 warrants held by the 2006 Warrant Holders were exercised
      resulting in the grant of 3,952,068 Additional Warrants. As a result of the
      inducements, the Company recorded a non-cash deemed dividend equal to
      $11,523,885.




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




We
      incurred a net loss of approximately $3 million for the three month period
      ending March 31, 2007, compared to approximately $9.2 million for the comparable
      period in 2006. This decrease in net loss in the 2007 periods primarily reflect
      the construction and purchase of a test facility in Fujairah, UAE, which had
      been expensed as research and development in 2006, as indicated above under
      the
      heading Research and Development Expenses.




We
      incurred a net loss attributable to common stockholders of approximately $14.5
      million for the three-month period ended March 31, 2007. This compares to a
      net
      loss attributable to common stockholders of approximately $9.2 million for
      the
      comparable period in 2006. The difference is solely attributable to the deemed
      dividend of approximately $11.5 million for the three-month period ended March
      31, 2007.




**Liquidity
      and Capital Resources**





***Fujairah
      Oil Technology, LLC Project***





In
      December 2005, we formed Fujairah Oil Technology, LLC, a 50/50 joint venture
      with the Government of Fujairah, one of the United Arab Emirates. Under the
      terms of the joint venture, SulphCo is responsible for contributing its
      Sonocracking unit and the facility that houses it. Operation and maintenance
      of
      the Fujairah test facility is the responsibility of the joint venture. Until
      Fujairah Oil Technology, LLC generates revenues, operating expenses of the
      Fujairah Sonocracking facility are expected to be funded from capital
      contributions of the Company. We do not expect to have material operating
      expense until commercial operations commence.




We
      continued construction of a 180,000 bbl/day SonocrackingTM plant in Fujairah, UAE
      throughout 2006. Over the course of the year, a land lease was procured for
      the
      production site, and over $20 million was invested in a test facility. Although
      progress in 2006 was hampered with delays due to poor execution by our
      construction contractor, several steps have been taken to remediate those
      issues, and we expect to commission the first Sonocracking TM unit in the first
      half of 2007.





***Liquidity***





Working
      capital at March 31, 2007, was approximately $1.2 million. Current assets of
      approximately $10.3 million as of such date, consisted primarily of cash and
      cash equivalents of approximately $9.7 million. Current liabilities of
      approximately $9 million as of such date consisted primarily of accounts payable
      and accrued liabilities of approximately $2.5 million and accrued fees and
      interest of $1 million. Accounts payable and accrued liabilities include legal
      fees related to pending litigation of approximately $1 million and equipment
      construction and installation costs of approximately $350,000. Accrued fees
      and
      interest include approximately $1 million in late fees and interest relating
      to
      delays in the effective date of an SEC registration statement in 2004 and 2005
      relating to our 2004 private placement. However, no formal demands have been
      made by investors to pay these late fees.




18




We
      anticipate that our existing capital resources will be sufficient to fund our
      cash requirements through December, 2007 from cash presently on hand, based
      upon
      our expected levels of expenditures and anticipated needs during this period.
      Our future capital requirements will depend primarily upon debt and equity
      financings, third party lease financing of Sonocracking equipment and
      components, and proceeds from future exercises of outstanding warrants and
      options. Presently, we have no binding commitments for additional financings.
      To
      date, we have generated no material revenues from our business operations.
      We
      are unable to predict when or if we will be able to generate future revenues
      from commercial activities or the amounts expected from such
      activities.




In
      order
      to increase working capital of the Company, we entered into an amendment to
      the
      promissory note held by Rudolf Gunnerman, which was assigned to various
      investors (the “Investors”). Amending the terms of the note to extend the
      maturity date of the note from December 31, 2007 to December 31, 2008 and
      allowing for the debt to be converted into common stock will improve the working
      capital position of the Company through December 2007.





***Recent
      Financing Activities***





On
      March
      12, 2007, the Company raised $7,899,689.00 through an exercise of outstanding
      warrants. All but 25,412 of the warrants issued pursuant to the Securities
      Purchase Agreements, dated as of June 1, 2004 and June 14, 2004 were exercised
      at their stated exercise prices of $1.125 and $1.5625, respectively. Half of
      the
      warrants issued pursuant to the Securities Purchase Agreement, dated as of
      March
      29, 2006 (the “2006 Warrants”) were exercised at $2.68 (which was a reduction
      from the original exercise price of $6.805). The warrant holders received
      additional warrants (the “Additional Warrants”) to replace all of the warrants
      that were exercised on a one to one basis. Each Additional Warrant expires
      three
      years from the date of issuance and entitles the holder to purchase one share
      of
      common stock at $2.68. The holders of the remaining 2,000,000 2006 Warrants
      have
      the right exercise their warrants at the reduced exercise price of $2.68 and
      receive an Additional Warrant upon exercise. This right expires in 90 calendar
      days after the registration statement covering the Additional Warrants is
      declared effective by the SEC.




On
      March
      29, 2006, we completed a private placement to a small number of accredited
      investors for the sale of 4,000,000 units, each unit consisting of one share
      of
      the Company’s common stock and one warrant to purchase a share of common stock.
      Each unit was sold at a price of $6.805 per share, resulting in gross proceeds
      at closing of $27.2 million. The warrants were exercisable, in whole or in
      part,
      at a fixed price equal to $6.805 per share, for a period of 18 months following
      their issuance. The terms of these warrants were amended, as described in the
      preceding paragraph. On June 23, 2006 the a registration statement for the
      resale of the common stock acquired by these investors was declared effective
      by
      the SEC.




In
      2004,
      we conducted two private placements with institutional and other third party
      investors for the sale of units consisting of our common stock, warrants, and
      rights to acquire additional stock and warrants, generating net cash proceeds
      of
      approximately $4.6 million. An additional amount of approximately $3.8 million
      was generated in 2005, approximately $7.8 million was generated in the first
      quarter of 2006 from the exercise of outstanding rights and
      warrants.




In
      December 2004, Dr. Gunnerman advanced $7 million to us as a loan. The loan
      is
      evidenced by a promissory note which bears interest at the rate of 0.5% above
      the 30 day “LIBOR” rate, adjusted quarterly and payable annually, and the entire
      principal amount is due and payable in December 2007. In April, 2006 we repaid
      $2 million of loan principal. This loan was assigned by Dr. Gunnerman to certain
      purchasers as of April 24, 2007, and the maturity date was extended to December
      31, 2008.




19


**Contractual
      Obligations as of December 31, 2006**





Payments
                due by periodTotal
            
            Less
                than 1 year
            
            1
                -
                3 years
            
            3
                -
                5 years
            
            More
                than
              5
                yearsRelated
                party loan *
            
            $
            5,000,000
            
            $
            5,000,000
            
            
            -
            
            
            -
            
            
            -Operating
                lease obligations
            
            
            74,393
            
            
            74,393
            
            
            -
            
            
            -
            
            
            -Purchase
                obligations
            
            
            1,405,408
            
            
            1,405,408
            
            
            -
            
            
            -
            
            
            -Total
            
            
            6,479,801
            
            
            6,479,801
            
            
            -
            
            
            -
            
            
            -





*
      Pursuant to an amendment to promissory note, the maturity date of this loan
      has
      been extended to December 1, 2008, as indicated above under the heading
      Liquidity.





**Forward-Looking
      Statements**





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




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




Forward-looking
      statements are only predictions. Although we believe that the expectations
      reflected in these forward-looking statements are reasonable, we cannot
      guarantee future results, levels of activity, performance or achievements.
      All
      of our forward-looking information is subject to risks and uncertainties that
      could cause actual results to differ materially from the results expected.
      Although it is not possible to identify all factors, these risks and
      uncertainties include the risk factors and the timing of any of those risk
      factors identified in “Part II, Item 1A. Risk Factors” section
      contained herein, as well as the risk factors described in the Company’s Form
      10-Q for the quarter ended March 31, 2007, this report and those set forth
      from time to time in our filings with the Securities and Exchange Commission
      (“SEC”). These documents are available through our web site, http://www.sulphco.com ,
      or
      through the SEC’s Electronic Data Gathering and Analysis Retrieval System
      (“EDGAR”) at http://www.sec.gov .





**Item
      4.Controls and
      Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





We
      strive
      to maintain disclosure controls and procedures designed to ensure that
      information required to be disclosed in reports filed under the Securities
      Exchange Act of 1934, as amended, is recorded, processed, summarized and
      reported within the specified time periods and that such information is
      accumulated and communicated to management to allow timely decisions on required
      disclosure.




20




As
      of
      December 31, 2006 and in subsequent quarters through March 31, 2007 we have
      concluded that our disclosure controls and procedures regarding information
      required to be included in SEC reports were not effective due to material
      weaknesses, and we might find other material weaknesses in the future which
      may
      adversely affect our ability to provide timely and reliable financial
      information and satisfy our reporting obligations under federal securities
      laws.
      As a result of these weaknesses management has concluded that as of December
      31,
      2006, and in subsequent quarters through March 31, 2007, our disclosure controls
      and procedures were not effective as of such dates. In particular, management
      concluded that:





· there
      were deficiencies in the communications between previous management to the
      Board
      of Directors and the Audit Committee;




· we
      did
      not have adequate controls over the accounting, review and processing of
      transactions involving decisions to expense or capitalize certain items
      involving research and development, fixed assets and patent
      maintenance;




· we
      did
      not have adequate transaction controls over the accounting, review and
      processing of liability recognition at the end of accounting
      periods;




· we
      did
      not have adequate controls over the accounting, review and processing of
      transactions involving issuances of stock and options or cash commitments;
      and




· we
      lacked
      personnel with sufficient financial expertise and experience to make appropriate
      judgments resulting in appropriate accounting and financial
      reporting.




The
      Company has attempted to address these issues and continues to address them
      as
      it makes transitions with new management. In the first quarter of 2007, the
      Company hired a new CEO and a new President. And in the second quarter of 2007,
      the Company hired a new CFO. The Company has and is taking steps to remediate
      the material weaknesses in our disclosure controls and procedures, including
      the
      adoption of written policies for the areas found to be deficient. However,
      we
      have not completed our remediation effort and we cannot assure you that we
      will
      completely remediate our material weaknesses. We might find other material
      weaknesses in the future. To the extent that any significant or material
      weaknesses exist in our disclosure controls and procedures, such weaknesses
      may
      adversely affect our ability to provide timely and reliable information
      necessary for the conduct of our business and satisfaction of our reporting
      obligations under federal securities laws, including the preparation of interim
      and annual financial statements in accordance with generally accepted accounting
      principles and SEC rules. As a result, current and potential stockholders could
      lose confidence in our reporting, which could harm our business and the trading
      price of our stock.





**Changes
      in Internal Controls**





During
      the three-month period ended March 31, 2007, no changes occurred in our internal
      control over financial reporting that have materially affected, or are
      reasonably likely to materially affect, such internal control over financial
      reporting.





21


**PART
      II. OTHER INFORMATION**





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





In *Clean
      Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc. and SulphCo,
      Inc.* ,
      the
      Company, Rudolf Gunnerman, Peter Gunnerman, and RWG, Inc., were named as
      defendants in a legal action commenced in Reno, Nevada. The Plaintiff alleged
      claims relating to “sulfur removal technology” originally developed by Professor
      Teh Fu Yen and Dr. Gunnerman with financial assistance provided by Dr.
      Gunnerman, and subsequently assigned to the Company. On December 18, 2006,
      following a trial, the jury found in the Company’s favor on both claims asserted
      against the Company by the Plaintiff. The Plaintiff has since requested
      equitable relief, including the imposition of a constructive trust, from the
      Judge who presided over the trial. On May 3, 2007, the Court denied Plaintiff’s
      request for equitable relief and constructive trust.




In *The
      Matter of the Arbitration between Stan L. McLelland v. SulphCo,
      Inc.* ,
      Mr.
      McLelland, who was the Company's president from August 13, 2001, until he
      resigned on September 12, 2001, is seeking to exercise options to purchase
      two
      million (2,000,000) shares of the Company’s common stock at 50 cents per share.
      It is the Company’s position that those options had not vested prior to Mr.
      McLelland's resignation. Mr. McLelland also seeks salary for the six months
      following his resignation and $20,000 of alleged unpaid commuting expenses,
      as
      well as attorneys' fees and costs. Discovery is closed, and the arbitrator
      recently denied the parties’ cross-motions for summary judgment on the options
      issue. The arbitration hearing is set to take place on June 12,
      2007.




On
      October 20, 2006, Mark Neuhaus filed a lawsuit against the Company and Rudolf
      W.
      Gunnerman, *Mark
      Neuhaus v. SulphCo, Inc., Rudolph W. Gunnerman* ,
      in the
      Second Judicial District Court, in and for the County of Washoe, Case No. CV06
      02502, Dept. No. 1. The lawsuit is based on a purported Non-Qualified Stock
      Option Agreement and related Consulting Agreement between Mark Neuhaus and
      the
      Company dated March of 2002. Mark Neuhaus claims that according to the terms
      of
      the Non-Qualified Stock Option Agreement, he was granted an option to purchase
      three million (3,000,000) shares of the Company’s common stock at the exercise
      price per share of $0.01. On or about February of 2006, Mark Neuhaus attempted
      to exercise the option allegedly provided to him under the Non-Qualified Stock
      Option Agreement. At that time, the Company rejected Mr. Neuhaus’s attempt to
      exercise the option. Thereafter, Mr. Neuhaus filed this lawsuit seeking to
      enforce the Non-qualified Stock Option Agreement. In his suit, Mr. Neuhaus
      includes claims for specific performance, breach of contract, contractual breach
      of the covenant of good faith and fair dealing, and tortious breach of the
      covenant of good faith and fair dealing. He requests the Court to compel the
      Company to issue the shares or alternatively to award him damages equal to
      the
      fair market value of the three million (3,000,000) shares of stock when he
      purported to exercise the options, minus the exercise price. On December 7,
      2006, the Company moved to dismiss the lawsuit. On January 4, 2007, the Court
      issued an Order denying the motion on the ground that there were factual issues
      to be resolved which prevented dismissal at that time. The Company filed an
      Answer to the Complaint, as well as a counterclaim against Mr. Neuhaus and
      a
      cross claim against Rudolf Gunnerman on March 29, 2007. Mr. Neuhaus filed a
      motion to dismiss the counterclaim on April 11, 2007. We opposed the motion
      on
      April 27, 2007. Briefing has not yet been completed. Trial in this matter is
      scheduled for September 24, 2007.




On
      January 26, 2007, Thomas Hendrickson filed a shareholder derivative claim
      against certain current and former officers and directors or the Company in
      the
      Second Judicial District Court of the State of Nevada, in and for the County
      of
      Washoe. The case is known as *Thomas
      Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf W. Gunnerman,
      Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert Henri Charles
      Van
      Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E. Urquhart, Lawrence
      G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
      Henkel* ,
      Case
      No. CV07 00137, Dept. No. B6. The complaint alleges, among other things, that
      the defendants breached their fiduciary duty to the Company by failing to act
      in
      good faith and diligence in the administration of the affairs of the Company
      and
      in the use and preservation of its property and assets, including the Company’s
      credibility and reputation. The Company and the Board filed a Motion for
      Dismissal with the Court, on April 15, 2007, based upon the Plaintiff’s failure
      to make a demand upon the Board.




22




On
      June
      26, 2006, the Company filed an action, *SulphCo,
      Inc. v. Cullen* ,
      in the
      Second Judicial District Court of the State of Nevada, in and for the County
      of
      Washoe, Case No. CV06-01490, against Mark Cullen arising out of Mr. Cullen’s
      alleged breach of a secrecy agreement that he had executed when employed by
      GRD,
      Inc., whose claims have accrued to the Company. The lawsuit seeks damages,
      a
      constructive trust, and an order requiring Mr. Cullen to assign to the Company
      certain intellectual property in the form of patent applications (as well as
      a
      now-issued patent) that he filed following his departure from the Company.
      On
      October 23, 2006, Mr. Cullen moved to dismiss the Company’s complaint; the
      motion was denied. On February 26, 2007, Mr. Cullen filed an amended answer
      to
      the Company’s complaint. That Answer included counterclaims for breach of
      contract, unfair competition, interference with contractual relations, and
      interference with prospective economic advantage. The case was dismissed without
      prejudice on April 25, 2007, but the Company retains the ability to revive
      its
      claims at a later date.





**Item
      1A.Risk
      Factors**





As
      of the
      date of this filing, there have been no material changes from the risk factors
      previously disclosed in our “Risk Factors” in the Form 10-K for the period ended
      December 31, 2006. An investment in our common stock involves various risks.
      When considering an investment in our company, you should consider carefully
      all
      of the risk factors described in our most recent Form 10-K. These risks and
      uncertainties are not the only ones facing us and there may be additional
      matters that we are unaware of or that we currently consider immaterial. All
      of
      these could adversely affect our business, financial condition, results of
      operations and cash flows and, thus, the value of an investment in our company.




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




31.1
            Certifications pursuant to Rule 13a-14 under the
              Securities Exchange Act of 1934. 31.2
            Certifications pursuant to Rule 13a-14 under the
              Securities Exchange Act of 1934. 32.1
            Certification
                of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to §
                906 of the Sarbanes-Oxley Act of
                2002.





23


**SIGNATURES**





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





SULPHCO, INC.(Registrant)Date:
                August 14, 2007
            /s/ 
                Larry
                RyanBy:
                Larry RyanChief Executive Officer/s/ 
                Stanley W.
                FarmerBy:
                Stanley W. FarmerVice President and Chief Financial Officer(Principal Financial and Accounting
                Officer)








24