**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C.  20549





**Form
      10-Q**


______


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





**For
      the quarterly period ended.................................................June
      30, 2007**


OR





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


**SECURITIES
      EXCHANGE ACT OF 1934**





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





**Commission
      file number 001-32636**





**SULPHCO, INC.**


(Exact
      Name of Registrant as Specified in its Charter)





**Nevada**
              (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





**850
                Spice Islands Drive**
              **Sparks,
                NV**
              (Former
                address of principal executive offices)
            
            **89431**
              (Zip
                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 July 31, 2007Common
                  Stock, par value $.001
              77,205,478  shares








**PART
      I.**


**Item
      1.  Financial Statements**





SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      BALANCE SHEETS


June
      30,
      2007 and December 31, 2006


(unaudited)




**ASSETS**
            
            **June
                30,**
              **2007**
            
            
            **December
                31,**
              **2006****Current
                Assets:**Cash
                and cash equivalents
            
            $
            6,730,401
            
            
            $
            6,004,992Loan
                and accrued interest receivable, net (see Note 2)
            
            
            -
            
            
            
            289,099Prepaid
                expenses and other
            
            
            192,627
            
            
            
            248,373Total
                current assets
            
            
            6,923,028
            
            
            
            6,542,464**Property
                and Equipment, net (see Note 3)**
            
            
            253,738
            
            
            
            206,957**Other
                Assets**Intangible
                assets, net (see Note 3)
            
            
            604,564
            
            
            
            508,216Investment
                in Joint Venture (see Note 4)
            
            
            -
            
            
            
            -Deposits
            
            
            87,870
            
            
            
            36,822Total
                other assets
            
            
            692,434
            
            
            
            545,038Total
                assets
            
            $
            7,869,200
            
            
            $
            7,294,459**LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIT)****Current
                Liabilities**Accounts
                payable and accrued expenses
            
            $
            2,769,236
            
            
            $
            3,709,302Refundable
                deposit (see Note 5)
            
            
            550,000
            
            
            
            550,000Late
                registration penalty (including accrued interest) (see Note
                6)
            
            
            1,026,250
            
            
            
            957,828Related
                party note payable (see Note 7)
            
            
            -
            
            
            
            5,000,000Total
                current liabilities
            
            
            4,345,486
            
            
            
            10,217,130Long-term
                note payable (net of discount of $4,992,746) (see Note 7)
            
            
            7,254
            
            
            
            -Total
                liabilities
            
            
            4,352,740
            
            
            
            10,217,130**Commitments
                and Contingencies (see Note 12)****Stockholders'
                Equity (Deficit)**Preferred
                stock: 10,000,000 shares authorized ($0.001 par value) none
                issued
            
            
            -
            
            
            
            -Common
                stock: 100,000,000 shares authorized ($0.001 par value)77,172,978
                and 72,620,906 shares issued and outstanding, respectively
            
            
            77,173
            
            
            
            72,621Additional
                paid-in capital
            
            
            84,509,492
            
            
            
            67,864,452Deficit
                accumulated during the development stage
            
            
            (81,070,205
            )
            
            
            (70,856,288
            )Accumulated
                other comprehensive loss
            
            
            -
            
            
            
            (3,456
            )Total
                stockholders' equity (deficit)
            
            
            3,516,460
            
            
            
            (2,922,671
            )Total
                liabilities and stockholders' equity (deficit)
            
            $
            7,869,200
            
            
            $
            7,294,459




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


2


SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      STATEMENTS OF OPERATIONS


For
      the
      Three and Six-Month Periods ended June 30, 2007 and 2006 and the Period from
      Inception to June 30, 2007


(unaudited)





**Three
                Months Ended**
            
            
            **Six
                Months Ended****June
                30,**
            
            
            **June
                30,**
            
            
            **Inception
                to****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**
            
            
            **June
                30, 2007****Revenue**Sales
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            42,967**Expenses:**Selling,
                general, and
                administrative expenses
            
            
            (5,122,985
            )
            
            
            (4,632,823
            )
            
            
            (7,070,132
            )
            
            
            (8,107,533
            )
            
            
            (47,527,476
            )Research
                and development
                expenses:Fujairah
                test facility
            
            
            (1,139,691
            )
            
            
            (12,234,653
            )
            
            
            (1,296,449
            )
            
            
            (17,352,293
            )
            
            
            (22,769,578
            )Other
            
            
            (824,361
            )
            
            
            (1,651,402
            )
            
            
            (1,647,399
            )
            
            
            (2,265,832
            )
            
            
            (8,785,770
            )Loss
                on investment in joint
                venture
            
            
            -
            
            
            
            (11,944
            )
            
            
            (248
            )
            
            
            (12,720
            )
            
            
            (136,343
            )Loss
                on disposal of
                asset
            
            
            -
            
            
            
            (423
            )
            
            
            -
            
            
            
            (423
            )
            
            
            (221,711
            )Loss
                on impairment of
                asset
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (233,900
            )Total
                operating expenses
            
            
            (7,087,037
            )
            
            
            (18,531,245
            )
            
            
            (10,014,228
            )
            
            
            (27,738,801
            )
            
            
            (79,674,778
            )Loss
                from operations
            
            
            (7,087,037
            )
            
            
            (18,531,245
            )
            
            
            (10,014,228
            )
            
            
            (27,738,801
            )
            
            
            (79,631,811
            )**Other
                income (expense):**Interest
                income
            
            
            80,709
            
            
            
            194,440
            
            
            
            133,468
            
            
            
            247,533
            
            
            
            861,938Other
                income (expense)
            
            
            (30,137
            )
            
            
            (3,456
            )
            
            
            (31,164
            )
            
            
            (3,456
            )
            
            
            (31,164
            )Gain
                on sale of assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,532Interest
                expense
            
            
            (188,711
            )
            
            
            (114,947
            )
            
            
            (301,993
            )
            
            
            (240,146
            )
            
            
            (1,511,460
            )Late
                registration
                fees
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (760,240
            )**Net
                loss**
            
            
            (7,225,176
            )
            
            
            (18,455,208
            )
            
            
            (10,213,917
            )
            
            
            (27,734,870
            )
            
            
            (81,070,205
            )Deemed
                Dividend (see Note 9)
            
            
            (1,657,821
            )
            
            
            -
            
            
            
            (13,181,706
            )
            
            
            -
            
            
            
            (13,181,706
            )**Net
                loss attributable to****common
                stockholders**
            
            $
            (8,882,997
            )
            
            $
            (18,455,208
            )
            
            $
            (23,395,623
            )
            
            $
            (27,734,870
            )
            
            $
            (94,251,911
            )Loss
                per share - basic and diluted
            
            $
            (0.12
            )
            
            $
            (0.25
            )
            
            $
            (0.31
            )
            
            $
            (0.40
            )Weighted
                average shares - basic and diluted
            
            
            76,648,356
            
            
            
            72,520,910
            
            
            
            75,038,780
            
            
            
            68,937,781




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


3


SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      STATEMENTS OF CASH FLOWS


For
      the
      Six-Month Periods Ended June 30, 2007 and 2006 and for the Period from Inception
      to June 30, 2007


(unaudited)


**Six
                Months Ended****June
                30,**
            
            
            **Inception
                to****2007**
            
            
            **2006**
            
            
            **June
                30, 2007****Cash
                Flows From Operating Activities**Net
                loss
            
            $
            (10,213,917
            )
            
            $
            (27,734,870
            )
            
            $
            (81,070,205
            )Adjustments
                to reconcile net loss to cash usedin
                operating activities:Depreciation
                and amortization
            
            
            91,947
            
            
            
            123,039
            
            
            
            1,089,511Allowance
                for loan receivable
            
            
            301,341
            
            
            
            -
            
            
            
            301,341Stock-based
                compensation
            
            
            2,261,396
            
            
            
            2,292,513
            
            
            
            12,410,238Stock
                issued for interest expense
            
            
            -
            
            
            
            -
            
            
            
            296,000Contribution
                from stockholder
            
            
            -
            
            
            
            -
            
            
            
            555,000Loss
                from joint venture
            
            
            -
            
            
            
            12,720
            
            
            
            136,096(Gain)
                loss on disposal and impairment of assets
            
            
            (9,108
            )
            
            
            423
            
            
            
            446,503Deposit
                used for expense
            
            
            -
            
            
            
            100,000
            
            
            
            -Changes
                in:Receivables
            
            
            -
            
            
            
            (3,384
            )
            
            
            (118,657
            )Prepaid
                expenses and other
            
            
            46,959
            
            
            
            42,832
            
            
            
            (96,857
            )Accounts
                payable and accrued expenses
            
            
            (940,067
            )
            
            
            2,136,820
            
            
            
            2,691,425Refundable
                deposit
            
            
            17,374
            
            
            
            -
            
            
            
            567,374Accrued
                fees and interest
            
            
            -
            
            
            
            79,811
            
            
            
            545,985Net
                cash used in operating activities
            
            
            (8,444,075
            )
            
            
            (22,950,096
            )
            
            
            (62,246,246
            )**Cash
                Flows From Investing Activities**Advances
                for loan receivable
            
            
            -
            
            
            
            (200,000
            )
            
            
            -Purchase
                of property and equipment
            
            
            (116,351
            )
            
            
            (40,298
            )
            
            
            (1,131,891
            )Investments
                in joint ventures and subsidiaries
            
            
            -
            
            
            
            -
            
            
            
            (361,261
            )Proceeds
                from sales of property and equipment
            
            
            13,530
            
            
            
            -
            
            
            
            13,530Payment
                of deposits
            
            
            -
            
            
            
            (7,850
            )
            
            
            (36,822
            )Investments
                in intangible assets
            
            
            (115,892
            )
            
            
            (103,602
            )
            
            
            (684,642
            )Net
                cash used in investing activities
            
            
            (218,713
            )
            
            
            (351,750
            )
            
            
            (2,201,086
            )**Cash
                Flows from Financing Activities**Proceeds
                from issuance of stock, net of offering costs
            
            
            9,388,197
            
            
            
            35,237,353
            
            
            
            60,387,373Proceeds
                from issuance of related party notes payable
            
            
            -
            
            
            
            -
            
            
            
            11,000,000Proceeds
                from stock subscriptions
            
            
            -
            
            
            
            -
            
            
            
            4,240,887Proceeds
                from issuance of line of credit
            
            
            -
            
            
            
            -
            
            
            
            750,000Return
                on capital
            
            
            -
            
            
            
            -
            
            
            
            (118,427
            )Principal
                payments on related party notes payable
            
            
            -
            
            
            
            (2,500,000
            )
            
            
            (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
            
            
            9,388,197
            
            
            
            32,737,353
            
            
            
            71,177,733Net
                change in cash and cash equivalents
            
            
            725,409
            
            
            
            9,435,507
            
            
            
            6,730,401Cash
                and cash equivalents at beginning of period
            
            
            6,004,992
            
            
            
            6,874,653
            
            
            
            -Cash
                and cash equivalents at end of period
            
            $
            6,730,401
            
            
            $
            16,310,160
            
            
            $
            6,730,401





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 - Continued


For
      the
      Six-Month Periods Ended June 30, 2007 and 2006 and for the Period from Inception
      to June 30, 2007


(unaudited)





**Supplemental
                information and non-cash transactions**Cash
                paid for interest
            
            $
            -
            
            
            $
            5,000
            
            
            $
            717,903Cash
                paid for income taxes
            
            $
            -
            
            
            $
            -
            
            
            $
            -The
                Company had the following non-cash investing and financing activities
                in 2007 and 2006:Issued
                stock in exchange for a payable
            
            $
            -
            
            
            $
            330,215
            
            
            $
            626,215Incurred
                a payable for intangible assets
            
            
            -
            
            
            
            5,607
            
            
            
            5,607Extinguishment
                of note payable (see Note 7)
            
            
            5,000,000
            
            
            
            -
            
            
            
            5,000,000




































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


June
      30,
      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.





**UseofEstimates**




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





**Going
      Concern**





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the settlement of liabilities
      and commitments in the normal course of business.  As of June 30, 2007, the
      Company has cash and cash equivalents on hand of approximately $6.7 million
      and
      working capital of approximately $2.6 million.  For the three and
      six-month periods ended June 30, 2007, the Company recognized net losses of
      $7.2
      million and $10.2 million, respectively.  As a result of these
      continuing net losses, the Company has an accumulated deficit of approximately
      $81.1 million.  When taken together, these factors raise substantial doubt
      about our 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.





6


**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 on 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. Based on the fact
      that
      SulphCo KorAsia has never had material revenue streams and considering that
      there continues to be a high level of uncertainty regarding when, if ever,
      it
      will generate material revenue streams, the Company has concluded that it is
      appropriate to establish an allowance for doubtful
      collection.  Therefore, for the quarter ended June 30, 2007, the
      Company established an allowance equal to the total principal balance and
      accrued interest thereon of $301,341.





The
      Company also holds a refundable deposit of SulphCo KorAsia, which may be
      available to offset the loan receivable, should there be a final determination
      that SulphCo KorAsia could not repay the loan and accrued interest (see
      Note 5).





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 4).  Funds totaling 612,489 Dirhams ($170,246)have
      been expended by the LLC on behalf of the Company.  The net amount of
      77,511 Dirhams, or approximately $21,106, is reflected as a related party loan
      receivable and is included on the balance sheet in “Prepaid expenses and
      other.”  As the LLC holds this amount in cash on behalf of the
      Company, no allowance has been taken for collectibility.





**3.**
            **Property
                and Equipmentand Intangible
                Assets**





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





**June
                30, 2007**
            
            
            **December
                31, 2006**Equipment
            
            $
            777,619
            
            
            $
            769,385Computers
            
            
            210,372
            
            
            
            199,582Office
                furniture
            
            
            57,116
            
            
            
            57,116Vehicles
            
            
            3,000
            
            
            
            3,000Leasehold
                improvements
            
            
            42,811
            
            
            
            90,9411,090,918
            
            
            
            1,120,024Less:
                Accumulated D&A
            
            
            (837,180
            )
            
            
            (913,067
            )Total
            
            $
            253,738
            
            
            $
            206,957





Depreciation
      and amortization expense was approximately $41,000 and $85,000 for the three
      and
      six month periods ended June 30, 2007, respectively.




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





**June
                30, 2007**
            
            
            **December
                31, 2006**Patents
                and trademarks
            
            $
            668,800
            
            
            $
            552,908Less:
                Accumulated amortization
            
            
            (64,236
            )
            
            
            (44,692
            )Total
            
            $
            604,564
            
            
            $
            508,216








7




**4.**
            **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 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.  For the six-month period ended June 30,
      2007, its activities have consisted primarily of leasing office space and
      acquiring leasehold improvements and office furniture and
      equipment.  The lease commenced March 15, 2006.  For the
      three and six-month periods ended June 30, 2007, the LLC had losses of 118,495
      Dirhams and 176,190 Dirhams, respectively ($32,278 and $47,976,
      respectively).  The Company has expensed these amounts as research and
      development costs.





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, which has been expensed as
      research and development costs.  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
      June 30, 2007 and for the three and six-month periods then ended, the LLC had
      the following condensed balance sheet and operating statement converted to
      US
      dollars:





Condensed
                Balance Sheet, June 30, 2007:Current
                assets
            
            $
            116,355Depreciable
                assets (net)
            
            
            85,748Other
                assets
            
            
            -Total
                assets
            
            $
            202,103Current
                liabilities
            
            $
            42,361Members’
                equity
            
            
            159,742Total
                liabilities and members’ equity
            
            $
            202,103





Three
                Months
            
            
            Six
                MonthsOperating
                Statement, Three and Six-Months Ended June 30, 2007:Revenue
            
            $
            -0-
            
            
            $
            -0-Operating
                expenses
            
            
            (28,881
            )
            
            
            (44,579
            )Non-operating
                expense
            
            
            (3,397
            )
            
            
            (3,397
            )Net
                loss
            
            $
            (32,278
            )
            
            $
            (47,976
            )





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 zero at June 30, 2007, and December 31, 2006,
      respectively.  Going forward and to the extent that the Company
      continues to incur costs in excess of its investment in the LLC, these costs
      will be recognized by the Company as research and development
      costs.





8


**5.**
            **RefundableDeposit**





In
      2005,
      we received $550,000 from SulphCo KorAsia (formerly known as OIL-SC, Ltd.),
      pursuant to the Equipment Sale and Marketing Agreement by and between the
      Company and SulphCo KorAsia, dated as of February 22, 2005.  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.





**6.**
            **Late
                Registration Penalty**





In
      accordance with the terms of our 2004 private placement, we accrued a late
      registration penalty 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, which accrues on the unpaid
      penalty amount at the rate of 18% per annum.  As of June 30, 2007 and
      December 31, 2006, the balance of the late registration penalty (including
      interest accrued thereon) was approximately $1,026,000 and $958,000,
      respectively.  However, as of the date of this report no formal
      demands have been made by investors to pay these fees.





**7.**
            **Note
                Payable**





In
      late
      April 2007 two events occurred related to the Company’s then outstanding $5
      million note payable (the “Note Payable”) to Rudolf Gunnerman (“Gunnerman”), the
      Company’s former Chairman and CEO.  First, the Note Payable was
      acquired by a group of investors (the “Investors”) from
      Gunnerman.  Second, the Company negotiated a modification to the terms
      of Note Payable with the Investors and the terms of the Note Payable were
      modified to (1) extend the maturity date from December 31, 2007 to December
      31,
      2008 and (2) to add a conversion option to the Note Payable making the Note
      Payable convertible into the Company’s common stock at a conversion price of
      $3.80 per share.





In
      connection with the first event, the Gunnerman Note Payable was acquired
      directly from Gunnerman by the Investors.  The Company’s participation
      in this event was limited to providing its consent to the assignment of the
      Note
      Payable from Gunnerman to the Investors.  As such, this element of the
      transaction was deemed to have no impact on the Company and required no
      accounting in relation thereto.





In
      connection with the second event, immediately following the acquisition of
      the
      Note Payable by the Investors, the Company negotiated a modification of the
      terms of Note Payable with the Investors and the terms of the Note Payable
      were
      modified to (1) extend the maturity date from December 31, 2007 to December
      31,
      2008 and (2) to add a conversion option to the Note Payable making the Note
      Payable convertible into the Company’s common stock at a conversion price of
      $3.80 per share.  According to the provisions of EITF 96-19, a
      modification of a debt instrument that adds a substantive conversion option
      is
      always considered a substantial change.  Therefore, debt
      extinguishment accounting pursuant to EITF 96-19 is required for this
      event.  In connection with the conclusion that EITF 96-19 is applicable to
      this transaction, SulphCo also made the determination that (1) the conversion
      option was substantive on the date it was added pursuant to the guidance in
      paragraphs 7-9 of EITF 05-1, (2) the conversion option would not be separately
      accounted for as a derivative under SFAS 133 since the Note Payable is
      considered to be “conventional” or “traditional” debt as contemplated in EITF
      00-19 and (3) the modification is not within the scope of SFAS 15 as
      contemplated in paragraph 11 of EITF 02-04 since the Investors are
**not** deemed to have granted a concession (i.e., because
      the Company’s effective borrowing rate on the modified Note Payable is not less
      than the effective borrowing rate of the original Note Payable).





9


Contemporaneous
      with the acquisition of the Note Payable and just prior to the modifications,
      the Investors acquired warrants from Gunnerman to acquire 1,625,000 shares
      of
      the Company’s common stock currently held by Gunnerman.  Since Gunnerman is
      considered to be a related party and a control person (i.e., since he owns
      greater than 10% of the Company’s outstanding common stock), the
      Company  has concluded that these actions were taken on behalf and for
      the benefit of the Company.  Therefore, the warrants will be accounted for
      as if the Company had directly issued the warrants to the investors.  Since
      the warrants were acquired contemporaneous with the issuance of convertible
      debt, the guidance in EITF 98-5 and EITF 00-27 must be applied.  Using the
      Black-Scholes option valuation model, the Company has estimated that the fair
      value of the warrants on the date of grant was approximately $3.0 million. 
The fair value of the Note Payable on that date was $5 million (since it has
      a
      variable interest rate equal to LIBOR + 0.5% that resets quarterly).  Using
      these amounts, the Company determined that on a relative fair value basis,
      approximately $1.9 million of the assumed proceeds of $5 million resulting
      from
      the extinguishment should be allocated to the warrants.  After taking into
      account the effect of the allocation of proceeds to the warrants, the Company
      determined that the conversion feature that was added to the Note Payable was
      a
      beneficial conversion feature (“BCF”) that had to be accounted for pursuant to
      EITF 98-5 and EITF 00-27.  SulphCo determined that the value of the BCF was
      in excess of the remaining unallocated debt proceeds.  Therefore, and as is
      provided in the guidance of EITF 98-5 and EITF 00-27, the extent of the BCF
      discount is limited to the amount of the remaining unallocated proceeds of
      $3.1
      million.  As
      a result of the accounting required for the modification of the terms of the
      Note Payable, a 100% (i.e., $5 million) discount results.  The
      resulting discount will be accreted into the statement of operations, using
      the
      effective interest method, over the remaining term of the Note Payable (i.e.,
      through December 31, 2008) as incremental interest expense.





As
      of
      June 30, 2007, the net balance of the Note Payable is:





**June
                30, 2007**Assumed
                proceeds from modified Note Payable
            
            $
            5,000,000Less:Discount
                related to proceeds allocated to warrants
            
            
            (1,900,000
            )Discount
                related to beneficial conversion feature
            
            
            (3,100,000
            )Net
                Note Payable balance at April 2007
            
            
            -Add:Discount
                accretion through June 30, 2007
            
            
            7,254Net
                Note Payable balance at June 30, 2007
            
            $
            7,254





10


Interest
      on the Note Payable is adjusted quarterly based on a London Inter-Bank Offering
      Rate (“LIBOR”) plus 0.5% per annum, with interest only payments due on December
      31 of 2007 and the remaining accrued interest and principal due on December
      31,
      2008 when the note matures.  Interest related to the Note Payable
      of $151,820 has been accrued as of June 30, 2007 at the adjusted rate for the
      quarter of 5.82%.





**8.**
            **Capital
                Stock**





Other
      than the stock-based compensation transactions disclosed in Note 11, the Company
      had the following transactions related to its common stock during the six months
      ended June 30, 2007:





During
      the first quarter of 2007, the Company raised $7,787,674, net of offering
      costs, through an exercise of outstanding warrants. Investors holding
      1,952,068 of the warrants issued pursuant to the Securities Purchase Agreements,
      dated as of June 1, 2004 and June 14, 2004 (the “2004 Warrants” and the “2004
      Warrant Holders”) exercised their warrants at their stated exercise prices of
      $1.125 per share and $1.5625 per share, respectively. Investors holding
      2,000,000 warrants issued pursuant to the Securities Purchase Agreement, dated
      as of March 29, 2006 (the “2006 Warrants” and the “2006 Warrant Holders” and
      together with the 2004 Warrant Holders hereinafter collectively referred to
      as
      the “Warrant Holders”) exercised their warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. The Warrant Holders received 3,952,068 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 per
      share.





During
      the second quarter of 2007, the Company raised $1,608,000 through an exercise
      of
      600,000 of the remaining 2,000,000 2006 Warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. As previously agreed, the 2006 Warrant Holders received 600,000
      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
      per share.





The
      accounting for the reduction in the exercise price of the 2006 Warrants and
      the
      Additional Warrants is described in Note 9.





**9.**
            **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.





11


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.  In connection with the preparation of this quarterly report,
      the Company determined that an error had been made with respect to the
      calculation of the non-cash deemed dividend as originally reported in the
      quarterly report for the quarter ended March 31, 2007.  As a result of
      this error, the Company understated the non-cash deemed dividend for the quarter
      ended March 31, 2007, by approximately $11.4 million.  The Company
      intends to file an amendment to its quarterly report for the quarter ended
      March
      31, 2007 to correct this error as soon as practicable.





During
      the quarter ended June 30, 2007, 600,000 warrants held by the 2006 Warrant
      Holders were exercised resulting in the grant of 600,000 Additional
      Warrants.  Therefore, the Company recorded an additional non-cash
      deemed dividend equal to $1,657,821 that was estimated using the Black-Scholes
      Valuation Model.





For
      the
      three and six-month periods ended June 30, 2007, the Company recognized total
      non-cash deemed dividends of $1,657,821 and $13,181,706, respectively (inclusive
      of the effect of the error discussed above).





**10.**
            **Loss
                Per Share**





The
      computations of basic and diluted loss per common share are based upon the
      weighted average number of common shares outstanding and potentially dilutive
      securities.  Potentially dilutive securities include options and
      warrants to acquire the Company’s common stock and convertible
      debt.  As of June 30, 2007, there were approximately 8.5 million
      shares issuable in connection with these potentially dilutive
      securities.  These potentially dilutive securities were disregarded in
      the computations of diluted net loss per share for three and six-month periods
      ended June 30, 2007 and 2006, respectively, because inclusion of such
      potentially dilutive securities would have
      been anti-dilutive.





**11.**
            **Stock
                Plans andStock-Based
                Compensation**





In
      accordance with the provisions of SFAS 123R, the Company records stock-based
      compensation expense for all share-based payment arrangements, including stock
      options, warrants and restricted stock grants.  Total stock-based
      compensation for the three and six-month periods ended June 30, 2007 and
      2006 was approximately $2.5 million, $1.3 million, $2.3 million, and
      $2.3 million, respectively.




12


**Stock
      Option Grants – Directors, Officers and Employees**





During
      the three and six-month periods ended June 30, 2007 and 2006, the Company
      granted 535,000, 1,125,000, 885,000 and 1,125,000 stock options, respectively,
      to its directors, officers and employees.  The stock-based
      compensation expense for these stock options for the three and six-month periods
      ended June 30, 2007 and 2006 was $1.6 million, $0.9 million, $1.7 million and
      $0.9 million.  The fair value of these stock options was estimated
      using the Black-Scholes options pricing model with the following
      assumptions:





**Six
                Months Ended June 30, 2007 and 2006**
            **2007**
            **2006**Valuation
                Assumptions:Expected
                Term (years)
            5
–
                6.5
            1.5
                - 3Expected
                Volatility
            144%
                - 149%
            117%
                - 147%Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            4.51%
                - 5.10%
            5.2%Weighted
                Average Grant Date Fair Value
            $2.46
                - $4.56
            $3.72
                - $5.50**Three
                Months Ended June 30, 2007 and 2006**
            **2007**
            **2006**Valuation
                Assumptions:Expected
                Term (years)
            5.5
                – 6.5
            1.5
                - 3Expected
                Volatility
            147%
                - 149%
            117%
                - 147%Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            4.55%
                - 4.76%
            5.2%Weighted
                Average Grant Date Fair Value
            $2.46
                - $3.37
            $3.72
                - $5.50





**Stock
      Option Grants – Non-Employees**





During
      the three and six-month periods ended June 30, 2007 and 2006, the Company
      granted 50,500, 54,500, 50,500 and 54,500 stock options, respectively, to
      non-employees.  The stock-based compensation expense for these stock
      options for the three and six-month periods ended June 30, 2007 and 2006 was
      nil, $0.4 million, nil and $0.4 million.  The fair value of these
      stock options was estimated using the Black-Scholes options pricing model with
      the following assumptions:





**Six
                Months Ended June 30, 2007 and 2006**
            **2007**
            **2006**Valuation
                Assumptions:Expected
                Term (years)
            4
            1
                -
                4Expected
                Volatility
            144%
            129%
                - 162%Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            5.00%
            5.00%Weighted
                Average Grant Date Fair Value
            $3.18
            $4.03
                - $6.81**Three
                Months Ended June 30, 2007 and 2006**
            **2007**
            **2006**Valuation
                Assumptions:Expected
                Term (years)
            4
            1.5
                - 3Expected
                Volatility
            144%
            129%
                - 162%Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            5.00%
            5.00%Weighted
                Average Grant Date Fair Value
            $3.18
            $4.03
                - $6.81





13


**Restricted
      Stock Grants – Directors, Officers and Employees**





During
      the three and six -month periods ended June 30, 2007 and 2006, the Company
      granted 220,206, zero, 270,206 and 100,000 shares of restricted stock to its
      directors and officers.  All of the restricted shares granted during
      these periods were valued by reference to the market price of the Company’s
      stock on the date of grant.





The
      stock-based compensation expense for the restricted stock grants for the three
      and six-month periods ended June 30, 2007 and 2006 was $0.9 million, zero,
      $0.6
      million and $1.1 million, respectively.





**Restricted
      Stock Grants – Non-Employees**





During
      the three and six -month periods ended June 30, 2007 and 2006, the Company
      granted zero, zero, zero and 17,500 shares of restricted stock to
      non-employees.  All of the restricted shares granted during these
      periods were valued by reference to the market price of the Company’s stock on
      the date of grant.





The
      stock-based compensation expense for the restricted stock grants for the three
      and six-month periods ended June 30, 2007 and 2006 was zero, zero, zero and
      $0.1 million, respectively.





**12.**
            **Commitments
                and Contingencies**





**Concentrations
      of Credit Risk**




Financial
      instruments, which potentially subject the Company to concentrations of credit
      risk, consist mainly of cash equivalents.  The Company maintains
      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 $6.5 million at June 30, 2007. The Company has not
      experienced any significant losses in such accounts, nor does management believe
      it is exposed to any significant credit risk.





**Commitments
      Under Non-Cancelable Operating Leases**




In
      May
      2007, the Company entered into an agreement to lease a facility in Houston,
      Texas. The lease has an effective term of sixty months, expiring in June 2012
      at
      $12,240 per month. In May 2007, the Company also entered into lease agreements
      for facilities it maintains in Reno, Nevada and Sparks, Nevada, each with thirty
      six month lease terms, with lease amounts of $8,757 and $2,765,
      respectively.





**Registration
      Payment Arrangements**




As
      is
      discussed in Notes 8 and 9 above, the Company executed the Agreement with
      the Warrant Holders.  The Agreement contained registration provisions
      that required that the Company:





·
            use
                commercially reasonable efforts to prepare and file a registration
                statement (the “Additional Registration Statement”) to cover all shares of
                common stock issuable under the Additional Warrants as soon as possible,
                but in no event later than 90 days after March 12, 2007
                and





·
            use
                commercially reasonable efforts to prepare and file a post-effective
                amendment to the registration statement covering the 2004 Warrants
                (the
                “Post-Effective Registration Statement”) as soon as possible, but in no
                event later than 5 business days after April 2, 2007, the date the
                Company
                filed its 2006 Form 10-K.





14


The
      registration provisions further provided that in the event the Company does
      not
      file the Additional Registration Statement and the Post Effective Registration
      Statement within the required time frames (each, an “Event”), each of the
      Warrant Holders shall be entitled to receive on the date of such Event (the
      “Event Date”) an amount in cash, as partial liquidated damages and not as a
      penalty, equal to 1% of the aggregate exercise price paid by the Warrant
      Holders; and on each monthly anniversary of the Event Date thereof (if the
      applicable Event has not been cured), the Company shall pay the Warrant Holders
      an amount in cash, as partial liquidated damages and not as a penalty, 1% of
      the
      aggregate purchase price paid by the Warrant Holders (the “Liquidated
      Damages”).  The Liquidated Damages shall not exceed 12% of the
      aggregate purchase price paid by the Warrant Holders.    The
      maximum amount of Liquidated Damages that the Company could be required to
      pay
      under the registration provisions is approximately $950,000.





The
      Company filed both the Additional Registration Statement and the Post-Effective
      Registration Statement within the required time frames and therefore does not
      expect to incur any Liquidated Damages.





**Litigation
      Contingencies**




There
      are
      various claims and lawsuits pending against the Company arising in the normal
      course of the Company’s business.  Although the amount of liability at
      June 30, 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 status of litigation as of June 30,
      2007.





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.  Thereafter, the Court
      ordered the Plaintiff to pay the Company, as the “prevailing party,” $125,000 to
      cover a portion of its fees and expenses incurred in defending the claims of
      this action.  No judgment has yet been entered in the
      action.  As of June 30, 2007, no liability as been accrued relative to
      this action.





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, sought to exercise options to purchase
      two million (2,000,000) shares of the Company’s common stock at 50 cents per
      share, as well as salary for the six months following his resignation and
      $20,000 of alleged unpaid commuting expenses.  Following the
      arbitration hearings, on July 24, 2007, the Company received notice that the
      Arbitrator had denied Mr. McLelland’s claim for the options.  The
      Arbitrator did award salary of $125,000 plus interest from October 1, 2001
      until
      paid, and $5,000 (without interest) out of the $20,000 of alleged unpaid
      commuting expenses.  In connection with the resolution of this matter,
      the Company has recognized a charge for these amounts in the quarter ended
      June
      30, 2007.





15


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 requested that the Court 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.   That cross-claim against Dr. Gunnerman was subsequently
      voluntarily discontinued, without prejudice.  As of June 30, 2007, no
      liability has been accrued relative to this action.





Mr.
      Neuhaus filed a motion to dismiss the counterclaim on April 11, 2007, which
      the
      Company opposed.  On July 20, 2007, the Court issued an Order granting Mr.
      Neuhaus’ Motion to Dismiss.  The Court found that Nevada was not the
      proper venue for the action and that the Nevada Courts did not have jurisdiction
      over the counterclaim.  The Company has filed an action in the New
      York State Supreme Court seeking to obtain the same relief as was sought in
      the
      counterclaim that was dismissed.





Trial
      in
      this action, which was previously set for September 24, 2007, has been
      rescheduled for July 14, 2008.





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, Lo**ren J.
      Kalmen, Richard L. Masica, Robert Henri Charles Van Maasdijk, Hannes
      Farnleitner, Michael T. Heffner, Edward E. Urquhart, Lawrence G. Schafran,
      Alan
      L. Austin, Jr., Raad Alkadiri and Christoph Henkel*, Case No. CV07 00137,
      Dept. No. B6.  The complaint alleges, among other things, that the
      defendants breached their fiduciary duty to the Company by failing to act in
      good faith and diligence in the administration of the affairs of the Company
      and
      in the use and preservation of its property and assets, including the Company’s
      credibility and reputation.  The Company and the Board had intended to
      file a Motion for Dismissal with the Court, based upon the Plaintiff’s failure
      to make a demand upon the Board. On July
      10, 2007,
      the Company received notice that a stipulation (the “Stipulation”) of voluntary
      dismissal without prejudice had been entered, with an effective date of July
      3,
      2007, regarding this action.  The Stipulation provides that in
      connection with the dismissal of this action each of the parties will bear
      their
      own costs and attorney fees and thereby waive their rights, if any, to seek
      costs and attorney fees from the opposing party.  Further, neither the
      plaintiff nor his counsel has received any consideration for the dismissal
      of
      this action, and no future consideration has been promised.





**13.**
            **Related
                Party Transactions**





During
      the three and six-month periods ended June 30, 2007, the Company made payments
      to totaling approximately $127,000 and $330,000, respectively to Ma’rkisches
      Werk Halver, GmbH (“MWH”) in connection with ongoing probe development
      activities.  Edward E. Urquhart, a member of the Company’s Board of
      Directors since August 2006, has been the Chief Executive Officer of MWH since
      July 2003.  No payments were made to MWH during the three and
      six-month periods ended June 30, 2006.





16


On
      April
      15, 2007, the Company entered into a month-to-month operating lease agreement
      with Michael T. 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 that can be cancelled at anytime by either
      party.  During the quarter ended June 30, 2007, the Company recognized
      $3,800 in lease expense relative to this agreement.





On
      April
      16, 2007, with a retroactive effective date of February 10, 2007, the Company
      entered into a 30 day consulting contract with Vincent van Maasdijk, the son
      of
      Robert van Maasdijk who is the Chairman of the Company’s Board of Directors, to
      serve as the Fujairah Operations Manager.  After each 30 day term, the
      consulting contract automatically renews for the next 30 days unless either
      party stipulates otherwise in writing.  As Fujairah Operations
      Manager, Mr. van Maasdijk’s responsibilities will include overseeing the
      construction and operation of the Company’s facility in Fujairah, United Arab
      Emirates.  Under the terms of the contract Mr. van Maasdijk will
      receive a monthly payment of $5,000 plus reimbursement of all reasonable
      out-of-pocket expenses, in accordance with the Company’s applicable policies and
      procedures.  For the three and six-month periods ended June 30, 2007,
      the total expense recognized by the Company under this arrangement was
      approximately $25,000 and $39,000, respectively.





Historically,
      the Company had maintained a consulting contract with RWG, Inc., a company
      wholly-owned by Dr. Rudolf Gunnerman, the Company’s former Chairman and
      CEO.  This contract was terminated in January 2007 contemporaneous
      with Dr. Gunnerman’s dismissal from the Company.  During the three and
      six-month period ended June 30, 2007 and 2006, the total expense recognized
      by
      the Company under this arrangement was $200,000, $80,000, $240,000 and
      $170,000.  Of the amounts paid during the three and six-month periods
      ended June 30, 2007, $200,000 was paid in connection with a settlement in the
      second quarter of 2007 between the Company and Dr. Gunnerman.





The
      Company had a consulting agreement with Peak One Consulting, Inc., a company
      wholly-owned by Richard L. Masica, a Director of the Company until his
      retirement from the Board in June 2007.  No amounts were paid to Mr.
      Masica under this consulting agreement during the three and six-month periods
      ended June 30, 2007.  During the three and six-month periods ended
      June 30, 2006, the total expense recognized for technical consulting and expense
      reimbursement by the Company under this contract was approximately zero and
      $32,000, respectively.





The
      Company had a consulting arrangement with Michael T. Heffner, a Director of
      the
      Company until his resignation from the Company’s Board of Directors in the
      second quarter of 2006.  Therefore, no amounts were paid to Mr.
      Heffner under this consulting agreement during the three and six-month periods
      ended June 30, 2007.  During the three and six-month periods ended
      June 30, 2006, the total expense recognized for technical consulting and expense
      reimbursement by the Company under this contract was approximately $49,000
      and
      $57,000, respectively.





**14.**
            **Recent
                Accounting
                Pronouncements**





**Income
      Taxes**




In
      June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109,
      Accounting for Income Taxes” (FIN 48). The Interpretation addresses the
      determination of whether tax benefits claimed or expected to be claimed on
      a tax
      return should be recorded in the financial statements. Under FIN 48, the Company
      may recognize the tax benefit from an uncertain tax position only if it is
      more
      likely than not that the tax position will be sustained on examination by the
      taxing authorities, based on the technical merits of the position. The tax
      benefits recognized in the financial statements from such a position should
      be
      measured based on the largest benefit that has a greater than fifty percent
      likelihood of being realized upon ultimate settlement. FIN 48 also provides
      guidance on de-recognition, classification, interest and penalties on income
      taxes and accounting in interim periods and requires increased
      disclosures.





17


The
      Company adopted the provisions of FIN 48 effective January 1,
      2007.  The adoption of FIN 48 had no impact on the
      Company.





In
      the
      future, the amount of unrecognized tax benefits may change to the extent the
      Company begins generating taxable income against which previously incurred
      net
      operating loss carry-forwards may be offset.   In this event, the
      Company will assess the extent to which previously established valuation
      allowances may be reduced.





**Fair
      Value Accounting for Financial Assets and Liabilities**




In
      February 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities — Including an Amendment of FASB
      Statement No. 115” which is effective for fiscal years beginning after
      November 15, 2007. This Statement permits an entity to choose to measure
      many financial instruments and certain other items at fair value at specified
      election dates. Subsequent unrealized gains and losses on items for which the
      fair value option has been elected will be reported in earnings. The Company
      is
      currently evaluating the potential impact of this Statement.





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





During
      the period from July 1, 2007 through July 10, 2007, all but 150,000 of the
      remaining 1,400,000 2006 Warrants were exercised at an exercise price of $2.68
      per share resulting in proceeds to the Company of $3,350,000. As previously
      agreed, the Warrant Holders received 1,250,000 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 per share.  As a result of
      the issuance of these Additional Warrants, during the third quarter, the Company
      will recognize a non-cash deemed dividend of approximately $3.3
      million.





On
      August
      1, 2007, the Company’s Board of Directors unanimously appointed Edward G.
      Rosenblum to its Board of Directors to serve until the next Annual Meeting
      of
      Shareholders.  Mr. Rosenblum was also appointed as Chairman of the
      Compensation Committee.




18


**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.





***Three
      and six- months ended June 30, 2007 compared to the three and six-months ended
      June 30, 2006***





**Research
      and Development Expenses**




For
      the
      three and six-month periods ended June 30, 2007, we incurred expenses of
      approximately $2.0 million and $2.9 million, respectively, related to research
      and development of our Sonocracking technology.  This compares to
      expenses of approximately $13.9 million and $19.6 million, respectively, for
      the
      comparable periods in 2006.  During the three and six-month periods
      ended June 30, 2007, we incurred approximately $1.1 million and $1.3 million,
      respectively, related to the test facility in Fujairah, UAE.  This
      compares to expenses of $12.2 million and $17.4 million, respectively, for
      the
      comparable periods in 2006.




For
      the
      three and six-month periods ended June 30, 2007, we paid approximately $68,000
      and $136,000, respectively, to our engineers and other research and development
      employees as wages and related benefits for design and testing of our
      Sonocracker units.  This compares to expenses of approximately
      $183,000 and $395,000, respectively, for the comparable periods in
      2006.  For the three and six-month periods ended June 30, 2007,
      approximately $295,000 and $693,000 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.  This compares
      to expenses of approximately $66,000 and $129,000, respectively, for the
      comparable periods in 2006.  The balance of our research and
      development expenses 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 six months of 2007, we
      incurred approximately $1.3 million of expenditures relating to development
      of
      the Fujairah facility.  We expect to incur approximately an additional
      $0.5 million for the remainder of 2007 in connection with the fabrication and
      installation of our Sonocracking equipment and completion of stage one of the
      Fujairah facility.  On August 8, 2007, the Company announced that it
      had commissioned the first phase of the facility.  The commissioning
      included the completion of infrastructure and ancillary facilities, including
      electric, cooling, water tanks, sludge tanks, pumps, control systems, a water
      separator and external feed lines, sufficient to allow continuous operation
      of
      one of the six commercial scale 30,000 bpd Sonocracking units installed at
      the
      facility.




**Selling,
      General and Administrative
      Expenses**




For
      the
      three and six-month periods ended June 30, 2007, we incurred approximately
      $5.1
      million and $7.1 million, respectively, in selling, general and administrative
      expenses.  This compares to expenses of approximately $4.6 million and
      $8.1 million, respectively, for the comparable periods in 2006.  The
      amounts for the three and six-month periods ended June 30, 2007, include
      stock-based compensation of $2.5 million and $2.3 million,
      respectively.





Legal
      fees were approximately $1.1 million and $1.7 million for the three and
      six-months ended June 2007, respectively.  This compares to expenses
      of approximately $2.1 million and $3.3 million, respectively, for the comparable
      periods in 2006.  This represents decreases of $1.0 million and $1.6
      million, respectively, relative to the comparable periods in
      2006.  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.





19


Consulting
      fees, payroll and related expenses were approximately $1.0 million and $1.8
      million for the three and six-months ended June 30, 2007,
      respectively.  This compares to expenses of approximately $1.1 million
      and $2.5 million, respectively, for the comparable periods in
      2006.  This represents decreases of $0.1 million and $0.7 million,
      respectively relative to the comparable periods in 2006.





Travel
      and travel related expenses were approximately $200,000 and $432,000 for the
      three and six-month periods ended June 30, 2007, respectively.  This
      compares to expenses of approximately $275,000 and $556,000, respectively,
      for
      the comparable periods in 2006.  These decreases were due to the less
      frequent meetings with the European manufacturers of our equipment and with
      our
      joint venture partner in Fujairah, United Arab Emirates as we near completion
      of
      stage one at the test facility in Fujairah.





Director
      fees were approximately $2.2 million and $2.2 million for the three and six
      months ended June 30, 2007, respectively.  This compares to expenses
      of approximately $0.7 million and $1.1 million, respectively, for the comparable
      periods in 2006. Director fees for the 2007 periods relate to the annual option
      grants to acquire 300,000 shares of common stock awarded to the Directors valued
      at approximately $1.3 million and the grant of approximately 220,000 shares
      of
      restricted stock in lieu of the Directors’ annual cash retainer valued at
      approximately $0.9 million.  Director fees for the 2006 periods
      include a grant of 50,000 shares of restricted common stock to a Director
      (Michael T. Heffner) valued at approximately $0.4 million and a grant of an
      option to acquire 125,000 shares of common stock to another Director (Robert
      van
      Maasdijk) valued at approximately $0.7 million.





In
      May of
      2007, the Company entered into agreements to lease office/warehouse facilities
      in Houston, Texas, the new location of its corporate headquarters, and office
      facilities in Reno, Nevada. The total lease expense incurred for the new
      facilities is $23,400, which results in a decrease of $19,200 per month, or
      45%,
      over the previous lease amount.





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 $189,000 and $302,000 for the three and six-month
      periods ended June 30, 2007, respectively, reflecting increases of approximately
      $74,000 or 64% and $62,000 or 26%, respectively, over comparable periods in
      2006.  The majority of the increase for the three month-period is a
      result of the Company incurring approximately $74,000 in interest related to
      the
      settlement of litigation. Also included in interest expense for the period
      is
      the accrual of approximately $22,800, which represents 18% interest on the
      late
      registration penalty.





**Late
      Registration Penalty**




In
      accordance with the terms of our 2004 private placement, we accrued a late
      registration penalty 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 $60,000,
      which accrues on the unpaid penalty 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.




20


**Depreciation
      and Amortization**




For
      the
      three and six-month periods ended June 30, 2007, depreciation and amortization
      expense related to property and equipment and intangible assets was
      approximately $41,000 and $85,000, respectively.  This compares to
      expenses of approximately $60,000 and $123,000, respectively, for the comparable
      periods in 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:





·
            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.  In connection with the preparation of this quarterly
      report, the Company determined that an error had been made with respect to
      the
      calculation of the non-cash deemed dividend as originally reported in the
      quarterly report for the quarter ended March 31, 2007.  As a result of
      this error, the Company understated the non-cash deemed dividend for the quarter
      ended March 31, 2007, by approximately $11.4 million.  The Company
      intends to file an amendment to its quarterly report for the quarter ended
      March
      31, 2007 to correct this error as soon as practicable.





During
      the quarter ended June 30, 2007, 600,000 warrants held by the 2006 Warrant
      Holders were exercised resulting in the grant of 600,000 Additional
      Warrants.  Therefore, the Company recorded an additional non-cash
      deemed dividend equal to $1,657,821.





For
      the
      three and six-month periods ended June 30, 2007, the Company recognized total
      non-cash deemed dividends of $1,657,821 and $13,181,706, respectively (inclusive
      of the effect of the error discussed above).





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




We
      incurred net losses of approximately $7.2 million and $10.2 million for the
      three and six-month periods ended June 30, 2007, respectively.  This
      compares to net losses of approximately $18.5 million and $27.7 million for
      the
      comparable periods in 2006.  This decrease in net losses in the 2007
      periods relative to the 2006 period is primarily a result of the decrease in
      research and development expenses related to the development and construction
      of
      the test facility in Fujairah, UAE.





We
      incurred net losses attributable to common stockholders of approximately $8.9
      million and $23.4 million for the three and six-month periods ended June 30,
      2007, respectively.  This compares to net losses attributable to
      common stockholders of approximately $18.5 million and $27.7 million for the
      comparable periods in 2006.  The difference is solely attributable to
      the deemed dividends of approximately $1.7 million and $13.2 million for the
      three and six-month periods ended June 30, 2007.




21


**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
      units 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 an 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.  On August 8, 2007, the Company announced that
      it had commissioned the first phase of the facility.  The
      commissioning included the completion of infrastructure and ancillary
      facilities, including electric, cooling, water tanks, sludge tanks, pumps,
      control systems, a water separator and external feed lines, sufficient to allow
      continuous operation of one of the six commercial scale 30,000 bpd Sonocracking
      units installed at the facility.





***Liquidity***





Working
      capital at June 30, 2007, was
      approximately $2.6 million.  As of June 30, 2007, we had current
      assets of approximately $6.9 million comprised primarily of cash and cash
      equivalents of approximately $6.7 million.  As of June 30, 2007, we
      had current liabilities of approximately $4.3 million comprised primarily of
      accounts payable and accrued expenses of approximately $2.8 million and a late
      registration penalty of $1.0 million.  Accounts payable and accrued
      liabilities include legal fees related to pending litigation of approximately
      $0.8 million and equipment construction and installation costs of approximately
      $0.5 million.  The late registration penalty includes approximately
      $1.0 million in late fees and interest relating to delays in the effective
      date
      of an SEC registration statement in 2004 and 2005 relating to the late
      registration penalty discussed above.





As
      of
      July 31, 2007, we had cash and cash equivalents of $9.2
      million.  Based upon our expected levels of expenditures and
      anticipated needs, we anticipate that our existing capital resources will be
      sufficient to fund our cash requirements through the end 2007 and into the
      first
      quarter of 2008.  Our ability to meet 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.  These
      factors raise substantial doubt regarding the Company’s ability to continue as a
      going concern.





During
      the second quarter of 2007, the Company’s note payable to Rudolf Gunnerman
      (“Gunnerman”), the Company’s former Chairman and CEO, was acquired by various
      investors (the “Investors”) from Gunnerman.  Subsequent to its
      acquisition by the Investors, the Company negotiated an amendment to the note
      payable that, among other things, extended the maturity date of the note from
      December 31, 2007 to December 31, 2008 and added a provision permitting the
      note
      payable to be converted into the Company’s common stock at the rate of $3.80 per
      share.





22


***Recent
      Financing
      Activities***





During
      the first quarter of 2007, the Company raised $7,787,674, net of offering
      costs, through an exercise of outstanding warrants. Investors holding
      1,952,068 of the warrants issued pursuant to the Securities Purchase Agreements,
      dated as of June 1, 2004 and June 14, 2004 (the “2004 Warrants” and the “2004
      Warrant Holders”) exercised their warrants at their stated exercise prices of
      $1.125 per share and $1.5625 per share, respectively. Investors holding
      2,000,000 warrants issued pursuant to the Securities Purchase Agreement, dated
      as of March 29, 2006 (the “2006 Warrants” and the “2006 Warrant Holders” and
      together with the 2004 Warrant Holders hereinafter collectively referred to
      as
      the “Warrant Holders”) exercised their warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. The Warrant Holders received 3,952,068 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 per
      share.





During
      the second quarter of 2007, the Company raised $1,608,000 through an exercise
      of
      600,000 of the remaining 2,000,000 2006 Warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. As previously agreed, the 2006 Warrant Holders received 600,000
      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
      per share.





During
      the period from July 1, 2007 through July 10, 2007, all but 150,000 of the
      remaining 1,400,000 2006 Warrants were exercised at an exercise price of $2.68
      per share resulting in proceeds to the Company of $3,350,000. As previously
      agreed, the Warrant Holders received 1,250,000 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 per share.  As a result of
      the issuance of these Additional Warrants, during the third quarter the Company
      will recognize a non-cash deemed dividend of approximately $3.3
      million.





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, theregistration 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 note payable.  The note
      payable is evidenced by a promissory note which bears interest at the rate
      of
      0.5% above the 30 day “LIBOR” rate, adjusted quarterly and payableannually, and the entire principal amount was due and payable in December
      2007.  In April, 2006 we repaid $2 million of the loan principal. As
      is discussed above, the note payable was acquired by the Investors from
      Gunnerman.  Subsequent to its acquisition by the Investors, the
      Company negotiated an amendment to the note payable that, among other things,
      extended the maturity date of the note from December 31, 2007 to December 31,
      2008 and added a provision permitting the note payable to be converted into
      the
      Company’s common stock at the rate of $3.80 per share.





23


**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 June 30, 2007 and those set forth from time
      to
      time in our filings with the Securities and Exchange Commission (“SEC”). These
      documents are available through our web site, http://www.sulphco.com, or
      through the SEC’s Electronic Data Gathering and Analysis Retrieval System
      (“EDGAR”) at http://www.sec.gov.





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





**Interest
      Rates**





As
      of
      June 30, 2007, the Company had variable rate debt aggregating $5.0million.
      The variable rate debt exposes the Company to the risk of increased interest
      expense in the event of increases in short-term interest rates. If the variable
      interest rate were to increase by 1% from June2007
      levels, interest expense would increase by approximately $50,000 annually.
      The
      carrying value of the variable interest rate debt approximates fair value as
      it
      bears interest at current market rates.





**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.





24


As
      of
      December 31, 2006 and in subsequent quarters through June 30, 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
      June
      30, 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 accounting and 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 be able to completely remediate our material
      weaknesses.  We might find other material weaknesses in the future. To
      the extent that any significant deficiencies 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 financial reporting, which could harm our business and the
      trading price of our stock.





**Changes
      in Internal Controls**





During
      the three-month period ended June 30, 2007, the following change occurred in
      our
      internal control over financial reporting that has materially affected, or
      is
      reasonably likely to materially affect, such internal control over financial
      reporting:





·
            On
                June 11, 2007, Stanley W. Farmer, our newly appointed Vice President
                and
                Chief Financial Officer, joined the Company.  As a result, the
                Company anticipates being able to aggressively respond to and remediate
                the material weaknesses described above in a systematic and rational
                fashion.




25


**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.  Thereafter, the Court
      ordered the Plaintiff to pay the Company, as the “prevailing party,” $125,000 to
      cover a portion of its fees and expenses incurred in defending the claims of
      this action.  No judgment has yet been entered in the
      action.  As of June 30, 2007, no liability as been accrued relative to
      this action.





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, sought to exercise options to purchase
      two million (2,000,000) shares of the Company’s common stock at 50 cents per
      share, as well as salary for the six months following his resignation and
      $20,000 of alleged unpaid commuting expenses.  Following the
      arbitration hearings, on July 24, 2007, the Company received notice that the
      Arbitrator had denied Mr. McLelland’s claim for the options.  The
      Arbitrator did award salary of $125,000 plus interest from October 1, 2001
      until
      paid, and $5,000 (without interest) out of the $20,000 of alleged unpaid
      commuting expenses.  In connection with the resolution of this matter,
      the Company has recognized a charge for these amounts in the quarter ended
      June
      30, 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. That cross-claim
      against Dr. Gunnerman was subsequently voluntarily discontinued, without
      prejudice.  As of June 30, 2007, no liability has been accrued
      relative to this action.





Mr.
      Neuhaus filed a motion to dismiss the counterclaim on April 11, 2007, which
      the
      Company opposed. On July 20, 2007, the Court issued an Order granting Mr.
      Neuhaus’ Motion to Dismiss.  The Court found that Nevada was not the
      proper venue for the action and that the Nevada Courts did not have jurisdiction
      over the counterclaim.  The Company has filed an action in the New
      York State Supreme Court seeking to obtain the same relief as was sought in
      the
      counterclaim that was dismissed.





26


Trial
      in
      this action, which was previously set for September 24, 2007, has been
      rescheduled for July 14, 2008.





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 Charle**s Van Maasdijk, Hannes
      Farnleitner, Michael T. Heffner, Edward E. Urquhart, Lawrence G. Schafran,
      Alan
      L. Austin, Jr., Raad Alkadiri and Christoph Henkel*, Case No. CV07 00137,
      Dept. No. B6.  The complaint alleges, among other things, that the
      defendants breached their fiduciary duty to the Company by failing to act in
      good faith and diligence in the administration of the affairs of the Company
      and
      in the use and preservation of its property and assets, including the Company’s
      credibility and reputation.  The Company and the Board had intended to
      file a Motion for Dismissal with the Court, based upon the Plaintiff’s failure
      to make a demand upon the Board.  On July
      10, 2007,
      the Company received notice that a stipulation (the “Stipulation”) of voluntary
      dismissal without prejudice had been entered, with an effective date of July
      3,
      2007, regarding this action.  The Stipulation provides that in
      connection with the dismissal of this action each of the parties will bear
      their
      own costs and attorney fees and thereby waive their rights, if any, to seek
      costs and attorney fees from the opposing party.  Further, neither the
      plaintiff nor his counsel has received any consideration for the dismissal
      of
      this action, and no future consideration has been promised.





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





The
      Form 8-K disclosure filed by the
      Company on March 14, 2007, is hereby incorporated by reference as a response
      to
      this Item 2.





**Item
                3.**
            **Defaults
                Upon Senior Securities. -**None.





**Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders.**





Our
      2007
      Annual Meeting of Stockholders was held on June 19, 2007.  At the Annual
      Meeting, (i) each of our six nominees was elected to serve as a director until
      the next Annual Meeting of Stockholders and (ii) the proposed stock issuances
      to
      the independent directors as compensation in lieu of cash was approved by the
      stockholders.  The election results are as follows:





27


**Election
      of Six Directors:**





Name
            
            For
            
            Against
            
            AbstainRobert
                van Maasdijk
            
            30,688,217
            
            29,727,863
            
            -Dr.
                Larry Ryan
            
            53,893,894
            
            6,522,186
            
            -Lawrence
                G. Schafran
            
            30,699,164
            
            29,716,916
            
            -Dr.
                Hannes Farnleitner
            
            58,252,559
            
            2,163,521
            
            -Michael
                T. Heffner
            
            53,996,546
            
            6,419,534
            
            -Edward
                E. Urquhart
            
            30,701,119
            
            29,714,655
            
            -





**Approval
      of Stock Issuances:**





On
      March 27, 2007, the Board of
      Directors approved an annual compensation arrangement for non-employee Directors
      of the Company. Under the arrangement, each non-employee director shall receive
      a $125,000 annual retainer as well as an annual grant of options to purchase
      50,000 shares of our common stock, to vest immediately, with a ten (10) year
      term, effective on the last trading day of April each year. In addition, the
      non-employee Chairman of the Board will receive an additional $50,000 annual
      retainer and the non-employee Chairmen of standing committees of the Board
      will
      each receive an additional $25,000 annual retainer.





In
      order to conserve working capital
      for this year only, the Board resolved to accept shares of common stock of
      the
      Company in lieu of the cash retainer amounts.  The Board desired to
      maximize available cash resources to be used to implement the Company’s
      technology.  The numbers of shares of common stock issued to each
      non-employee director was calculated based on the share price of the grant
      date,
      which corresponds to the cash value of the annual retainer. A summary of the
      grants is as follows:





**Director**
            **Annual
                Retainer**
            **Grant
                Date**
            **Share
                Price 1**
            **Shares
                Issued**Robert
                H. C. van Maasdijk
            $175,000 2
            April
                4, 2007
            $3.86
            45,337Lawrence
                G. Schafran
            $150,000 3
            April
                4, 2007
            $3.86
            38,860Richard
                L. Masica
            $150,000 4
            April
                4, 2007
            $3.86
            38,860Dr.
                Hannes Farnleitner
            $125,000
            April
                4, 2007
            $3.86
            32,383Michael
                T. Heffner
            $125,000
            April
                4, 2007
            $3.86
            32,383Edward
                E. Urquhart
            $125,000
            April
                4, 2007
            $3.86
            32,383





The
      results of voting on the director stock issuances are as follows





For
            
            Against
            
            Abstain40,077,463
            
            -
            
            398,913





1The
      share price
      was based on the average of the high and the low prices of our common stock
      on
      the grant date.


2
      Mr.
      van Maasdijk was entitled to receive $50,000 in addition to the $125,000
      retainer for his service as Chairman of the Board.


3
      Mr.
      Schafran was entitled to receive $25,000 in addition to the $125,000 retainer
      for his service as Chairman of the Audit Committee.


4Mr. Masica was entitled to receive
      $25,000 in addition to the $125,000 retainer for his service as Chairman of
      the
      CompensationCommittee.





**Item
      5.   Other Information. -**None.





**Item
      6.   Exhibits**





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


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


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


99.1
            Form
                8-K filed on March 14, 2007 (incorporated by
                reference).





28


**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
                9,
                2007
            By:
            /s/ Larry
              RyanLarry
                Ryan
              Chief
                Executive Officer
              (Principal
                Executive Officer)Title


By:
            /s/ Stanley
              W. FarmerStanley
                W. Farmer
              Vice
                President and
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)


29