**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.................................................March
      31,
      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





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


(Exact
      Name of Registrant as Specified in its Charter)





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








**850
                Spice Islands Drive, Sparks, NV**
              (Address
                of principal executive offices)
            
            **89431**
              (Zip
                Code)





**(775)
      829-1310**


Registrant's
      telephone number, including area code





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





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





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





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act):


Yes  No  ü





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





Class        Outstanding
      at May 15, 2007





Common
      Stock, par
      value $.001      76,355,478
      shares







**PART
      I.**





**Item
      1. Financial Statements**




SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 BALANCE
        SHEETS
 March
        31,
        2007
 
 
 **March
                  31, 2007**
              
              **December
                  31, 2006****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              9,672,253
              
              $
              6,004,992Loan
                  receivable
              
              
              275,000
              
              
              275,000Advance
                  to related party
              
              
              95,627
              
              
              95,627Deposits
              
              
              62,657
              
              
              36,822Current
                  assets held for sale (net of accumulated depreciation of $86,303)
                  (Note
                  3)
              
              
              5,046
              
              
              6,073Prepaid
                  expenses and other
              
              
              192,569
              
              
              166,845Total
                  current assets
              
              
              10,303,152
              
              
              6,585,359**Property
                  and equipment (net of accumulated depreciation of $860,686) (Note
                  5)**
              
              
              170,977
              
              
              200,884**Other
                  Assets**Intangible
                  assets (net of accumulated amortization of $53,284 in 2007 and
                  $44,692 in
                  2006)
              
              
              556,120
              
              
              508,216Investment
                  in Joint Venture (Note 6)
              
              
              -
              
              
              -Deferred
                  tax asset (net of valuation allowance of $22,167,592 in 2007
                  and$20,157,917
                  in 2006)
              
              
              -
              
              
              -Total
                  other assets
              
              
              556,120
              
              
              508,216Total
                  assets
              
              $
              11,030,249
              
              $
              7,294,459**Current
                  Liabilities**Accounts
                  payable and accrued liabilities
              
              $
              2,462,752
              
              $
              3,709,302Refundable
                  deposit (Note 8)
              
              
              550,000
              
              
              550,000Accrued
                  fees and interest
              
              
              1,071,109
              
              
              957,828Related
                  party note payable (Note 9)
              
              
              5,000,000
              
              
              5,000,000Total
                  current liabilities
              
              
              9,083,861
              
              
              10,217,130**Commitments
                  and Contingencies (Note 14)**
              
              
              -
              
              
              --
              
              
              -**Stockholders'
                  Equity (Deficiency)**Preferred
                  stock: 10,000,000 shares authorized ($0.001 par value) none
                  issued
              
              
              -
              
              
              -Common
                  stock: 100,000,000 shares authorized ($0.001 par value)76,572,978
                  and 72,620,910 shares issued and outstanding at March 31, 2007
                  and
                  December 31, 2006 respectively.
              
              
              76,573
              
              
              72,621Paid
                  in capital
              
              
              75,834,843
              
              
              67,864,451Deficit
                  accumulated during the development stage
              
              
              (73,845,028
              )
              
              (70,856,288
              )Deemed
                  Dividend
              
              
              (120,000
              )
              
              -Accumulated
                  other comprehensive loss
              
              
              -
              
              
              (3,455
              )Total
                  stockholders' equity(deficiency)
              
              
              1,946,388
              
              
              (2,922,671
              )Total
                  liabilities and stockholders' equity(deficiency)
              
              $
              11,030,249
              
              $
              7,294,459
  The
        Accompanying Notes are an Integral Part of the Financial Statements
 1
  SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 STATEMENTS
        OF OPERATIONS
 For
        the
        Periods ended March 31, 2007, 2006 and from Inception
 
 
 **Three
                  Months Ended March 31**
              
              **Inception****2007**
              
              **2006**
              
              **to
                  date**(amended)**Revenue**Sales
              
              $
              -
              
              $
              -
              
              $
              42,967**Expenses**Selling,
                  general, and administrative expenses
              
              
              (1,953,670
              )
              
              (3,475,486
              )
              
              (42,411,014
              )Research
                  and development expensesFujairah
                  test facility
              
              
              (156,757
              )
              
              (5,117,640
              )
              
              (21,629,886
              )Other
              
              
              (816,764
              )
              
              (514,429
              )
              
              (7,955,135
              )Loss
                  on joint venture
              
              
              -
              
              
              -
              
              
              (136,095
              )Loss
                  on disposal of asset
              
              
              -
              
              
              -
              
              
              (221,711
              )Loss
                  on impairment of asset
              
              
              -
              
              
              -
              
              
              (233,900
              )Total
                  operating expenses
              
              
              (2,927,191
              )
              
              (9,107,555
              )
              
              (72,587,741
              )Loss
                  from operations
              
              
              (2,927,191
              )
              
              (9,107,555
              )
              
              (72,544,774
              )**Other
                  income (expense)**Interest
                  income
              
              
              52,759
              
              
              53,092
              
              
              781,229Gain
                  on sale of assets
              
              
              -
              
              
              -
              
              
              2,532Interest
                  expense
              
              
              (113,281
              )
              
              (125,199
              )
              
              (1,322,748
              )Late
                  registration fees
              
              
              -
              
              
              -
              
              
              (760,240
              )Loss
                  before taxes
              
              
              (2,987,713
              )
              
              (9,179,662
              )
              
              (73,844,001
              )Income
                  tax benefit (provision)
              
              
              -
              
              
              -
              
              
              -Loss
                  from continuing operations
              
              
              (2,987,713
              )
              
              (9,179,662
              )
              
              (73,844,001
              )Income
                  (loss) from discontinued operations
              
              
              (1,027
              )
              
              -
              
              
              (1,027
              )**Net
                  loss**
              
              $
              (2,988,740
              )
              $
              (9,179,662
              )
              $
              (73,845,028
              )Deemed
                  dividend as a result of warrant modification
              
              
              120,000
              
              
              -
              
              
              120,000**Net loss
                  attributable to common stockholders**
              
              $
              (2,868,740
              )
              $
              (9,179,662
              )
              $
              (73,725,028
              )Loss
                  per share: basic and diluted
              
              $
              (0.04
              )
              $
              (0.14
              )
              $
              (1.72
              )Weighted
                  average sharesbasic
                  and diluted
              
              
              73,938,266
              
              
              65,354,635
              
              
              43,044,895
  The
        Accompanying Notes are an Integral Part of the Financial Statements
 2
  SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 STATEMENTS
        OF CASH FLOWS
 For
        the
        Periods ended March 31, 2007
 
 **March
                  31**
              
              **Inception****2007**
              
              **2006**
              
              **to
                  date****Cash
                  Flows From Operating Activities**
              
              
              
              (amended)Net
                  loss
              
              $
              (2,988,740
              )
              $
              (9,179,662
              )
              $
              (73,845,028
              )Adjustments
                  to reconcile net loss to cash usedin
                  operating activities:Depreciation
                  & amortization
              
              
              42,514
              
              
              63,312
              
              
              1,040,078Stock
                  and options issued for services
              
              
              66,670
              
              
              1,214,250
              
              
              10,215,512Stock
                  issued for interest expense
              
              
              -
              
              
              -
              
              
              296,000Contribution
                  from stockholder
              
              
              -
              
              
              -
              
              
              555,000Loss
                  from joint venture
              
              
              -
              
              
              776
              
              
              136,096Loss
                  on disposal and impairment of asset
              
              
              -
              
              
              -
              
              
              455,611Decrease
                  in legal settlement
              
              
              -
              
              
              -
              
              
              -Deposit
                  used for expense
              
              
              -
              
              
              100,000
              
              
              100,000(Increase)
                  decrease in accounts receivable
              
              
              955
              
              
              (547
              )
              
              (117,702
              )(Increase)
                  decrease in prepaid expenses and other
              
              
              (26,680
              )
              
              41,005
              
              
              (170,496
              )Increase
                  (decrease) in accounts payableand
                  accrued liabilities
              
              
              (1,129,814
              )
              
              790,665
              
              
              2,501,678Increase
                  in refundable deposit
              
              
              (25,835
              )
              
              -
              
              
              524,165Increase
                  in accrued fees and interest
              
              
              -
              
              
              115,199
              
              
              545,985Net
                  cash used in operating activities
              
              
              (4,060,930
              )
              
              (6,855,002
              )
              
              (57,763,101
              )**Cash
                  Flows From Investing Activities**Advances
                  for loan receivable
              
              
              -
              
              
              (100,000
              )
              
              (100,000
              )Purchase/sale
                  of property and equipment
              
              
              (2,988
              )
              
              (20,648
              )
              
              (1,018,528
              )Investments
                  in joint ventures and subsidiaries
              
              
              -
              
              
              -
              
              
              (357,806
              )Return
                  / (payment) of deposits
              
              
              -
              
              
              (7,850
              )
              
              (36,822
              )Investments
                  in intangible assets
              
              
              (56,495
              )
              
              (88,074
              )
              
              (625,245
              )Net
                  cash used in investing activities
              
              
              (59,483
              )
              
              (216,572
              )
              
              (2,141,856
              )**Cash
                  Flows from Financing Activities**Proceeds
                  from issuance of stock
              
              
              7,787,674
              
              
              35,389,927
              
              
              58,786,850Proceeds
                  from stock subscriptions
              
              
              -
              
              
              -
              
              
              4,240,887Proceeds
                  from issuance of related party notes payable
              
              
              -
              
              
              -
              
              
              11,000,000Proceeds
                  from issuance of line of credit
              
              
              -
              
              
              -
              
              
              750,000Return
                  on capital
              
              
              -
              
              
              -
              
              
              (118,427
              )Principal
                  payments on related party notes payable
              
              
              -
              
              
              -
              
              
              (3,250,000
              )Decrease
                  in related party receivable
              
              
              -
              
              
              -
              
              
              1,359,185Payments
                  on contract payable
              
              
              -
              
              
              -
              
              
              (250,000
              )Principal
                  payments on line of credit
              
              
              -
              
              
              -
              
              
              (750,000
              )Principal
                  payments on advance from related party
              
              
              -
              
              
              -
              
              
              (2,191,285
              )Net
                  cash provided by financing activities
              
              
              7,787,674
              
              
              35,389,927
              
              
              69,577,210Net
                  increase (decrease) in cash and cash equivalents
              
              
              3,667,261
              
              
              28,318,353
              
              
              9,672,253Cash
                  and cash equivalents at beginning of period
              
              
              6,004,992
              
              
              6,874,653
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              9,672,253
              
              $
              35,193,006
              
              $
              9,672,253**Supplemental
                  Information and non cash transactions**Total
                  interest payments included in operations
              
              $
              -
              
              $
              334,251The
                  Company paid no income taxes during 2007 and 2006.Noncash
                  investing and financing activity: The Company incurred a deemed
                  dividend
                  of $120,000 in issuing securities (see Note
                  10)
  The
        Accompanying Notes are an Integral Part of the Financial
        Statements
 3


SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 NOTES
        TO THE INTERIM FINANCIAL STATEMENTS
 March
        31,
        2007
 (unaudited)
 
 **1.** **Basis
        of Presentation**
  The
        accompanying unaudited interim financial statements of Sulphco, Inc., (the
        “Company”) have been prepared by the Company in accordance with generally
        accepted accounting principles for interim financial statements in the United
        States of America, pursuant to the Securities and Exchange Commission rules
        and
        regulations. In management’s opinion, all adjustments necessary for a fair
        presentation of the results for the interim periods have been reflected in
        the
        interim financial statements. The results of operations for any interim period
        are not necessarily indicative of the results for a full year. All adjustments
        to the financial statements are of a normal recurring nature.
 
 Certain
        information and footnote disclosures normally included in audited financial
        statements prepared in accordance with generally accepted accounting principles
        for audited financial statements have been condensed or omitted. Such
        disclosures are those that would substantially duplicate information contained
        in the most recent audited financial statements of the Company, such as recent
        accounting pronouncements. Management presumes that users of the interim
        statements have read or have access to the audited financial statements and
        notes thereto included in the Company’s most recent annual report on Form
        10-K.
 
 **Going
        Concern**
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the settlement of liabilities
        and commitments in the normal course of business.  As reflected in the
        accompanying financial statements, as of March 31, 2007, the Company has
        cash on
        hand of approximately $9.67 million, working capital of approximately $1.2
        million, a current quarterly net loss to common shareholders of approximately
        $3
        million and an accumulated deficit of approximately $73.8 million.  These
        factors raise substantial doubt about its ability to continue as a going
        concern.  The ability of the Company to continue as a going concern is
        dependent on the Company’s ability to raise additional funds and implement its
        business plan.
 
 In
        April
        2007, the Company entered into an amendment to a promissory note (see Notes
        9
& 16), which allows for the note to be converted into common stock as well
        as extending the maturity date from December 31, 2007 to December 31, 2008,
        which will improve the liquidity position of the Company for the remainder
        of
        2007.
  **Reclassification**
 
 For
        comparative purposes, certain amounts previously included in selling, general
        and administrative expenses have been restated as research and development
        expenses for prior periods from the beginning of 2006.
  4
  The
        following summarizes the reclassifications made:
 
 Quarter
                  ended
              
              March,2006Sales,
                  general, &administrative
                  expenses
              
              (restated)Original
                  filing
              
              $
              3,770,144Depreciation
                  &amortization
                (separatelystated
                  in original filing)
              
              
              -Reclassifications
              
              
              (294,658
              )Reclassified
              
              $
              3,475,486Research
                  & developmentOriginal
                  filing
              
              $
              219,771Reclassifications
              
              
              294,658Reclassified
              
              $
              514,429
 
 
 **2.** **Loans
        Receivable and Accrued Interest**
 
 On
        February 16, 2006 the Company committed to a loan agreement with SulphCo
        KorAsia
        (formerly known as OIL-SC, Ltd.) of South Korea. The agreement called for
        advances of $50,000 per month through May 15, 2006. A total of $150,000 was
        advanced through May, 2006. An additional $50,000 was advanced June 6, 2006
        under the same terms as the original note and in November 2006, an additional
        $75,000 was advanced, with a revision to the loan agreement that the full
        $275,000 in advances and related interest would be immediately repaid from
        revenues or from proceeds of any equity financings. Interest accrues at prime
        rate plus 1% per annum. Interest accrued since February 16, 2006 totals $20,186.
        The Company also holds a refundable deposit of SulphCo KorAsia, which could
        be
        used to offset the loan receivable, should it be determined that SulphCo
        KorAsia
        could not repay the loan and accrued interest.(see Note 8).
 
 In
        July
        2006 the Company advanced $191,352 (690,000 Dirhams) to Fujairah Oil Technology,
        LLC (the “LLC”) to more easily pay for Company expenditures in Fujairah. See
        Note 6. Funds totaling 338,674 Dirhams have been expended by the LLC on behalf
        of the Company. The net amount of 351,326 Dirhams, or approximately $95,627,
        is
        reflected as a related party loan receivable. As the LLC holds this amount
        in
        cash on behalf of the Company, no allowance has been taken for
        collectibility.
 
 **3.** **Current
        Assets Held For Sale**
 
 In
        the
        first quarter of 2007, the Company concluded that its probe manufacturing
        operations would be conducted by outside vendors and that all probe
        manufacturing at its Sparks, Nevada location would be discontinued. The assets
        associated with these discontinued operations will be sold beginning in the
        second quarter of 2007.
  5
  The
        following is a summary of those assets held for sale - at cost, less accumulated
        depreciation:
 
 **March
                  31, 2007**
              
              **December
                  31, 2006**Equipment
                  in Nevada
              
              $
              58,064
              
              $
              58,064Computers
              
              
              33,285
              
              
              33,285Office
                  furniture
              
              
              0
              
              
              0Leasehold
                  improvements
              
              
              0
              
              
              091,349
              
              
              91,349Less:
                  Accumulated depreciation
              
              
              (86,303
              )
              
              (85,276
              )Total
              
              $
              5,046
              
              $
              6,073
 
 Depreciation
        expense was $1,027 and $3,963 for the three months ended March 31, 2007 and
        for
        the three months ended March 31, 2006, respectively.
 
 **4.** **Prepaid
        Expenses**
 
 Prepaid
        expenses and other includes $80,852 in prepaid insurance, which is amortized
        over the duration of the policies. The insurance policies expire in 2007.
        Also
        included in prepaid expenses is a legal retainer in the amount of $58,000
        and a
        prepayment of $18,500 for the services of a consultant.
 
 **5.** **Property
        and Equipment**
 
 The
        following is a summary of property, plant, and equipment - at cost, less
        accumulated depreciation:
 
 **March
                  31, 2007**
              
              **December
                  31, 2006**Equipment
                  in Nevada
              
              $
              714,321
              
              $
              714,321Computers
              
              
              169,285
              
              
              166,297Office
                  furniture
              
              
              57,116
              
              
              57,116Leasehold
                  improvements
              
              
              90,941
              
              
              90,9411,031,663
              
              
              1,028,675Less:
                  Accumulated depreciation
              
              
              (860,686
              )
              
              (827,791
              )Total
              
              $
              170,977
              
              $
              200,884
 
 Depreciation
        expense was $32,895 and $53,683 for the three months ended March 31, 2007
        and
        for the three months ended March 31, 2006, respectively.
  The
          following is a summary of intangible assets—at cost, less accumulated
          amortization.
  **March
                      31, 2007**
                  
                  **December
                      31, 2007**Patents
                      and trademarks
                  
                  $
                  609,404
                  
                  $
                  552,908Less:
                      Accumulated amortization
                  
                  
                  (53,284
                  )
                  
                  (44,692
                  )Total
                  
                  $
                  556,120
                  
                  $
                  508,216
 **6.** **Investment
        in Joint Venture**
 
 In
        November 2005, the Company and Trans Gulf Petroleum Co., a Government of
        Fujairah company, formed Fujairah Oil Technology LLC (the “LLC”), a United Arab
        Emirates limited liability company, to implement the Company’s SonocrackingTM
desulfurization technology. The LLC is 50% owned by Trans Gulf Petroleum
        and 50%
        owned by SulphCo, Inc. Fujairah is one of the seven Emirates of the United
        Arab
        Emirates.
 
 The
        formation agreement called for each shareholder to contribute 500,000 Dirhams
        for a 50% ownership in the LLC. On December 14, 2005, the Company wired to
        the
        LLC its 500,000 Dirhams, which equaled $139,550. The 50% contribution by
        Trans
        Gulf Petroleum was received by the LLC in January, 2006.
  6
  The
        LLC’s
        operations began in 2006. In the three months ended March 31, 2007, its
        financial activities consisted primarily of leasing office space, and acquiring
        leasehold improvements and office furniture and equipment. The lease commenced
        March 15, 2006. There was a loss of 103,685 Dirhams of which 50% (US $51,843)
        has been reflected by the Company.
  Depreciation
        expense was $32,895 and $53,683 for the
        three months ended March 31, 2007 and for the three months ended March 31,
        2006,
        respectively.
 
 The
        Company entered into an agreement to construct a building for $1.6 million
        for
        the LLC operations. Subsequently the building plans were expanded requiring
        an
        additional $600,000 for construction. The Company has paid $1.9 million to
        the
        construction company. Although it is anticipated that the cost of the building
        will be borne by the LLC, there is no agreement currently in place.
 
 As
        of
        March 31, 2007 and for the three months then ended, the LLC had the following
        condensed balance sheet and operating statement converted to US
        dollars:
 
 Condensed
                  Balance Sheet, March 31, 2007:Current
                  assets
              
              $
              217,217Depreciable
                  assets (net)
              
              
              90,622Other
                  assets
              
              
              1,633Total
                  assets
              
              $
              309,472Current
                  liabilities
              
              $
              34,372Due
                  to SulpCo
              
              
              95,648Members’
                  equity
              
              
              179,452Total
                  liabilities and members’ equity
              
              $
              309,472Operating
                  Statement, Three Months Ended March 31, 2007:Revenue
              
              $
              -0-Operating
                  expenses
              
              
              (61,159
              )Non-operating
                  expense
              
              
              (3,397
              )Net
                  loss
              
              $
              (64,556
              )
 The
          Company’s 50% share of distributions made by the joint venture will also be
          subject to other costs and expenses incurred directly by the Company from
          time
          to time, including commissions payable directly by the Company to third
          parties,
          presently estimated at up to 10% of the Company’s net joint venture profits. The
          Company is uncertain that it will be able to recover its investment in
          the LLC.
          Accordingly, the carrying value of the investment has been reduced to
          $0.
 **7.** **Deposits**
 
 The
        Company had a deposit of $36,822, as of March 31, 2007, on the lease of
        facilities in Nevada. The Company also had a deposit of $27,500 for services
        related to the construction of the Fujairah test facility.
 
 **8.** **Refundable
        Deposit**
 
 In
        2005,
        we received $550,000 from SulphCo KorAsia (formerly known as OIL-SC, Ltd.),
        pursuant to our Equipment Sale and Marketing Agreement. As this amount is
        fully
        refundable if the pilot plant does not meet the agreed specifications, no
        portion of the purchase price has been or will be recorded as revenue in
        our
        financial statements until the pilot plant meets all agreed specifications.
        We
        do not have an equity interest in SulphCo KorAsia.
  7
  **9.** **Note
        Payable**
 
 The
        Company’s note payable as of March 31, 2007 is as follows:
 
 On
        December 31, 2004, under the Board’s approval, the Company borrowed $7,000,000
        in the form of a long-term note from the then Chairman and CEO. Interest
        on the
        note is adjusted quarterly based on a London Inter-Bank Offering Rate (“LIBOR”)
        plus 0.5% per annum, with payments due on December 31 of 2005, and 2006,
        and the
        remaining accrued interest and principal due on December 31, 2007 when the
        note
        matures. On May 15, 2006, under Board approval, the Company paid $2,000,000
        in
        principal on the note. Interest related to this note of $72,820 has been
        accrued
        as of March 31, 2007 at the adjusted rate for the quarter of
        5.82563%.
 
 The
        annual payment obligations related to this note based on the current 2007
        interest rates, assuming no early retirements of principal, are as
        follows:
 
 Principal
              
              Interest
              
              Total2007:Principal
                  due
              
              $
              5,000,000
              
              
              
              
              $
              5,000,000Interest
                  due
              
              
              -
              
              $
              291,282
              
              
              291,282Totals
              
              $
              5,000,000
              
              $
              291,282
              
              $
              5,291,282Thereafter
              
              
              None
              
              
              None
              
              
              NoneTotals
              
              $
              5,000,000
              
              $
              291,282
              
              $
              5,291,282
 
 On
        April
        27, 2007, this promissory note was assigned to various investors (the
“Investors”). The assigned notes were amended by an amendment to the note, which
        extended the maturity date from December 31, 2007 to December 31, 2008.
        Additionally, the notes may be converted into shares of common stock at a
        conversion price of $3.80 per share. (see Note 16)
 
 **10.** **Capital
        Stock**
 
 Other
        than the compensation transactions disclosed in Note 13 and the related party
        transactions disclosed in Note 15, the Company had the following transactions
        related to its common stock during the three months ended March 31,
        2007:
 
 On
        March
        12, the Company raised $7,899,689.00 through an exercise of outstanding
        warrants. All but 25,412 of the warrants issued pursuant to the Securities
        Purchase Agreements, dated as of June 1, 2004 and June 14, 2004, were exercised
        at their stated exercise prices of $1.125 and $1.5625, respectively. 2,000,000
        warrants issued pursuant to the Securities Purchase Agreement, dated as of
        March
        29, 2006 (the “2006 Warrants”), were exercised at $2.68, which was a reduction
        from the original exercise price of $6.805 resulting in a deemed dividend
        (See
        Note 11). The warrant holders received 2,000,000 additional warrants (the
        “Additional Warrants”) to replace all of the warrants that were exercised on a
        one to one basis. Each Additional Warrant expires on March 12, 2010 and entitles
        the holder to purchase one share of common stock at $2.68.
  8
 
 **11.** **Deemed
        Dividend**
 
 Warrants
        for 2,000,000 shares issued pursuant to the Securities Purchase Agreement,
        dated
        as of March 29, 2006 (the “2006 Warrants”) were exercised at $2.68, which was a
        reduction from the original exercise price of $6.805. This transaction has
        been
        reflected as a “deemed dividend” in the amount of $120,000 on the statement of
        operations.
 
 On
        March
        29, 2006, the Company completed a private placement with 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 $27.2million. The 2006 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 Company filed a Registration Statement
        with the SEC following the closing covering the resale of the shares of Common
        Stock issued at closing and shares issuable upon exercise of the 2006
        Warrants
  On
        March
        12, 2007, the 2006 Warrants were repriced to an exercise price of $2.68 per
        share and 2,000,000 such warrants were exercised. In connection with this
        repricing, the holder of these warrants received new warrants to purchase
        2,000,000 shares at an exercise price of $2.68. The Company raised $7,899,689
        through the repricing and exercise of outstanding warrants. As a result of
        this
        repricing of the existing warrants and the issuance of these new warrants,
        the
        Company recorded a deemed dividend in the amount of $120,000 in the first
        quarter of 2007.
 
 **12.** **Loss
        Per Share**
 
 The
        computations of basic and diluted loss per common share are based upon the
        weighted average number of common shares outstanding and potentially dilutive
        securities. Potentially dilutive securities include stock options and unvested
        shares of restricted stock. Options to purchase 4,654,912 and 4,964,912 shares
        of common stock were not included in the March 31, 2007 and 2006 computations
        of
        diluted net loss per share, respectively, because inclusion of such shares
        would
        have an anti-dilutive effect on net loss per share.
 
 **13.** **Stock
        Plans and Share-Based Compensation**
 
 The
        Company records compensation in the form of grants of common stock and options
        for common stock at fair value in accordance with the Statement of Financial
        Accounting Standards No. 123 R.
 
 Effective
        January 1, 2006 in consideration of Michael Applegate’s agreement to join the
        Company as Chief Operating Officer, he was granted 50,000 restricted shares
        of
        the Company’s common stock valued at $636,000 or $12.72 per share, the closing
        value on January 3, 2006, the first trading day after the effective date
        of the
        contract. This grant vested at the end of the 90 day period beginning January
        1,
        2006 and was thus an expense for the first quarter of 2006.
 
 In
        February 2006, the Company granted to Michael Heffner 50,000 restricted shares
        of common stock valued at $8.80 per share, the closing price on February
        6,
        2006, the effective date of his appointment to the Board of Directors, for
        services valued at $440,000.
  9
  Effective
        February 1, 2006, the Company entered into a consulting agreement with Thomas
        J.
        Nardi to provide engineering-construction consulting services on a
        month-to-month basis.  The consulting agreement provides that for each
        month the consulting agreement is in effect, Mr. Nardi will receive options
        to
        purchase 1,000 shares of our common stock, exercisable within one year, at
        an
        exercise price of $7.00 per share. During the quarter ended March 31, 2006,
        Mr.
        Nardi earned options to purchase 2,000 shares at $7.00 per share under this
        agreement. The fair value of these options totaled $8,050 based on the
        Black-Scholes valuation model using the assumptions described below. This
        consulting agreement ended in March 2006.
 
 On
        March
        29, 2006 the Company entered into a contract with Mustang International,
        L.P.
        (“Mustang”) for program management, engineering, procurement, construction
        management, and other services to be performed. Initially it oversees
        engineering and construction for the project in Fujairah, United Arab Emirates.
        Mustang’s fee for these services includes stock grants and options as follows:
        (i) 17,500 of the Company’s shares of common stock, with a provision for
        reimbursement to the Company by Mustang of the value of the grant if the
        contract is terminated by Mustang, and (ii) options to acquire 52,500 shares
        of
        the Company’s common stock at $6.00 per share, exercisable by April 1, 2010. The
        value of these services is included in research and development expense as
        it
        relates to plant and equipment construction-in-progress which has been restated.
        The 17,500 shares are valued at the $7.44 closing price on March 29, 2006,
        or
        $130,200. The options were valued at $357,525 based on the Black-Scholes
        valuation model using the assumptions described below.
 
 On
        January 12, 2007, the Company granted to Larry Ryan, CEO, options to purchase
        150,000 restricted shares of common stock valued at $3.54 per share, the
        closing
        price that day, the effective date of the grant. The 150,000 options are
        comprised of three groups of options of 50,000 units, each vesting on January
        12
        over three consecutive years, 2008, 2009, and 2010 and are issued under the
        stock option plan approved by the shareholders in June 2006. The option expense
        for the first quarter of 2007 was valued at $47,520 based on the Black-Scholes
        valuation model using the assumptions described below.
 
 On
        March
        9, 2007, the Company granted to Brian Savino, President, options to purchase
        200,000 restricted shares of common stock valued at $2.66 per share, the
        closing
        price that day, the effective date of the grant. The 200,000 options are
        comprised of three groups of options (66,666, 66,667 and 66,667 units), each
        vesting on March 9 over three consecutive years, 2008, 2009, and 2010 and
        are
        issued under the stock option plan approved by the shareholders in June 2006.
        The option expense for the first quarter of 2007 was $13,240 based on the
        Black-Scholes valuation model using the assumptions described below.
 
 The
        tables below describe the assumptions used in the Black-Scholes calculations
        for
        valuing options. In every case expected volatility is based upon calculated
        historical volatility of Company stock over the same term or expected term
        used
        to calculate the option value.
  For
        Larry
        Ryan’s options:
 Dates
                  of options
              1/12/07
              1/12/07
              1/12/07Vesting
                  Date
              1/12/08
              1/12/09
              1/12/10Term
              10
                  years
              10
                  years
              10
                  yearsExpected
                  volatility
              117%
              138%
              150%Expected
                  dividends
              None
              None
              NoneRisk-free
                  interest rate
              4.8%
              4.8%
              4.8%Discount
                  for post-vesting restrictions
              None
              None
              None
  10
  For
        Brian
        Savino’s options:
 Dates
                  of options
              3/9/07
              3/9/07
              3/9/07Vesting
                  Date
              3/9/08
              3/9/09
              3/9/10Term
              10
                  years
              10
                  years
              10
                  yearsExpected
                  volatility
              114%
              138%
              146%Expected
                  dividends
              None
              None
              NoneRisk-free
                  interest rate
              4.6%
              4.6%
              4.6%Discount
                  for post-vesting restrictions
              None
              None
              None
  The
        timing and amount of revenues generated by the Company is subject to various
        risks and uncertainties. For further information regarding risks and
        uncertainties, please refer to the other information in this Report together
        with previous reports on Form 10-K for the year ended December 31, 2006,
        and
        amended Form 10-Q/A for the quarter ended March 31, 2006.
  **14.**
              **Commitments
                  and Contingencies**
 
 Financial
        instruments, which potentially subject the Company to concentrations of credit
        risk, consist mainly of cash equivalents. The Company maintains amounts in
        three
        U.S. accounts, two checking accounts and a money market account on deposit
        with
        two financial institutions, which exceed federally insured limits by
        approximately $9.37 million at March 31, 2007. The Company has not experienced
        any significant losses in such accounts, nor does management believe it is
        exposed to any significant credit risk.
 
 At
        March
        31, 2007, the Company has a $550,000 refundable deposit in connection with
        an
        agreement with KorAsia (formerly OIL-SC) for a pilot plant in South Korea.
        Until
        KorAsia accepts in writing the results of the pilot plant, the $550,000 is
        refundable at their option. KorAsia has agreed to pay the remaining payment
        of
        $450,000 within seven days after the first commercial license agreement for
        the
        SonocrackingTM technology between the Company and a Korean refining company,
        provided that KorAsia uses the funds for continued marketing activities
        regarding the Sonocracking technology in Korea.
 
 On
        January 31, 2007, the Company entered into an agreement to extend the lease
        of
        the facility in Sparks, Nevada. The lease, which was set to expire on February
        28, 2007, was extended through May 31, 2007 at $42,608 per month to allow
        the
        Company and its new management to explore its options of remaining at the
        facility or moving its offices to a new location.
 
 There
        are
        various claims and lawsuits pending against the Company arising in the normal
        course of the Company’s business. Although the amount of liability at March 31,
        2007 cannot be ascertained, management is of the opinion that these claims
        and
        lawsuits will not materially affect the Company’s financial position. We have
        and will continue to devote significant resources to our defense, as necessary.
        The following paragraphs set forth the current status of
        litigation.
  11
  In *Clean
        Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc. and SulphCo,
        Inc.* ,
        the
        Company, Rudolf Gunnerman, Peter Gunnerman, and RWG, Inc., were named as
        defendants in a legal action commenced in Reno, Nevada. The Plaintiff alleged
        claims relating to “sulfur removal technology” originally developed by Professor
        Teh Fu Yen and Dr. Gunnerman with financial assistance provided by Dr.
        Gunnerman, and subsequently assigned to the Company. On December 18, 2006,
        following a trial, the jury found in the Company’s favor on both claims asserted
        against the Company by the Plaintiff. The Plaintiff has since requested
        equitable relief, including the imposition of a constructive trust, from
        the
        Judge who presided over the trial. On May 3, 2007, the Court denied Plaintiff’s
        request for equitable relief And constructive trust.
  In *The
        Matter of the Arbitration between Stan L. McLelland v. SulphCo,
        Inc.* ,
        Mr.
        McLelland, who was the Company's president from August 13, 2001, until he
        resigned on September 12, 2001, is seeking to exercise options to purchase
        two
        million (2,000,000) shares of the Company’s common stock at 50 cents per share.
        It is the Company’s position that those options had not vested prior to Mr.
        McLelland's resignation. Mr. McLelland also seeks salary for the six months
        following his resignation and $20,000 of alleged unpaid commuting expenses,
        as
        well as attorneys' fees and costs. Discovery is closed, and the arbitrator
        recently denied the parties’ cross-motions for summary judgment on the options
        issue. The arbitration hearing is set to take place on June 12,
        2007.
  On
        October 20, 2006, Mark Neuhaus filed a lawsuit against the Company and Rudolf
        W.
        Gunnerman, *Mark
        Neuhaus v. SulphCo, Inc., Rudolph W. Gunnerman* ,
        in the
        Second Judicial District Court, in and for the County of Washoe, Case No.
        CV06
        02502, Dept. No. 1. The lawsuit is based on a purported Non-Qualified Stock
        Option Agreement and related Consulting Agreement between Mark Neuhaus and
        the
        Company dated March of 2002. Mark Neuhaus claims that according to the terms
        of
        the Non-Qualified Stock Option Agreement, he was granted an option to purchase
        three million (3,000,000) shares of the Company’s common stock at the exercise
        price per share of $0.01. On or about February of 2006, Mark Neuhaus attempted
        to exercise the option allegedly provided to him under the Non-Qualified
        Stock
        Option Agreement. At that time, the Company rejected Mr. Neuhaus’s attempt to
        exercise the option. Thereafter, Mr. Neuhaus filed this lawsuit seeking to
        enforce the Non-qualified Stock Option Agreement. In his suit, Mr. Neuhaus
        includes claims for specific performance, breach of contract, contractual
        breach
        of the covenant of good faith and fair dealing, and tortious breach of the
        covenant of good faith and fair dealing. He requests the Court to compel
        the
        Company to issue the shares or alternatively to award him damages equal to
        the
        fair market value of the three million (3,000,000) shares of stock when he
        purported to exercise the options, minus the exercise price. On December
        7,
        2006, the Company moved to dismiss the lawsuit. On January 4, 2007, the Court
        issued an Order denying the motion on the ground that there were factual
        issues
        to be resolved which prevented dismissal at that time. The Company filed
        an
        Answer to the Complaint, as well as a counterclaim against Mr. Neuhaus and
        a
        cross claim against Rudolf Gunnerman on March 29, 2007. Mr. Neuhaus filed
        a
        motion to dismiss the counterclaim on April 11, 2007. We opposed the motion
        on
        April 27, 2007. Briefing has not yet been completed. Trial in this matter
        is
        scheduled for September 24, 2007.
  On
        January 26, 2007, Thomas Hendrickson filed a shareholder derivative claim
        against certain current and former officers and directors or the Company
        in the
        Second Judicial District Court of the State of Nevada, in and for the County
        of
        Washoe. The case is known as *Thomas
        Hendrickson, Derivatively on Behalf of SulphCo, Inc. v. Rudolf W. Gunnerman,
        Peter W. Gunnerman, Loren J. Kalmen, Richard L. Masica, Robert Henri Charles
        Van
        Maasdijk, Hannes Farnleitner, Michael T. Heffner, Edward E. Urquhart, Lawrence
        G. Schafran, Alan L. Austin, Jr., Raad Alkadiri and Christoph
        Henkel* ,
        Case
        No. CV07 00137, Dept. No. B6. The complaint alleges, among other things,
        that
        the defendants breached their fiduciary duty to the Company by failing to
        act in
        good faith and diligence in the administration of the affairs of the Company
        and
        in the use and preservation of its property and assets, including the Company’s
        credibility and reputation. The Company and the Board intend to file a Motion
        for Dismissal with the Court, based upon the Plaintiff’s failure to make a
        demand upon the Board.
  12
  On
        June
        26, 2006, the Company filed an action, *SulphCo,
        Inc. v. Cullen* ,
        in the
        Second Judicial District Court of the State of Nevada, in and for the County
        of
        Washoe, Case No. CV06-01490, against Mark Cullen arising out of Mr. Cullen’s
        alleged breach of a secrecy agreement that he had executed when employed
        by GRD,
        Inc., whose claims have accrued to the Company. The lawsuit seeks damages,
        a
        constructive trust, and an order requiring Mr. Cullen to assign to the Company
        certain intellectual property in the form of patent applications (as well
        as a
        now-issued patent) that he filed following his departure from the Company.
        On
        October 23, 2006, Mr. Cullen moved to dismiss the Company’s complaint; the
        motion was denied. On February 26, 2007, Mr. Cullen filed an amended answer
        to
        the Company’s complaint. That Answer included counterclaims for breach of
        contract, unfair competition, interference with contractual relations, and
        interference with prospective economic advantage. The case was dismissed
        without
        prejudice on April 25, 2007, but the Company retains the ability to revive
        its
        claims at a later date.
 
 **15.** **Subsequent
        Events**
 
 On
        April
        15, 2007, the Company entered into a lease agreement with Michael Heffner,
        a
        director of the Company. Under the lease agreement, the Company leases a
        furnished apartment for officer’s use in Reno, Nevada for $1,500 per month and
        can be cancelled at any time by either party.
 
 On
        April
        4, 2007, the board of directors approved stock options for members of the
        board,
        and for the CEO and Interim CFO of the Company under the 2006 Stock Option
        Plan
        approved by shareholders at the 2006 shareholder meeting (See Note 13). The
        options, totaling 360,000 shares, are exercisable after April 4, 2008 at
        $3.86
        per share, the closing price of the Company’s stock the day the options were
        granted, and have an expiration date of April 4, 2017.
 
 On
        April
        27, 2007, the Company entered into an amendment to a promissory note (see
        Note
        9) with various investors (the “Investors”). The Investors purchased the
        promissory notes pursuant to an assignment of the note, which was originally
        issued to Rudolf Gunnerman, the former CEO of the Company in the principal
        amount of $7,000,000 and paid down $2,000,000 by the Company in 2006. The
        assigned notes were amended by the amendment by extending the maturity date
        from
        December 31, 2007 to December 31, 2008. Additionally, the notes may be converted
        into shares of common stock at a conversion price of $3.80 per
        share.
 
 **16.** **Recent
        Accounting Pronouncements**
 
 The
        Fair
        Value Option for Financial Assets and Financial Liabilities—Including an
        amendment of FASB Statement No. 159
 
 This
        Statement permits entities to choose to measure many financial instruments
        and
        certain other items at fair value. The objective is to improve financial
        reporting by providing entities with the opportunity to mitigate volatility
        in
        reported earnings caused by measuring related assets and liabilities differently
        without having to apply complex hedge accounting provisions. The company
        intends
        to measure financial instruments using this fair value method.
 On
          January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting
          for
          Uncertainty in Income Taxes (FIN 48). Implementation of FIN 48 did not
          result in
          a cumulative effect adjustment to retained earnings. At January 1, 2007,
          the
          Company did not have unrecognized tax liabilities. During the quarter,
          no impact
          income tax expense was recorded as a result of FIN 48
          implementation.


13


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





**Results
      of Operations**





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





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





**Research
      and Development Expenses**




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




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




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





**Selling,
      General and Administrative Expenses**




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





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





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





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


14


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





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





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





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





**Interest
      Expense**




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





**Late
      Registration**




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




**Depreciation
      and Amortization**




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





**Deemed
      Dividend**





In
      an
      effort to improve our cash situation and our shareholders' equity, we have
      induced holders of certain of our warrants to exercise their warrants by
      lowering the exercise price of the warrants in exchange for immediate exercise
      of such warrants, and by issuing to such investors new warrants. Under such
      circumstances, we record a deemed dividend in an amount determined based upon
      the fair value of the new warrants (using the Black-Scholes pricing model).
      As
      and to the extent that we engage in similar warrant repricings and issuances
      in
      the future, we would incur similar non-cash charges. Warrants issued pursuant
      to
      the Securities Purchase Agreement, dated as of March 29, 2006 (the “2006
      Warrants”) were exercised at $2.68, which was a reduction from the original
      exercise price of $6.805. This transaction has been reflected as a “deemed
      dividend” in the amount of $120,000 on the statement of operations.


15


**Net
      Loss**




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




**Liquidity
      and Capital Resources**





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





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





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





***Liquidity***





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





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





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


16


***Recent
      Financing Activities***





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





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





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





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





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





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





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


17


**Forward-Looking
      Statements**





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





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





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





**Item
      4. Controls and Procedures**





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.





As
      of
      December 31, 2005 and in subsequent quarters through March 31, 2007 we have
      concluded that our disclosure controls and procedures regarding information
      required to be included in SEC reports were not effective due to material
      weaknesses, and we might find other material weaknesses in the future which
      may
      adversely affect our ability to provide timely and reliable financial
      information and satisfy our reporting obligations under federal securities
      laws.
      As a result of these weaknesses management has concluded that as of December
      31,
      2005, and in subsequent quarters through March 31, 2007, our disclosure controls
      and procedures were not effective as of such dates. In particular, management
      concluded that:





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





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


18


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





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





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





The
      Company has attempted to address these issues and continues to address them
      as
      it makes transitions with new management. The Company has hired a new CEO and
      a
      new President and intends to hire additional personnel with the financial
      expertise it currently lacks, and we have taken and are taking steps to
      remediate the material weaknesses in our disclosure controls and procedures,
      including the adoption of written policies for the areas found to be deficient.
      However, we have not completed our remediation effort and we cannot assure
      you
      that we will completely remediate our material weaknesses. We might find other
      material weaknesses in the future. Our Chief Financial Officer resigned March
      23, 2007, and we are actively seeking a replacement, but cannot be assured
      that
      we will easily find a qualified replacement or one who can smoothly assist
      us in
      strengthening our disclosure controls and procedures. To the extent that any
      significant or material weaknesses exist in our disclosure controls and
      procedures, such weaknesses may adversely affect our ability to provide timely
      and reliable information necessary for the conduct of our business and
      satisfaction of our reporting obligations under federal securities laws,
      including the preparation of interim and annual financial statements in
      accordance with generally accepted accounting principles and SEC rules. As
      a
      result, current and potential stockholders could lose confidence in our
      reporting, which would harm our business and the trading price of our
      stock.


19


**PART
      II. OTHER INFORMATION**





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





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




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




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




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


20


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





**Item
      1A. Risk Factors**





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


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





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


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


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


21


**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:
                  May 15, 2007
              /s/ 
                  Larry
                  RyanBy:
                  Larry RyanChief Executive Officer/s/ 
                  Michael A.
                  AbendBy:
                  Michael A. AbendInterim Chief Financial Officer(Principal Financial and Accounting
                  Officer)


22