**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.................................................September 30,
      2007**


OR





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


**SECURITIES
      EXCHANGE ACT OF 1934**





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





**Commission
      file number 001-32636**





**SULPHCO, INC.**


(Exact
      Name of Registrant as Specified in its Charter)





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





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




**(713)
      896-9100**


Registrant's
      telephone number, including area code





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 October 31, 2007Common
                  Stock, par value $.001
              78,915,199
                  shares








**PART
      I.**


**Item
      1.  Financial Statements**





SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      BALANCE SHEETS


September
      30, 2007 and December 31, 2006


(unaudited)




**ASSETS**
            
            **September
                30,**
              **2007**
            
            
            **December
                31,**
              **2006****Current
                Assets:**Cash
                and cash equivalents
            
            $
            6,175,949
            
            
            $
            6,004,992Loan
                and accrued interest receivable, net (see Note 2)
            
            
            -
            
            
            
            289,099Prepaid
                expenses and other
            
            
            280,614
            
            
            
            248,373Total
                current assets
            
            
            6,456,563
            
            
            
            6,542,464**Property
                and Equipment, net (see Note 3)**
            
            
            329,820
            
            
            
            206,957**Other
                Assets**Intangible
                assets, net (see Note 3)
            
            
            735,587
            
            
            
            508,216Investment
                in Joint Venture (see Note 4)
            
            
            -
            
            
            
            -Deposits
            
            
            37,798
            
            
            
            36,822Total
                other assets
            
            
            773,385
            
            
            
            545,038Total
                assets
            
            $
            7,559,768
            
            
            $
            7,294,459**LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIT)****Current
                Liabilities**Accounts
                payable and accrued expenses
            
            $
            2,021,916
            
            
            $
            3,709,302Refundable
                deposit (see Note 5)
            
            
            550,000
            
            
            
            550,000Late
                registration penalty (including accrued interest) (see Note
                6)
            
            
            1,060,460
            
            
            
            957,828Related
                party note payable (see Note 7)
            
            
            -
            
            
            
            5,000,000Total
                current liabilities
            
            
            3,632,376
            
            
            
            10,217,130Long-term
                note payable (net of discount of $4,969,739) (see Note 7)
            
            
            30,261
            
            
            
            -Total
                liabilities
            
            
            3,662,637
            
            
            
            10,217,130**Commitments
                and Contingencies (see Note 12)****Stockholders'
                Equity (Deficit)**Preferred
                stock: 10,000,000 shares authorized ($0.001 par value) none
                issued
            
            
            -
            
            
            
            -Common
                stock: 100,000,000 shares authorized ($0.001 par value)78,711,949
                and 72,620,910 shares issued and outstanding, respectively
            
            
            78,712
            
            
            
            72,621Additional
                paid-in capital
            
            
            106,437,624
            
            
            
            67,864,452Deficit
                accumulated during the development stage
            
            
            (102,619,205
            )
            
            
            (70,856,288
            )Accumulated
                other comprehensive loss
            
            
            -
            
            
            
            (3,456
            )Total
                stockholders' equity (deficit)
            
            
            3,897,131
            
            
            
            (2,922,671
            )Total
                liabilities and stockholders' equity (deficit)
            
            $
            7,559,768
            
            
            $
            7,294,459




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


2


SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      STATEMENTS OF OPERATIONS


For
      the
      Three and Nine-Month Periods ended September 30, 2007 and 2006


and
      the
      Period from Inception to September 30, 2007


(unaudited)







**Three
                Months Ended**
            
            
            **Nine
                Months Ended**
            
            
            **Inception
                to****September
                30,**
            
            
            **September
                30,**
            
            
            **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**
            
            
            **2007****Revenue**Sales
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            42,967**Expenses:**Selling,
                general, andadministrative
                expenses
            
            
            (3,160,574
            )
            
            
            (3,255,393
            )
            
            
            (10,231,982
            )
            
            
            (11,362,926
            )
            
            
            (50,689,326
            )Research
                and developmentexpenses:Fujairah
                test facility
            
            
            (398,061
            )
            
            
            (1,811,142
            )
            
            
            (1,694,509
            )
            
            
            (19,163,435
            )
            
            
            (23,167,638
            )Other
            
            
            (849,507
            )
            
            
            (686,113
            )
            
            
            (2,496,906
            )
            
            
            (2,951,944
            )
            
            
            (9,635,277
            )Loss
                on investment in jointventure
            
            
            -
            
            
            
            (10,107
            )
            
            
            -
            
            
            
            (26,287
            )
            
            
            (136,095
            )Loss
                on disposal of
                asset
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (423
            )
            
            
            (221,711
            )Loss
                on impairment ofasset
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (233,900
            )Total
                operating expenses
            
            
            (4,408,142
            )
            
            
            (5,762,755
            )
            
            
            (14,423,397
            )
            
            
            (33,505,015
            )
            
            
            (84,083,947
            )Loss
                from operations
            
            
            (4,408,142
            )
            
            
            (5,762,755
            )
            
            
            (14,423,397
            )
            
            
            (33,505,015
            )
            
            
            (84,040,980
            )**Other
                income (expense):**Interest
                income
            
            
            91,223
            
            
            
            142,684
            
            
            
            224,691
            
            
            
            390,216
            
            
            
            953,161Other
                income (expense)
            
            
            613
            
            
            
            -
            
            
            
            (38,632
            )
            
            
            -
            
            
            
            (38,632
            )Gain
                (loss) on sale of assets
            
            
            (1,800
            )
            
            
            -
            
            
            
            7,308
            
            
            
            -
            
            
            
            9,840Interest
                expense
            
            
            (111,773
            )
            
            
            (103,450
            )
            
            
            (413,766
            )
            
            
            (343,596
            )
            
            
            (1,623,233
            )Late
                registration
                fees
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (760,240
            )**Net
                loss**
            
            
            (4,429,879
            )
            
            
            (5,723,521
            )
            
            
            (14,643,796
            )
            
            
            (33,458,395
            )
            
            
            (85,500,084
            )Deemed
                Dividend (Note 9)
            
            
            (3,937,415
            )
            
            
            -
            
            
            
            (17,119,121
            )
            
            
            -
            
            
            
            (17,119,121
            )**Net
                loss attributable to****common
                stockholders**
            
            $
            (8,367,294
            )
            
            $
            (5,723,521
            )
            
            $
            (31,762,917
            )
            
            $
            (33,458,395
            )
            
            $
            (102,619,205
            )Loss
                per share - basic and diluted
            
            $
            (0.11
            )
            
            $
            (0.08
            )
            
            $
            (0.42
            )
            
            $
            (0.48
            )Weighted
                average shares - basic and diluted
            
            
            78,601,389
            
            
            
            72,537,577
            
            
            
            76,239,369
            
            
            
            70,137,713




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


3


SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      STATEMENTS OF CASH FLOWS


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


(unaudited)




**Nine
                Months Ended****September
                30,**
            
            
            **Inception
                to****2007**
            
            
            **2006**
            
            
            **September
                30, 2007****Cash
                Flows From Operating Activities**Net
                loss
            
            $
            (14,643,796
            )
            
            $
            (33,458,395
            )
            
            $
            (85,500,084
            )Adjustments
                to reconcile net loss to cash usedin
                operating activities:Depreciation
                and amortization
            
            
            163,230
            
            
            
            182,747
            
            
            
            1,160,794Allowance
                for loan receivable
            
            
            307,564
            
            
            
            -
            
            
            
            307,564Stock-based
                compensation
            
            
            3,303,096
            
            
            
            3,580,775
            
            
            
            13,451,938Stock
                issued for interest expense
            
            
            -
            
            
            
            -
            
            
            
            296,000Contribution
                from stockholder
            
            
            -
            
            
            
            -
            
            
            
            555,000Loss
                from joint venture
            
            
            -
            
            
            
            26,287
            
            
            
            136,096(Gain)
                loss on disposal and impairment of assets
            
            
            (6,908
            )
            
            
            423
            
            
            
            448,703Deposit
                used for expense
            
            
            -
            
            
            
            100,000
            
            
            
            -Changes
                in:Receivables
            
            
            -
            
            
            
            45,897
            
            
            
            (118,657
            )Prepaid
                expenses and other
            
            
            (47,251
            )
            
            
            77,470
            
            
            
            (191,067
            )Accounts
                payable and accrued expenses
            
            
            (1,687,387
            )
            
            
            2,490,970
            
            
            
            1,944,105Refundable
                deposit
            
            
            -
            
            
            
            -
            
            
            
            550,000Accrued
                fees and interest
            
            
            101,657
            
            
            
            (31,325
            )
            
            
            647,642Net
                cash used in operating activities
            
            
            (12,509,795
            )
            
            
            (26,985,151
            )
            
            
            (66,311,966
            )**Cash
                Flows From Investing Activities**Advances
                for loan receivable
            
            
            -
            
            
            
            (391,352
            )
            
            
            -Purchase
                of property and equipment
            
            
            (232,444
            )
            
            
            (40,298
            )
            
            
            (1,247,984
            )Investments
                in joint ventures and subsidiaries
            
            
            -
            
            
            
            -
            
            
            
            (361,261
            )Proceeds
                from sales of property and equipment
            
            
            14,330
            
            
            
            -
            
            
            
            14,330Payment
                of deposits
            
            
            -
            
            
            
            -
            
            
            
            (36,822
            )Investments
                in intangible assets
            
            
            (258,181
            )
            
            
            (109,210
            )
            
            
            (826,931
            )Net
                cash used in investing activities
            
            
            (476,295
            )
            
            
            (540,860
            )
            
            
            (2,458,668
            )**Cash
                Flows from Financing Activities**Proceeds
                from issuance of stock, net of offering costs
            
            
            13,157,047
            
            
            
            35,237,417
            
            
            
            64,156,223Proceeds
                from issuance of related party notes payable
            
            
            -
            
            
            
            -
            
            
            
            11,000,000Proceeds
                from stock subscriptions
            
            
            -
            
            
            
            -
            
            
            
            4,240,887Proceeds
                from issuance of line of credit
            
            
            -
            
            
            
            -
            
            
            
            750,000Return
                on capital
            
            
            -
            
            
            
            -
            
            
            
            (118,427
            )Principal
                payments on related party notes payable
            
            
            -
            
            
            
            (2,500,000
            )
            
            
            (3,250,000
            )Decrease
                in related party receivable
            
            
            -
            
            
            
            -
            
            
            
            1,359,185Payments
                on contract payable
            
            
            -
            
            
            
            -
            
            
            
            (250,000
            )Principal
                payments on line of credit
            
            
            -
            
            
            
            -
            
            
            
            (750,000
            )Principal
                payments on advance from related party
            
            
            -
            
            
            
            -
            
            
            
            (2,191,285
            )Net
                cash provided by financing activities
            
            
            13,157,047
            
            
            
            32,737,417
            
            
            
            74,946,583Net
                change in cash and cash equivalents
            
            
            170,957
            
            
            
            5,211,406
            
            
            
            6,175,949Cash
                and cash equivalents at beginning of period
            
            
            6,004,992
            
            
            
            6,874,653
            
            
            
            -Cash
                and cash equivalents at end of period
            
            $
            6,175,949
            
            
            $
            12,086,059
            
            
            $
            6,175,949





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





4




SULPHCO,
      INC.


(A
      Company in the Development Stage)


CONDENSED
      STATEMENTS OF CASH FLOWS - Continued


For
      the
      Nine-Month Periods Ended September 30, 2007 and 2006


and
      for
      the Period from Inception to September 30, 2007


(unaudited)





**Supplemental
                information and non-cash transactions**Cash
                paid for interest
            
            $
            4,862
            
            
            $
            5,000
            
            
            $
            722,765Cash
                paid for income taxes
            
            $
            -
            
            
            $
            -
            
            
            $
            -The
                Company had the following non-cash investing and
                financing activities:Issued
                stock in exchange for a payable
            
            $
            -
            
            
            $
            330,215
            
            
            $
            626,215Incurred
                a payable for intangible assets
            
            
            -
            
            
            
            8,244
            
            
            
            8,244Extinguishment
                of note payable (see Note 7)
            
            
            5,000,000
            
            
            
            -
            
            
            
            5,000,000Non-cash
                deemed dividend (see Note 9)
            
            
            17,119,121
            
            
            
            -
            
            
            
            17,119,121






























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





5


**SULPHCO,
      INC.**


**(A
      Company in the Development Stage)**


NOTES
      TO THE INTERIM FINANCIAL STATEMENTS


September 30,
      2007


(unaudited)





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




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





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





**UseofEstimates**




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





**Going
      Concern**





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the settlement of liabilities
      and commitments in the normal course of business.  As of September 30,
      2007, the Company has cash and cash equivalents on hand of approximately
      $6.2 million and working capital of approximately
      $2.8 million.  For the three and nine-month periods ended
      September 30, 2007, the Company recognized net losses of approximately
      $4.4 million and $14.6 million, respectively.  For the three
      and nine-month periods ended September 30, 2007, the Company recognized net
      losses attributable to common stockholders of approximately $8.4 million
      and $31.8 million, respectively.  As a result of these continuing
      net losses, the Company has an accumulated deficit of approximately $102.6
      million that includes the effect of non-cash deemed dividends totaling
      approximately $17.1 million.  When taken together, these factors raise
      substantial doubt about our ability to continue as a going concern.  The
      ability of the Company to continue as a going concern is dependent on the
      Company’s ability to raise additional funds and implement its business
      plan.





6


**2.**
            **LoanReceivable and Accrued
                Interest**





On
      February 16, 2006 the Company committed to a loan agreement with SulphCo KorAsia
      (formerly known as OIL-SC, Ltd.) of South Korea.  The agreement called
      for advances of $50,000 per month through May 15, 2006.  A total of
      $150,000 was advanced through May 2006.  An additional $50,000 was
      advanced on June 6, 2006 under the same terms as the original note and in
      November 2006, an additional $75,000 was advanced, with a revision to the loan
      agreement that the full $275,000 in advances and related interest would be
      immediately repaid from revenues or from proceeds of any equity
      financings.  Interest accrues at prime rate plus 1% per annum.
      Interest accrued since February 16, 2006 totals approximately
      $33,000.  Based on the fact that SulphCo KorAsia has never had
      material revenue streams and considering that there continues to be a high
      level
      of uncertainty regarding when, if ever, it will generate material revenue
      streams, the Company has concluded that it is appropriate to establish an
      allowance for doubtful collection.  Therefore, as of September 30,
      2007, the Company established an allowance equal to the total principal balance
      and accrued interest thereon of approximately $308,000.





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





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





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





**September
                30, 2007**
            
            
            **December
                31, 2006**Equipment
            
            $
            866,423
            
            
            $
            769,385Computers
            
            
            220,164
            
            
            
            199,582Office
                furniture
            
            
            57,116
            
            
            
            57,116Vehicles
            
            
            -
            
            
            
            3,000Leasehold
                improvements
            
            
            60,307
            
            
            
            90,9411,204,010
            
            
            
            1,120,024Less:
                Accumulated D&A
            
            
            (874,190
            )
            
            
            (913,067
            )Total
            
            $
            329,820
            
            
            $
            206,957





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





**September
                30, 2007**
            
            
            **December
                31, 2006**Patents
                and trademarks
            
            $
            811,089
            
            
            $
            552,908Less:
                Accumulated amortization
            
            
            (75,502
            )
            
            
            (44,692
            )Total
            
            $
            735,587
            
            
            $
            508,216





Depreciation
      and amortization expense was approximately $49,000 and $133,000 for the three
      and nine month periods ended September 30, 2007,
      respectively.  Depreciation and amortization expense was approximately
      $60,000 and $183,000 for the three and nine month periods ended September 30,
      2006, respectively.








7




**4.**
            **Investment
                in Joint Venture**





In
      November 2005, the Company and Trans Gulf Petroleum Co. (“Trans Gulf”), 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 the Company.  Fujairah is one of
      the seven Emirates of the United Arab Emirates. Under the
      terms of
      the joint venture, the Company is responsible for contributing its
      Sonocracking units and the facility that houses them including bearing all
      costs
      relating thereto.  Operation and maintenance of the Fujairah test
      facility is the responsibility of the LLC.  Until the LLC generates
      revenues, operating expenses of the facility are expected to be funded from
      capital contributions of the Company.





The
      LLC’s
      operations began in 2006.  For the nine-month period ended September
      30, 2007, its activities have consisted primarily of leasing office space and
      acquiring leasehold improvements and office furniture and
      equipment.  The lease commenced March 15, 2006.  For the
      three and nine-month periods ended September 30, 2007, the LLC had losses of
      approximately 80,000 Dirhams and 256,000 Dirhams,
      respectively (approximately $22,000 and $70,000,
      respectively).  The Company has expensed these amounts as research and
      development costs.





Once
      the
      LLC begins generating revenues, the LLC agreement contemplates that profits
      and
      losses will be shared on a 50/50 basis between Trans Gulf and the
      Company.  The Company’s 50% share of distributions made by the joint
      venture will also be subject to other costs and expenses incurred directly
      by
      the Company from time to time, including commissions payable directly by the
      Company to third parties, presently estimated at up to 10% of the Company’s net
      joint venture profits.  The Company is uncertain that it will be able
      to recover its investment in the LLC.  Accordingly, the carrying value
      of the investment has been reduced to zero at September 30, 2007, and December
      31, 2006, respectively.  Going forward, and to the extent that the
      Company continues to incur costs in excess of its investment in the LLC, these
      costs will be recognized by the Company as research and development
      costs.





**5.**
            **RefundableDeposit**





In
      2005,
      we received $550,000 from SulphCo KorAsia (formerly known as OIL-SC, Ltd.),
      pursuant to the Equipment Sale and Marketing Agreement by and between the
      Company and SulphCo KorAsia, dated as of February 22, 2005.  As this
      amount is fully refundable if the pilot plant does not meet the agreed
      specifications, no portion of the purchase price has been or will be recorded
      as
      revenue in our financial statements until the pilot plant meets all agreed
      specifications.  We do not have an equity interest in SulphCo
      KorAsia.





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





In
      accordance with the terms of our 2004 private placement, we accrued a late
      registration penalty of approximately $760,000, during the first two quarters
      of
      2005, due to a delay in the effective date of our registration statement filed
      with the SEC.  Our registration statement was declared effective by
      the SEC in June 2005.  Accordingly, we have not accrued any additional
      late registration fees in 2007 other than interest, which accrues on the unpaid
      penalty amount at the rate of 18% per annum.  As of September 30, 2007
      and December 31, 2006, the balance of the late registration penalty (including
      interest accrued thereon) was approximately $1,060,000 and $958,000,
      respectively.  However, as of the date of this report no formal
      demands have been made by investors to pay these fees.





8




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





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





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





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





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





9


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





**September
                30, 2007**Assumed
                proceeds from modified Note Payable
            
            $
            5,000,000Less:Discount
                related to proceeds allocated to warrants
            
            
            (1,900,000
            )Discount
                related to beneficial conversion feature
            
            
            (3,100,000
            )Net
                Note Payable balance at April 2007
            
            
            -Add:Discount
                accretion through September 30, 2007
            
            
            30,261Net
                Note Payable balance at September 30, 2007
            
            $
            30,261




Interest
      on the Note Payable is adjusted quarterly based on a London Inter-Bank Offering
      Rate (“LIBOR”) plus 0.5% per annum, with interest only payments due on December
      31 of 2007 and the remaining accrued interest and principal due on December
      31,
      2008 when the note matures.  Interest related to the Note Payable
      of $224,570 has been accrued as of September 30, 2007 at the adjusted rate
      for
      the quarter of 5.82%.  For the three and nine-month periods ended
      September 30, 2007, the Company recognized approximately $23,000 and $30,000
      of
      incremental interest expense relative to discount accretion.





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





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





During
      the first quarter of 2007, the Company raised $7,787,674, net of offering
      costs, through an exercise of outstanding warrants. Investors holding
      1,952,068 of the warrants issued pursuant to the Securities Purchase Agreements,
      dated as of June 1, 2004 and June 14, 2004 (the “2004 Warrants” and the “2004
      Warrant Holders”) exercised their warrants at their stated exercise prices of
      $1.125 per share and $1.5625 per share, respectively. Investors holding
      2,000,000 warrants issued pursuant to the Securities Purchase Agreement, dated
      as of March 29, 2006 (the “2006 Warrants” and the “2006 Warrant Holders” and
      together with the 2004 Warrant Holders hereinafter collectively referred to
      as
      the “Warrant Holders”) exercised their warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. The Warrant Holders received 3,952,068 additional warrants (the
“Additional Warrants”) to replace all of the warrants that were exercised on a
      one to one basis. Each Additional Warrant expires on March 12, 2010 and entitles
      the holder to purchase one share of common stock at $2.68 per
      share.





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





10


During
      the second quarter of 2007, the Company raised $1,608,000 through an exercise
      of
      600,000 of the remaining 2,000,000 2006 Warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. As previously agreed, the 2006 Warrant Holders received 600,000
      Additional Warrants to replace all of the warrants that were exercised on a
      one
      to one basis. Each Additional Warrant expires three years from the date of
      issuance and entitles the holder to purchase one share of common stock at $2.68
      per share.





During
      the third quarter of 2007, the Company raised $3,752,000 through the exercise
      of
      the remaining 1,400,000 2006 Warrants at an exercise price of $2.68 per share,
      which was a reduction from the original exercise price of $6.805 per share.
      As
      previously agreed, the 2006 Warrant Holders received 1,400,000 Additional
      Warrants to replace all of the warrants that were exercised on a one to one
      basis. Each Additional Warrant expires three years from the date of issuance
      and
      entitles the holder to purchase one share of common stock at $2.68 per
      share.





During
      the nine-months ended September 30, 2007, the Company raised approximately
      $13.2
      million through the exercise of warrants held by the Warrant Holders, as
      described above.





**9.**
            **Deemed
                Dividend**





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





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





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





As
      a
      result of the inducements included in the Agreement described above, during
      the
      quarter ended March 31, 2007, 1,952,068 warrants held by the 2004 Warrant
      Holders and 2,000,000 warrants held by the 2006 Warrant Holders were exercised
      resulting in the grant of 3,952,068 Additional Warrants.  As a result
      of the inducements, the Company recorded a non-cash deemed dividend equal to
      $11,523,885.  The amount of the deemed dividend was estimated to be
      equal to the sum of the fair value of the inducements as the sum of (1) the
      incremental fair value conveyed to the 2006 Warrant Holders via the reduction
      of
      the exercise price of the 2006 Warrants determined as provided in paragraph
      51
      of SFAS 123R utilizing the Black-Scholes Valuation Model and (2) the fair value
      of the 3,952,068 Additional Warrants estimated using the Black-Scholes Valuation
      Model.  In connection with the preparation of this quarterly report,
      the Company determined that an error had been made with respect to the
      calculation of the non-cash deemed dividend as originally reported in the
      quarterly report for the quarter ended March 31, 2007.  As a result of
      this error, the Company understated the non-cash deemed dividend for the quarter
      ended March 31, 2007, by approximately $11.4 million.  On August 14,
      2007, the Company filed an amendment to its quarterly report for the quarter
      ended March 31, 2007 to correct this error.





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





11


During
      the quarter ended September 30, 2007, the remaining 1,400,000 warrants held
      by
      the 2006 Warrant Holders were exercised resulting in the grant of 1,400,000
      Additional Warrants.  Therefore, the Company recorded an additional
      non-cash deemed dividend equal to $3,937,415 that was estimated using the
      Black-Scholes Valuation Model.





During
      the three and nine-month periods ended September 30, 2007, the Company
      recognized total non-cash deemed dividends of $3,937,415 and $17,119,121,
      respectively (which includes the effect of the error discussed
      above).





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





The
      computations of basic and diluted loss per common share are based upon the
      weighted average number of common shares outstanding and potentially dilutive
      securities.  Potentially dilutive securities include options and
      warrants to acquire the Company’s common stock and convertible
      debt.  As of September 30, 2007, there were approximately 8.9 million
      shares issuable in connection with these potentially dilutive
      securities.  These potentially dilutive securities were disregarded in
      the computations of diluted net loss per share for three and nine-month periods
      ended September 30, 2007, because inclusion of such potentially dilutive
      securities would have been anti-dilutive.







12


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





In
      accordance with the provisions of SFAS 123R, the Company records stock-based
      compensation expense for all share-based payment arrangements, including stock
      options, warrants and restricted stock grants.  Total stock-based
      compensation for the three and nine-month periods ended September 30, 2007
      and 2006 was approximately $1.0 million, $1.1 million, $3.3 million,
      and $3.6 million, respectively.





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





During
      the three and nine-month periods ended September 30, 2007 and 2006, the
      Company granted 452,500, none, 1,337,500 and 1,125,000 stock options,
      respectively, to its directors, officers and employees.  The
      stock-based compensation expense for these stock options for the three and
      nine-month periods ended September 30, 2007 and 2006 was approximately $0.9
      million, $0.8 million, $2.6 million and $1.7 million.  The fair value
      of these stock options was estimated using the Black-Scholes options pricing
      model with the following assumptions:





**Three
                Months Ended September  30, 2007 and
                2006**
            **2007**
            **2006**Valuation
                Assumptions:Expected
                Term (years)
            5.0
                – 5.5
            -Expected
                Volatility
            139.6%
                - 139.9%
            -Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            4.52%
                - 4.80%
            -Weighted
                Average Grant Date Fair Value
            $3.09
                - $3.53
            -**Nine
              Months Ended September 30, 2007 and 2006**
            **2007**
            **2006**Valuation
              Assumptions:Expected
                Term (years)
            5.0
                – 6.5
            1.5
                - 3Expected
                Volatility
            139.6%
                - 149.5%
            117%
                - 147%Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            4.52%
                - 5.10%
            5.2%Weighted
                Average Grant Date Fair Value
            $2.46
                - $3.66
            $3.72
                - $5.50





Of
      the
      options to acquire 452,500 shares of the Company’s common stock granted during
      the third quarter of 2007, options to acquire 300,000 shares relate to grants
      of
      100,000 shares each to three of the Company’s Board members to replace
      restricted stock grants of 50,000 shares each that were rescinded by the
      Company.  Historically, it has been the custom of the Company to grant
      restricted shares of its common stock to new Board members upon joining the
      Company’s Board.  The grants of the 150,000 shares of restricted
      common stock were made subsequent to the Company having listed its shares on
      the
      American Stock Exchange (the “AMEX”).  Included among the many AMEX
      listing requirements is a requirement that grants of the Company’s common stock
      to Directors and certain other persons be approved by a vote of the Company
      shareholders.  In connection with these grants, the Company did not
      obtain prior shareholder approval and therefore determined that it was
      appropriate to rescind the prior grants in lieu of calling a special meeting
      of
      the shareholders to obtain the requisite approval.  The Company
      recorded a charge of approximately $0.4 million relating to the excess of the
      fair value of the replacement options granted to replace the rescinded
      restricted stock grants over the fair value of the rescinded restricted stock
      grants on the date the replacement options were granted.  Also
      included in the options to acquire 452,500 shares of the Company’s common stock
      granted during the third quarter of 2007, is an option to acquire 150,000 shares
      of the Company’s common stock that was granted to Edward G. Rosenblum in
      connection with his appointment, on August 1, 2007, to the Company’s Board of
      Directors.  In connection with the grant to Mr. Rosenblum, the Company
      recorded a charge of approximately $0.5 million.





13


**Stock
      Option Grants – Non-Employees**





During
      the three and nine-month periods ended September 30, 2007 and 2006, the
      Company granted 50,000, none, 100,500 and 54,500 stock options, respectively,
      to
      non-employees.  The stock-based compensation expense for these stock
      options for the three and nine-month periods ended September 30, 2007 and 2006
      was approximately $27,000, none, $27,000 and $0.4 million,
      respectively.  The fair value of these stock options was estimated
      using the Black-Scholes options pricing model with the following
      assumptions:





**Three
                Months Ended September 30, 2007 and 2006**
            **2007**
            **2006**Valuation
                Assumptions:Expected
                Term (years)
            2.6
            -Expected
                Volatility
            104.8%
            -Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            4.12%
            -Weighted
                Average Grant Date Fair Value
            $3.46
            -**Nine
                Months Ended September 30, 2007 and 2006**
            **2007**
            **2006**Valuation
                Assumptions:Expected
                Term (years)
            2.6
                - 4
            1.5
                - 3Expected
                Volatility
            104.8%
                - 144.3%
            129%
                - 162%Expected
                Dividend Rate
            -
            -Risk
                Free Interest Rate
            4.12%
                - 5.00%
            5.00%Weighted
                Average Grant Date Fair Value
            $3.18
                - $3.46
            $4.03
                - $6.81





The
      option to acquire 50,000 shares of Company stock granted in the three month
      period ended September 30, 2007 (the “Mustang 2007 Option”), relates to an
      option that was previously granted to Mustang International, L.P. (“Mustang”) by
      the Company in 2006 (the “Mustang 2006 Option”).  In August of 2007,
      the Company and Mustang agreed to amend the previously granted option and change
      the exercise price from $6.00 to $3.50 per share.  For accounting
      purposes, the Company is deemed to have reacquired the Mustang 2006 Option
      by
      virtue of the issuance of the Mustang 2007 Option.  On the date of
      reacquisition, the fair value of the Mustang 2007 Option exceeded the fair
      value
      of the Mustang 2006 Option by approximately $27,000.  This excess fair
      value was fully expensed since the Mustang 2007 Option was fully vested on
      the
      date of issuance.





During
      the quarter ended September 30, 2007, the Company terminated a consulting
      contract that was entered into on June 28, 2007, with Edward G.
      Rosenblum.  As consideration for entering into the consulting
      contract, the Company had agreed to grant Mr. Rosenblum an option to acquire
      50,500 shares of the Company’s common stock.  On August 1, 2007, Mr.
      Rosenblum was appointed to the Company’s Board of Directors.  As a
      result and in connection therewith, the Company and Mr. Rosenblum agreed to
      mutually terminate this consulting contract, including the forfeiture of the
      option to acquire 50,500 shares of the Company’s common
      stock.  Therefore, no expense has been or will be recognized relative
      to this now terminated agreement.





14


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





During
      the three and nine-month periods ended September 30, 2007 and 2006, the Company
      granted 43,353, 50,000, 313,559 and 150,000 shares, respectively, of restricted
      stock to its directors and officers.  All of the restricted shares
      granted during these periods were valued by reference to the market price of
      the
      Company’s stock on the date of grant.  In connection with his
      appointment to the Company’s Board of Directors, the Company granted Mr.
      Rosenblum 43,353 shares of restricted common stock in lieu of the annual cash
      retainer he would have otherwise been entitled to.





During
      the three and nine-month periods ended September 30, 2007, the Company rescinded
      prior restricted stock grants for 150,000 and 200,000 shares of restricted
      stock, respectively.  These cancellations are discussed above in
“Stock Option Grants – Directors, Officers and Employees.”





The
      stock-based compensation expense for the restricted stock grants for the three
      and nine-month periods ended September 30, 2007 and 2006 was $0.1 million,
      $0.3
      million, $0.7 million and $1.4 million, respectively.





**Restricted
      Stock Grants – Non-Employees**





During
      the three and nine-month periods ended September 30, 2007 and 2006, the Company
      granted none, none, none and 17,500 shares, respectively, of restricted stock
      to
      non-employees.  All of the restricted shares granted during these
      periods were valued by reference to the market price of the Company’s stock on
      the date of grant.





The
      stock-based compensation expense for the restricted stock grants for the three
      and nine-month periods ended September 30, 2007 and 2006 was none, none, none
      and $0.1 million, respectively.





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





**Concentrations
      of Credit Risk**


Financial
      instruments, which potentially subject the Company to concentrations of credit
      risk, consist mainly of cash equivalents.  The Company maintains
      amounts in three U.S. accounts, two checking accounts and a money market account
      on deposit with two financial institutions, which exceed federally insured
      limits by approximately $6.0 million at September 30, 2007. The Company has
      not
      experienced any significant losses in such accounts, nor does management believe
      it is exposed to any significant credit risk.





**Commitments
      Under Non-Cancelable Operating Leases**




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





**Registration
      Payment Arrangements**




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





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





15


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





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





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





**Litigation
      Contingencies**




There
      are
      various claims and lawsuits pending against the Company arising in the normal
      course of the Company’s business.  Although the amount of liability at
      September 30, 2007 cannot be ascertained, management is of the opinion that
      these claims and lawsuits will not materially affect the Company’s financial
      position.  We have and will continue to devote significant resources
      to our defense, as necessary.





The
      following paragraphs set forth the status of litigation as of September 30,
      2007.





Clean
      Fuels Litigation


In
      *Clean Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc.
      and SulphCo, Inc.*, Case No. CV05-01346 (Second Judicial District, County of
      Washoe) the Company, Rudolf W. Gunnerman, Peter Gunnerman, and RWG, Inc., were
      named as defendants in a legal action commenced in Reno, Nevada.  The
      Plaintiff, Clean Fuels Technology later assigned its claims in the lawsuit
      to
      EcoEnergy Solutions, Inc., which entity was substituted as Plaintiff.  In
      general, Plaintiff EcoEnergy Solutions, Inc. alleged claims relating to
      ownership of the “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 September 14,
      2007, after a jury trial and extensive post-trial proceedings, the trial court
      entered final judgment against Plaintiff EcoEnergy Solutions, Inc. on all of
      its
      claims.  Per the final judgment, all of Plaintiff’s claims were resolved
      against Plaintiff and were dismissed with prejudice.  In addition, the
      trial court found that the Company was the prevailing party in the lawsuit
      and
      entered judgment in favor of the Company and against Plaintiff of approximately
      $124,000, with post-judgment interest.  Plaintiff appealed the judgment on
      October 5, 2007.  As of September 30, 2007, no liability has been accrued
      relative to this action.





16


Talisman
      Litigation


In
      *Talisman Capital Talon Fund, Ltd. v. Rudolf W.Gunnerman and SulphCo,
      Inc*., Case No. 05-CV-N-0354-BES-RAM, the Company and Rudolf W. Gunnerman
      were named as Defendants in a legal action commenced in federal court in Reno,
      Nevada. The Plaintiff alleged claims relating to the Company's ownership and
      rights to develop its "sulfur removal technology." The Company regards these
      claims as without merit. Discovery in this case formally concluded on May 24,
      2006. On September 28, 2007, the court granted, in part, the Defendants' motion
      for summary judgment and dismissed the Plaintiff's claims for bad faith breach
      of contract and unjust enrichment that had been asserted against Rudolf
      Gunnerman. The court denied the Plaintiff's motion for partial summary judgment.
      No trial date has yet been set. As
      of September 30, 2007, no liability has been accrued relative to this
      action.





McLelland
      Arbitration


In
      *The Matter of the Arbitration betwe**en Stan L. McLelland v. SulphCo,
      Inc.*, Mr. McLelland, who was the Company's president from August 13, 2001,
      until he resigned on September 12, 2001, sought to exercise options to purchase
      two million (2,000,000) shares of the Company’s common stock at 50 cents per
      share, as well as salary for the six months following his resignation and
      $20,000 of alleged unpaid commuting expenses.  Following the
      arbitration hearings, on July 24, 2007, the Company received notice that the
      Arbitrator had denied Mr. McLelland’s claim for the options.  The
      Arbitrator did award salary of $125,000 plus interest from October 1, 2001
      until
      paid, and $5,000 (without interest) out of the $20,000 of alleged unpaid
      commuting expenses.  In connection with the resolution of this matter,
      the Company recognized a charge for these amounts in the quarter ended June
      30,
      2007 which were later paid during the quarter ended September 30,
      2007.





Neuhaus
      Litigation


On
      October 20, 2006, Mark Neuhaus filed a lawsuit against the Company and Rudolf
      W.
      Gunnerman, *Mark Neuhaus v. SulphCo, Inc., Rudolph W. Gunnerman*, in the
      Second Judicial District Court, in and for the County of Washoe, Case No.
      CV06-02502, Dept. No. 1.  The lawsuit is based on a purported
      Non-Qualified Stock Option Agreement and related Consulting Agreement between
      Mark Neuhaus and the Company dated March of 2002.  Mark Neuhaus claims
      that according to the terms of the Non-Qualified Stock Option Agreement, he
      was
      granted an option to purchase three million (3,000,000) shares of the Company’s
      common stock at the exercise price per share of $0.01. On or about February
      of
      2006, Mark Neuhaus attempted to exercise the option allegedly provided to him
      under the Non-Qualified Stock Option Agreement. At that time, the Company
      rejected Mr. Neuhaus’s attempt to exercise the option.  Thereafter,
      Mr. Neuhaus filed this lawsuit seeking to enforce the Non-Qualified Stock Option
      Agreement.  In his suit, Mr. Neuhaus includes claims for specific
      performance, breach of contract, contractual breach of the covenant of good
      faith and fair dealing, and tortious breach of the covenant of good faith and
      fair dealing.  He requested that the Court compel the Company to issue
      the shares or alternatively to award him damages equal to the fair market value
      of the three million (3,000,000) shares of stock when he purported to exercise
      the options, minus the exercise price.  On December 7, 2006, the
      Company moved to dismiss the lawsuit.  On January 4, 2007, the Court
      issued an Order denying the motion on the ground that there were factual
      issues to be resolved which prevented dismissal at that time.  The
      Company filed an Answer to the Complaint, as well as a counterclaim against
      Mr.
      Neuhaus and a cross claim against Rudolf W. Gunnerman on March 29,
      2007.   That cross-claim against Dr. Gunnerman was subsequently
      voluntarily discontinued, without prejudice.  As of September 30,
      2007, no liability has been accrued relative to this action.  The
      Company regards the claim as without merit.





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





17


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





Hendrickson
      Derivative Litigation


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 had intended to
      file a Motion for Dismissal with the Court, based upon the Plaintiff’s failure
      to make a demand upon the Board. On July
      10, 2007,
      the Company received notice that a stipulation (the “Stipulation”) of voluntary
      dismissal without prejudice had been entered, with an effective date of July
      3,
      2007, regarding this action.  The Stipulation provides that in
      connection with the dismissal of this action each of the parties will bear
      their
      own costs and attorney fees and thereby waive their rights, if any, to seek
      costs and attorney fees from the opposing party.  Further, neither the
      plaintiff nor his counsel has received any consideration for the dismissal
      of
      this action, and no future consideration has been promised.





Cullen
      Litigation


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
      entire case was dismissed without prejudice on April 25, 2007, but the Company
      retains the ability to revive its claims at a later date.





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





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





On
      April
      15, 2007, the Company entered into a month-to-month operating lease agreement
      with Michael T. Heffner, a Director of the Company.  Under the lease
      agreement, the Company leases a furnished apartment for officer’s use in Reno,
      Nevada for $1,500 per month that can be cancelled at anytime by either
      party.  During the three and nine-month periods ended September 30,
      2007, the Company recognized $4,500 and $8,300, respectively, in lease expense
      relative to this agreement.  The Company terminated this agreement
      effective September 30, 2007.





18


On
      April
      16, 2007, with a retroactive effective date of February 10, 2007, the Company
      entered into a 30 day consulting contract with Vincent van Maasdijk, the son
      of
      Robert van Maasdijk who is the Chairman of the Company’s Board of Directors, to
      serve as the Fujairah Operations Manager.  After each 30 day term, the
      consulting contract automatically renews for the next 30 days unless either
      party stipulates otherwise in writing.  As Fujairah Operations
      Manager, Mr. van Maasdijk’s responsibilities will include overseeing the
      construction and operation of the Company’s facility in Fujairah, United Arab
      Emirates.  Under the terms of the contract, Mr. van Maasdijk will
      receive a monthly payment of $5,000 plus reimbursement of all reasonable
      out-of-pocket expenses, in accordance with the Company’s applicable policies and
      procedures.  For the three and nine-month periods ended September 30,
      2007, the total expense recognized by the Company under this arrangement was
      approximately $22,000 and $61,000, respectively.





Historically,
      the Company had maintained a consulting contract with RWG, Inc., a company
      wholly-owned by Dr. Rudolf Gunnerman, the Company’s former Chairman and
      CEO.  This contract was terminated in January 2007 contemporaneous
      with Dr. Gunnerman’s dismissal from the Company.  During the three and
      nine-month periods ended September 30, 2007 and 2006, the total expense
      recognized by the Company under this arrangement was none, $240,000, $120,000
      and $500,000, respectively.  Of the amounts paid during the three and
      nine-month periods ended September 30, 2007, $200,000 was paid in connection
      with a settlement in the second quarter of 2007 between the Company and Dr.
      Gunnerman.





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





The
      Company had a consulting arrangement with Michael T. Heffner, a Director of
      the
      Company until his resignation from the Company’s Board of Directors in the
      second quarter of 2006.  Therefore, no amounts were paid to Mr.
      Heffner under this consulting agreement during the three and nine-month periods
      ended September 30, 2007.  During the three and nine-month periods
      ended September 30, 2006, the total expense recognized for technical consulting
      and expense reimbursement by the Company under this contract was approximately
      $19,386 and $56,521, respectively.





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





**Income
      Taxes**




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





19


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





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





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




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







20


**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.





**Recent
      and Ongoing Testing Activities**





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





On
      October 23, 2007, the Company announced that despite testing curtailments due
      to
      transportation issues unrelated to the Company’s process equipment, it was able
      to conduct limited test runs on a medium crude oil (32.9 degree API and 1.6%
      sulphur content by weight) employing the Company’s latest probe
      design.  The results of these tests showed up to a 47% reduction in
      sulphur content by weight on successive test runs, as compared to 17% under
      the
      same test conditions utilizing an earlier probe design.  These results
      are preliminary and may change as future tests are run.





On
      November 2, 2007, the Company announced that in concert with its European test
      partner, it had commenced continuous test runs of a heavy crude oil (16.5 degree
      API and 0.5% sulphur content by weight) through a 15,000 barrel per day
      Sonocracking unit.  The trial runs began on October 30, 2007, and
      continued through November 1, 2007.  The run times ranged between nine
      hours to more than 19 hours without interruption.  The Sonocracking
      unit was exposed to rigorous test conditions, at times running at 105% of
      maximum design flow rates.  After the test data has been analyzed, it
      is currently anticipated that testing will resume later in the month of
      November.  The Company, with the consent of its European testing
      partner, will release the testing results will only after sufficient data has
      been compiled and appropriate analyses have been performed.  As of the
      date of this report, the Company has not received these laboratory
      reports.





***Three
      and nine-months ended September 30, 2007 compared to the three and nine-months
      ended September 30, 2006***





**Research
      and Development Expenses**




For
      the
      three and nine-month periods ended September 30, 2007, we incurred expenses
      of
      approximately $1.2 million and $4.2 million, respectively, related to research
      and development of our Sonocracking technology.  This compares to
      expenses of approximately $2.5 million and $22.1 million, respectively, for
      the
      comparable periods in 2006.  During the three and nine-month periods
      ended September 30, 2007, we incurred approximately $0.4 million and $1.7
      million, respectively, related to the test facility in Fujairah,
      UAE.  This compares to expenses of $1.8 million and $19.2 million,
      respectively, for the comparable periods in 2006.




For
      the
      three and nine-month periods ended September 30, 2007, we paid approximately
      $58,000 and $392,000, respectively, to our engineers and other research and
      development employees as wages and related benefits for design and testing
      of
      our Sonocracker units.  This compares to expenses of approximately
      $181,000 and $576,000, respectively, for the comparable periods in
      2006.  For the three and nine-month periods ended September 30, 2007,
      approximately $214,000 and $908,000 in expenses, respectively, were incurred
      for
      the procurement of control panels, probes, centrifuges, and generators related
      to the ongoing research and development of our units.  This compares
      to expenses of approximately $311,000 and $1,758,000, respectively, for the
      comparable periods in 2006.  The balance of our research and
      development expenses are recurring monthly expenses related to the maintenance
      of our warehouse facilities.




21


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.





**Selling,
      General and Administrative
      Expenses**




For
      the
      three and nine-month periods ended September 30, 2007, we incurred approximately
      $3.2 million and $10.2 million, respectively, in selling, general and
      administrative expenses.  This compares to expenses of approximately
      $3.3 million and $11.4 million, respectively, for the comparable periods in
      2006.  The amounts for the three and nine-month periods ended
      September 30, 2007, include stock-based compensation of $1.0 million and $3.3
      million, respectively.





Legal
      fees were approximately $0.6 million and $2.3 million for the three and
      nine-months ended September 30, 2007, respectively.  This compares to
      expenses of approximately $1.0 million and $4.3 million, respectively, for
      the
      comparable periods in 2006.  This represents decreases of $0.4 million
      and $2.0 million, respectively, relative to the comparable periods in
      2006.  These decreases were primarily due to the resolution of a
      lawsuit against the Company late in 2006.  We expect to continue to
      incur significant litigation fees through the end of 2007.





Consulting
      fees, payroll and related expenses were approximately $0.9 million and $2.6
      million for the three and nine-months ended September 30, 2007,
      respectively.  This compares to expenses of approximately $1.3 million
      and $3.8 million, respectively, for the comparable periods in
      2006.  This represents decreases of $0.4 million and $1.2 million,
      respectively relative to the comparable periods in 2006.





Travel
      and travel related expenses were approximately $0.2 million and $0.8 million
      for
      the three and nine-month periods ended September 30, 2007,
      respectively.  This compares to expenses of approximately $0.4 million
      and $0.9 million, respectively, for the comparable periods in
      2006.  These decreases were due to the less frequent meetings with the
      European manufacturers of our equipment and with our joint venture partner
      in
      Fujairah, United Arab Emirates as we near completion of stage one at the test
      facility in Fujairah.





Director
      fees were approximately $1.0 million and $2.8 million for the three and
      nine-months ended September 30, 2007, respectively.  This compares to
      expenses of approximately $0.3 million and $1.4 million, respectively, for
      the
      comparable periods in 2006. Director fees for the 2007 periods relate to the
      annual option grants to acquire 750,000 shares of common stock awarded to the
      Directors valued at approximately $1.1 million and the grant of approximately
      264,000 shares of restricted stock in lieu of the Directors’ annual cash
      retainer valued at approximately $1.0 million.  Director fees for the
      2006 periods include a grants of 50,000 shares of restricted common stock each
      to two of the Company’s Directors (Michael T. Heffner and Edward E. Urquhart)
      valued at approximately $0.7 million and a grant of an option to acquire 125,000
      shares of common stock to another Director (Robert van Maasdijk) valued at
      approximately $0.7 million.





In
      May of
      2007, the Company entered into agreements to lease office/warehouse facilities
      in Houston, Texas, the new location of its corporate headquarters, and office
      facilities in Reno, Nevada. Office lease expense was approximately $82,000
      and
      $301,000 for the three and nine-month periods ended September 30, 2007,
      respectively.  This compares to office lease expense of $112,000 and
      $328,000, respectively, for the comparable periods in 2006.





22


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





**Interest
      Expense**




Interest
      expense was approximately $112,000 and $414,000 for the three and nine-month
      periods ended September 30, 2007, respectively, reflecting increases of
      approximately 8.05% and 20.4%, respectively, over comparable periods in
      2006.  The majority of the increase for the three month-period is a
      result of the Company incurring approximately $0.1 million in interest related
      to the settlement of litigation.





**Late
      Registration Penalty**




In
      accordance with the terms of our 2004 private placement, we accrued a late
      registration penalty of approximately $760,000, during the first two quarters
      of
      2005, due to a delay in the effective date of our registration statement filed
      with the SEC.  Our registration statement was declared effective by
      the SEC in June 2005.  Accordingly, we have not accrued any additional
      late registration fees in 2007 other than interest of approximately $103,000,
      which accrues on the unpaid penalty amount at the rate of 18% per
      annum.  However, as of the date of this report no formal demands have
      been made by investors to pay these fees.




**Depreciation
      and Amortization**




For
      the
      three and nine-month periods ended September 30, 2007, depreciation and
      amortization expense related to property and equipment and intangible assets
      was
      approximately $49,000 and $133,000, respectively.  This compares to
      expenses of approximately $60,000 and $0.2 million, respectively, for the
      comparable periods in 2006.




**Deemed
      Dividend**




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





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





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





As
      a
      result of the inducements included in the Agreement described above, during
      the
      quarter ended March 31, 2007, 1,952,068 warrants held by the 2004 Warrant
      Holders and 2,000,000 warrants held by the 2006 Warrant Holders were exercised,
      resulting in the grant of 3,952,068 Additional Warrants.  As a result
      of the inducements, the Company recorded a non-cash deemed dividend equal to
      $11,523,885.  In connection with the preparation of this quarterly
      report, the Company determined that an error had been made with respect to
      the
      calculation of the non-cash deemed dividend as originally reported in the
      quarterly report for the quarter ended March 31, 2007.  As a result of
      this error, the Company understated the non-cash deemed dividend for the quarter
      ended March 31, 2007, by approximately $11.4 million.  On August 14,
      2007, the Company filed an amendment to its quarterly report for the quarter
      ended March 31, 2007 to correct this error.





23


During
      the quarter ended September 30, 2007, the remaining 1,400,000 warrants held
      by
      the 2006 Warrant Holders were exercised resulting in the grant of 1,400,000
      Additional Warrants.  Therefore, the Company recorded an additional
      non-cash deemed dividend equal to $3,937,415.





For
      the
      three and nine-month periods ended September 30, 2007, the Company recognized
      total non-cash deemed dividends of $3,937,415 and $17,119,121, respectively
      (inclusive of the effect of the error discussed above).





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




We
      incurred net losses of approximately $4.4 million and $14.6 million for the
      three and nine-month periods ended September 30, 2007,
      respectively.  This compares to net losses of approximately $5.7
      million and $33.5 million for the comparable periods in 2006.  This
      decrease in net losses in the 2007 periods relative to the 2006 period is
      primarily a result of the decrease in research and development expenses related
      to the development and construction of the test facility in Fujairah,
      UAE.





We
      incurred net losses attributable to common stockholders of approximately $8.4
      million and $31.8 million for the three and nine-month periods ended September
      30, 2007, respectively.  This compares to net losses attributable to
      common stockholders of approximately $5.7 million and $33.5 million for the
      comparable periods in 2006.  The difference is solely attributable to
      the deemed dividends of approximately $3.9 million and $17.1 million for the
      three and nine-month periods ended September 30, 2007.




**Liquidity
      and Capital Resources**





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





In
      November 2005, the Company and Trans
      Gulf Petroleum Co. (“Trans Gulf”), 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 and 50% owned by the Company. Under the
      terms of
      the joint venture, the Company is responsible for contributing its
      Sonocracking units and the facility that houses them including bearing all
      costs
      relating thereto.  Operation and maintenance of the Fujairah test
      facility is the responsibility of the joint venture.  Until the 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.





Once
      the LLC begins generating
      revenues, the LLC agreement contemplates that profits and losses will be shared
      on a 50/50 basis between Trans Gulf and the Company.  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.





We
      continued construction of an 180,000 bbl/day SonocrackingTM plant in Fujairah,
      UAE throughout 2006.  Over the course of the 2006, over $20 million
      was invested in the facility.  Although progress in 2006 was hampered
      with delays due to poor execution by our construction contractor, several steps
      have been taken to remediate those issues.  On August 8, 2007, the
      Company announced that it had commissioned the first phase of the
      facility.  The commissioning included the completion of infrastructure
      and ancillary facilities, including electric, cooling, water tanks, sludge
      tanks, pumps, control systems, a water separator and external feed lines,
      sufficient to allow continuous operation of one of the six commercial scale
      30,000 bpd Sonocracking units installed at the facility.





24




***Liquidity***





Working
      capital at September 30, 2007,
      was approximately $2.8 million.  As of September 30, 2007, we had
      current assets of approximately $6.5 million comprised primarily of cash and
      cash equivalents of approximately $6.2 million.  As of September 30,
      2007, we had current liabilities of approximately $3.6 million comprised
      primarily of accounts payable and accrued expenses of approximately $2.0 million
      and a late registration penalty of approximately $1.1
      million.  Accounts payable and accrued liabilities include legal fees
      related to pending litigation of approximately $0.2 million and equipment
      construction and installation costs of approximately $1.7
      million.  The late registration penalty includes approximately $1.1
      million in late fees and interest relating to delays in the effective date
      of an
      SEC registration statement in 2004 and 2005 relating to the late registration
      penalty discussed above.





As
      of
      October 31, 2007, we had cash and cash equivalents of $5.7
      million.  Based upon our expected levels of expenditures and
      anticipated needs, we anticipate that our existing capital resources will be
      sufficient to fund our cash requirements through the end of 2007 and into the
      first quarter of 2008.  Our ability to meet future capital
      requirements will depend primarily upon debt and equity financings, third party
      lease financing of Sonocracking equipment and components, and proceeds from
      future exercises of outstanding warrants and options.  Presently, we
      have no binding commitments for additional financings.  To date, we
      have generated no material revenues from our business operations.  We
      are unable to predict when or if we will be able to generate future revenues
      from commercial activities or the amounts expected from such
      activities.  These factors raise substantial doubt regarding the
      Company’s ability to continue as a going concern.





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





***Recent
      Financing
      Activities***





During
      the first quarter of 2007, the Company raised $7,787,674, net of offering
      costs, through an exercise of outstanding warrants. Investors holding
      1,952,068 of the warrants issued pursuant to the Securities Purchase Agreements,
      dated as of June 1, 2004 and June 14, 2004 (the “2004 Warrants” and the “2004
      Warrant Holders”) exercised their warrants at their stated exercise prices of
      $1.125 per share and $1.5625 per share, respectively. Investors holding
      2,000,000 warrants issued pursuant to the Securities Purchase Agreement, dated
      as of March 29, 2006 (the “2006 Warrants” and the “2006 Warrant Holders” and
      together with the 2004 Warrant Holders hereinafter collectively referred to
      as
      the “Warrant Holders”) exercised their warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. The Warrant Holders received 3,952,068 additional warrants (the
“Additional Warrants”) to replace all of the warrants that were exercised on a
      one to one basis. Each Additional Warrant expires on March 12, 2010 and entitles
      the holder to purchase one share of common stock at $2.68 per
      share.





During
      the second quarter of 2007, the Company raised $1,608,000 through an exercise
      of
      600,000 of the remaining 2,000,000 2006 Warrants at an exercise price of $2.68
      per share, which was a reduction from the original exercise price of $6.805
      per
      share. As previously agreed, the 2006 Warrant Holders received 600,000
      Additional Warrants to replace all of the warrants that were exercised on a
      one
      to one basis. Each Additional Warrant expires three years from the date of
      issuance and entitles the holder to purchase one share of common stock at $2.68
      per share.





25





During
      the third quarter of 2007, the remaining 1,400,000 2006 Warrants were exercised
      at an exercise price of $2.68 per share resulting in proceeds to the Company
      of
      $3,752,000. As previously agreed, the Warrant Holders received 1,400,000
      Additional Warrants to replace all of the warrants that were exercised on a
      one
      to one basis. Each Additional Warrant expires three years from the date of
      issuance and entitles the holder to purchase one share of common stock at $2.68
      per share.  As a result of the issuance of these Additional Warrants,
      during the third quarter the Company recognized a non-cash deemed dividend
      of
      approximately $3.9 million.





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





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





In
      December 2004, Dr.
      Gunnerman advanced $7 million to us as a note payable.  The note
      payable is evidenced by a promissory note which bears interest at the rate
      of
      0.5% above the 30 day “LIBOR” rate, adjusted quarterly and payableannually, and the entire principal amount was due and payable in December
      2007.  In April, 2006 we repaid $2 million of the loan principal. As
      is discussed above, the note payable was acquired by the Investors from
      Gunnerman.  Subsequent to its acquisition by the Investors, the
      Company negotiated an amendment to the note payable that, among other things,
      extended the maturity date of the note from December 31, 2007 to December 31,
      2008 and added a provision permitting the note payable to be converted into
      the
      Company’s common stock at the rate of $3.80 per share.





**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.





26


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





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





**Interest
      Rates**





As
      of
      September 30, 2007, the Company had variable rate debt aggregating $5.0million.
      The variable rate debt exposes the Company to the risk of increased interest
      expense in the event of increases in short-term interest rates. If the variable
      interest rate were to increase by 1% from September2007
      levels, interest expense would increase by approximately $50,000 annually.
      The
      carrying value of the variable interest rate debt approximates fair value as
      it
      bears interest at current market rates.





**Item
      4. Controls and Procedures.**





**Evaluation
      of Disclosure Controls and Procedures**





Our
      management, with the participation of the Company’s chief executive officer and
      chief financial officer, have evaluated the effectiveness of the Company’s
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934 (the “1934 Act”)) as of
      September 30, 2007, the end of the period covered by this Form 10-Q. 
Based on this evaluation, our chief executive officer and chief financial
      officer concluded that, as of September 30, 2007, the Company’s disclosure
      controls and procedures were effective.




Previously,
      as of December 31, 2006, and in subsequent quarters through June 30, 2007 we
      concluded that our disclosure controls and procedures regarding information
      required to be included in our 34 Act reports were not effective due to certain
      identified material weaknesses including that:





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





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





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





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





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





27


Beginning
      in the first quarter of 2007,
      the Company began taking corrective actions to address these material
      weaknesses, including the appointment of a new CEO and a new
      President.  In the second quarter of 2007, the Company continued these
      corrective actions with its appointment of a new CFO.  As a result of
      these corrective actions and the Company’s remediation efforts during the period
      ended September 30, 2007, the Company concluded that, as of September 30, 2007,
      its disclosure controls and procedures were effective.





**Changes
      in Internal Control Over Financial Reporting**





There
      were no changes in our internal control over financial reporting (as defined
      in
      Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the period ended
      September 30, 2007, that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial
      reporting.






28


**PART
      II. OTHER INFORMATION**





**Item
      1.       Legal
      Proceedings**





Clean
      Fuels Litigation


In
      *Clean Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc.
      and SulphCo, Inc.*, Case No. CV05-01346 (Second Judicial District, County of
      Washoe) the Company, Rudolf W.Gunnerman, Peter Gunnerman, and RWG,
      Inc., were named as defendants in a legal action commenced in Reno,
      Nevada.  The Plaintiff Clean Fuels Technology later assigned its claims in
      the lawsuit to EcoEnergy Solutions, Inc., which entity was substituted as
      Plaintiff.  In general, Plaintiff EcoEnergy Solutions, Inc. alleged claims
      relating to ownership of the “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 September 14,
      2007, after a jury trial and extensive post-trial proceedings, the trial court
      entered final judgment against Plaintiff EcoEnergy Solutions, Inc. on all of
      its
      claims.  Per the final judgment, all of Plaintiff’s claims were resolved
      against Plaintiff and were dismissed with prejudice.  In addition, the
      trial court found that the Company was the prevailing party in the lawsuit
      and
      entered judgment in favor of the Company and against Plaintiff of approximately
      $124,000, with post-judgment interest.  Plaintiff appealed the judgment on
      October 5, 2007.  As of September 30, 2007, no liability has been accrued
      relative to this action.





Talisman
      Litigation


In
      *Talisman Capital Talon Fund, Ltd. v. Rudolf W.Gunnerman and SulphCo,
      Inc*., Case No. 05-CV-N-0354-BES-RAM, the Company and Rudolf W. Gunnerman
      were named as Defendants in a legal action commenced in federal court in Reno,
      Nevada. The Plaintiff alleged claims relating to the Company's ownership and
      rights to develop its "sulfur removal technology." The Company regards these
      claims as without merit. Discovery in this case formally concluded on May 24,
      2006. On September 28, 2007, the court granted, in part, the Defendants' motion
      for summary judgment and dismissed the Plaintiff's claims for bad faith breach
      of contract and unjust enrichment that had been asserted against Rudolf
      Gunnerman. The court denied the Plaintiff's motion for partial summary judgment.
      No trial date has yet been set. As
      of September 30, 2007, no liability has been accrued relative to this
      action.





McLelland
      Arbitration


In
      *The Matter of the Arbitration between Stan L. McLelland v. SulphCo,
      Inc.*, Mr. McLelland, who was the Company's president from August 13, 2001,
      until he resigned on September 12, 2001, sought to exercise options to purchase
      two million (2,000,000) shares of the Company’s common stock at 50 cents per
      share, as well as salary for the six months following his resignation and
      $20,000 of alleged unpaid commuting expenses.  Following the
      arbitration hearings, on July 24, 2007, the Company received notice that the
      Arbitrator had denied Mr. McLelland’s claim for the options.  The
      Arbitrator did award salary of $125,000 plus interest from October 1, 2001
      until
      paid, and $5,000 (without interest) out of the $20,000 of alleged unpaid
      commuting expenses.  In connection with the resolution of this matter,
      the Company recognized a charge for these amounts in the quarter ended June
      30,
      2007 which were later paid during the quarter ended September 30,
      2007.





Neuhaus
      Litigation


On
      October 20, 2006, Mark Neuhaus filed a lawsuit against the Company and Rudolf
      W.
      Gunnerman, *Mark Neuhaus v. SulphCo, Inc., Rudolph W. Gunnerman*, in the
      Second Judicial District Court, in and for the County of Washoe, Case No.
      CV06-02502, Dept. No. 1.  The lawsuit is based on a purported
      Non-Qualified Stock Option Agreement and related Consulting Agreement between
      Mark Neuhaus and the Company dated March of 2002.  Mark Neuhaus claims
      that according to the terms of the Non-Qualified Stock Option Agreement, he
      was
      granted an option to purchase three million (3,000,000) shares of the Company’s
      common stock at the exercise price per share of $0.01. On or about February
      of
      2006, Mark Neuhaus attempted to exercise the option allegedly provided to him
      under the Non-Qualified Stock Option Agreement. At that time, the Company
      rejected Mr. Neuhaus’s attempt to exercise the option.  Thereafter,
      Mr. Neuhaus filed this lawsuit seeking to enforce the Non-Qualified Stock Option
      Agreement.  In his suit, Mr. Neuhaus includes claims for specific
      performance, breach of contract, contractual breach of the covenant of good
      faith and fair dealing, and tortious breach of the covenant of good faith and
      fair dealing.  He requested that the Court compel the Company to issue
      the shares or alternatively to award him damages equal to the fair market value
      of the three million (3,000,000) shares of stock when he purported to exercise
      the options, minus the exercise price.  On December 7, 2006, the
      Company moved to dismiss the lawsuit.  On January 4, 2007, the Court
      issued an Order denying the motion on the ground that there were factual issues
      to be resolved which prevented dismissal at that time.  The Company
      filed an Answer to the Complaint, as well as a counterclaim against Mr. Neuhaus
      and a cross claim against Rudolf W. Gunnerman on March 29,
      2007.   That cross-claim against Dr. Gunnerman was subsequently
      voluntarily discontinued, without prejudice.  As of September 30,
      2007, no liability has been accrued relative to this action.  The
      Company regards the claim as without merit.





29


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





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





Hendrickson
      Derivative Litigation


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





Cullen
      Litigation


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
      entire case was dismissed without prejudice on April 25, 2007, but the Company
      retains the ability to revive its claims at a later date.








30


**Item
      1A.   Risk Factors**





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





**Item
      2.     Unregistered Sales of Equity Securities and Use
      of Proceeds.**– None.





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





**Item
      4.    Submission of Matters to a Vote of Security
      Holders.**– None.





**Item
      5.   Other Information.**– None.





**Item
      6.    Exhibits**





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


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


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









31


**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: 
                November 9,
                2007
            By:
            /s/ Larry
              D. RyanLarry D.
                Ryan
              Chief
                Executive Officer
              (Principal
                Executive Officer)  Date: 
                  November 9,
                  2007
            By:
            /s/ Stanley
              W.
              FarmerStanley W.
                Farmer
              Vice
                President and
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)








32