**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **Form
        10-Q**
  
 **þ** **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
OF 1934**
 
 **For
        the quarterly period ended.................................................June
        30, 2008**
 OR
 
 **o** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**
 **SECURITIES
        EXCHANGE ACT OF 1934**
 
 For
        the
        transition period
        from..........................to.............................
 
 **Commission
        file number 001-32636**
 
 **S** **ULPH** **C** **O, INC.** ****
 (Exact
        name of registrant as specified in its charter)
 
 **Nevada**
                (State
                  or other jurisdiction of incorporation or organization)
              **88-0224817**
                (I.R.S.
                  Employer Identification No.)
 
 **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 þ No o
 
 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 o Accelerated Filer þ Non-accelerated filer o Smaller
        Reporting Company o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act): Yes o No þ
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        equity, as of the latest practicable date:
 
 Class
              
              Outstanding
                  at July 31, 2008Common
                  Stock, par value $.001
              
              89,621,504
                  shares
  
  **PART
        I.**
 **Item
        1. Financial Statements**
 
 SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 CONDENSED
        BALANCE SHEETS
 June
        30,
        2008 and December 31, 2007
 (unaudited)
 **June 30,**
                  **2008**
                
                **December 31,**
                  **2007****ASSETS****Current
                    Assets:**Cash
                    and cash equivalents
                
                $
                25,812,633
                
                $
                7,430,138Prepaid
                    expenses and other
                
                
                437,860
                
                
                442,934Total
                    current assets
                
                
                26,250,493
                
                
                7,873,072**Property
                    and Equipment**(net
                    of****accumulated
                    depreciation of $996,813and
                    $917,107, respectively)
                
                
                268,921
                
                
                309,323**Other
                    Assets**Intangible
                    assets (net of accumulated amortization of $123,415 and $89,496
                    respectively)
                
                
                955,887
                
                
                881,848Other
                
                
                216,458
                
                
                37,798Total
                    other assets
                
                
                1,172,345
                
                
                919,646Total
                    assets
                
                $
                27,691,759
                
                $
                9,102,041**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY****Current
                    Liabilities**Accounts
                    payable and accrued expenses
                
                $
                2,766,338
                
                $
                1,515,278Refundable
                    deposit
                
                
                550,000
                
                
                550,000Late
                    registration penalty (including accrued interest)
                
                
                1,163,093
                
                
                1,094,671Total
                    current liabilities
                
                
                4,479,431
                
                
                3,159,949Convertible
                    notes payable, net of discount
                
                
                3,380,876
                
                
                2,967,802Other
                
                
                -
                
                
                180,058Total
                    long-term liabilities
                
                
                3,380,876
                
                
                3,147,860Total
                    liabilities
                
                
                7,860,307
                
                
                6,307,809**Commitments
                    and Contingencies (see Note 7)****Stockholders'
                    Equity**Preferred
                    stock: 10,000,000 shares authorized ($0.001 par value); none
                    issued
                
                
                -
                
                
                -Common
                    stock: 110,000,000 shares authorized ($0.001 par value);89,621,504
                    and 80,848,416 shares issued and outstanding, respectively
                
                
                89,622
                
                
                80,848Additional
                    paid-in capital
                
                
                155,575,963
                
                
                122,700,951Deficit
                    accumulated during the development stage
                
                
                (135,834,133
                )
                
                (119,987,567
                )Total
                    stockholders' equity
                
                
                19,831,452
                
                
                2,794,232Total
                    liabilities and stockholders' equity
                
                $
                27,691,759
                
                $
                9,102,041
  The
        Accompanying Notes are an Integral Part of the Financial
        Statements.
  2
  SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 CONDENSED
        STATEMENTS OF OPERATIONS
 For
        the
        Three and Six-Month Periods ended June 30, 2008 and 2007
 and
        the
        Period from Inception to June 30, 2008
 (unaudited)
 **Three
                    Months Ended**
                
                **Six
                    Months Ended****June
                    30,**
                
                **June
                    30,**
                
                **Inception
                    to****2008**
                
                **2007**
                
                **2008**
                
                **2007**
                
                **June
                    30, 2008****Revenue**Sales
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                42,967**Expenses:**Selling,
                    general, and administrative expenses
                
                
                (3,597,938
                )
                
                (5,122,985
                )
                
                (9,227,306
                )
                
                (7,070,132
                )
                
                (61,130,399
                )Research
                    and development expenses:Fujairah
                    test facility
                
                
                (93,988
                )
                
                (1,139,691
                )
                
                (132,004
                )
                
                (1,296,449
                )
                
                (23,299,642
                )Other
                
                
                (946,106
                )
                
                (824,361
                )
                
                (1,882,863
                )
                
                (1,647,399
                )
                
                (15,037,193
                )Loss
                    on investment in joint venture
                
                
                -
                
                
                -
                
                
                -
                
                
                (248
                )
                
                (136,095
                )Loss
                    on disposal of asset
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (221,711
                )Loss
                    on impairment of asset
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (233,900
                )Total
                    operating expenses
                
                
                (4,638,032
                )
                
                (7,087,037
                )
                
                (11,242,173
                )
                
                (10,014,228
                )
                
                (100,058,940
                )Loss
                    from operations
                
                
                (4,638,032
                )
                
                (7,087,037
                )
                
                (11,242,173
                )
                
                (10,014,228
                )
                
                (100,015,973
                )**Other
                    income (expense):**Interest
                    income
                
                
                21,598
                
                
                80,709
                
                
                62,569
                
                
                133,468
                
                
                1,081,133Interest
                    expense
                
                
                (268,460
                )
                
                (188,711
                )
                
                (579,075
                )
                
                (301,993
                )
                
                (7,275,590
                )Late
                    registration penalty
                
                
                -
                
                
                **-**
                
                
                -
                
                
                -
                
                
                (760,240
                )Other
                
                
                -
                
                
                (30,137
                )
                
                -
                
                
                (31,164
                )
                
                (6,628
                )**Net
                    loss**
                
                
                (4,884,894
                )
                
                (7,225,176
                )
                
                (11,758,679
                )
                
                (10,213,917
                )
                
                (106,977,298
                )Deemed
                    Dividend (see Note 4)
                
                
                (4,087,887
                )
                
                (1,657,821
                )
                
                (4,087,887
                )
                
                (13,181,706
                )
                
                (28,856,835
                )**Net
                    loss attributable to****common
                    stockholders**
                
                $
                (8,972,781
                )
                $
                (8,882,997
                )
                $
                (15,846,566
                )
                $
                (23,395,623
                )
                $
                (135,834,133
                )Loss
                    per share - basic and diluted
                
                $
                (0.11
                )
                $
                (0.12
                )
                $
                (0.19
                )
                $
                (0.31
                )Weighted
                    average shares - basic and diluted
                
                
                82,887,982
                
                
                76,648,356
                
                
                81,868,371
                
                
                75,038,780
  The
        Accompanying Notes are an Integral Part of the Financial
        Statements.
  3
  SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 CONDENSED
        STATEMENTS OF CASH FLOWS
 For
        the
        Six-Month Periods Ended June 30, 2008 and 2007
 and
        for
        the Period from Inception to June 30, 2008
 (unaudited)
 **Six Months Ended****June 30,**
              
              **Inception to****2008**
              
              **2007**
              
              **June 30, 2008****Cash
                  Flows From Operating Activities**Net
                  loss
              
              $(11,758,679)
              
              $(10,213,917)
              
              $(106,977,298)Adjustments
                  to reconcile net loss to cash usedin
                  operating activities:Depreciation
                  and amortization
              
              
              113,625
              
              
              84,693
              
              
              1,301,069Accretion
                  of note payable discount
              
              
              413,074
              
              
              7,254
              
              
              5,437,382Allowance
                  for loan receivable
              
              
              9,616
              
              
              301,341
              
              
              323,067Stock-based
                  compensation
              
              
              3,289,631
              
              
              2,261,396
              
              
              17,773,734Stock
                  issued for interest expense
              
              
              -
              
              
              -
              
              
              296,000Contribution
                  from stockholder
              
              
              -
              
              
              -
              
              
              555,000Loss
                  from joint venture
              
              
              -
              
              
              -
              
              
              136,095(Gain)
                  loss on disposal and impairment of assets
              
              
              -
              
              
              (9,108
              )
              
              448,704Changes
                  in:Receivables
              
              
              -
              
              
              -
              
              
              (118,657
              )Prepaid
                  expenses and other
              
              
              (4,542
              )
              
              46,959
              
              
              (363,816
              )Accounts
                  payable and accrued expenses
              
              
              1,071,002
              
              
              (940,067
              )
              
              2,688,528Other
                  assets
              
              
              (178,660
              )
              
              17,374
              
              
              371,340Accrued
                  fees
              
              
              68,422
              
              
              -
              
              
              750,274Net
                  cash used in operating activities
              
              
              (6,976,511
              )
              
              (8,444,075
              )
              
              (77,378,578
              )**Cash
                  Flows From Investing Activities**Purchase
                  of property and equipment
              
              
              (39,304
              )
              
              (102,821
              )
              
              (1,295,378
              )Investments
                  in joint ventures and subsidiaries
              
              
              -
              
              
              -
              
              
              (361,261
              )Payment
                  of deposits
              
              
              -
              
              
              -
              
              
              (36,822
              )Investments
                  in intangible assets
              
              
              (107,958
              )
              
              (115,892
              )
              
              (1,095,144
              )Net
                  cash used in investing activities
              
              
              (147,262
              )
              
              (218,713
              )
              
              (2,788,605
              )**Cash
                  Flows from Financing Activities**Proceeds
                  from issuance of stock, net of offering costs
              
              
              25,506,268
              
              
              9,388,197
              
              
              95,189,456Proceeds
                  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
              
              
              -
              
              
              -
              
              
              (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
              
              
              25,506,268
              
              
              9,388,197
              
              
              105,979,816Net
                  change in cash and cash equivalents
              
              
              18,382,495
              
              
              725,409
              
              
              25,812,633Cash
                  and cash equivalents at beginning of period
              
              
              7,430,138
              
              
              6,004,992
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              25,812,633
              
              $
              6,730,401
              
              $
              25,812,633
 
 The
        Accompanying Notes are an Integral Part of the Financial
        Statements.
  4
  SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 CONDENSED
        STATEMENTS OF CASH FLOWS - Continued
 For
        the
        Six-Month Periods Ended June 30, 2008 and 2007
 and
        for
        the Period from Inception to June 30, 2008
 (unaudited)
 
 **Supplemental
                  information and non-cash transactions**Cash
                  paid for interest
              
              $
              -
              
              $
              -
              
              $
              967,760Cash
                  paid for income taxes
              
              $
              -
              
              $
              -
              
              $
              -The
                  Company had the following non-cash investing and financing activities:Extinguishment
                  of related party note payable
              
              $
              -
              
              $
              -
              
              $
              5,000,000Extinguishment
                  of convertible notes payable
              
              
              -
              
              
              -
              
              
              4,680,044Issuance
                  of stock for convertible notes
              
              
              -
              
              
              -
              
              
              319,956Non-cash
                  deemed dividend (see Note 4 )
              
              
              4,087,887
              
              
              13,181,706
              
              
              28,856,835
  The
        Accompanying Notes are an Integral Part of the Financial
        Statements.
  5
  **SULPHCO,
        INC.**
 **(A
        Company in the Development Stage)**
 NOTES
        TO THE INTERIM CONDENSED FINANCIAL STATEMENTS
 June
        30,
        2008
 (unaudited)
 
 **1.**
              **Basis
                  of Presentation**
  The
        accompanying unaudited condensed financial statements of SulphCo, Inc., (the
        “Company” or “SulphCo”) were prepared in accordance with generally accepted
        accounting principles for interim financial statements in the United States
        of
        America (“GAAP”), pursuant to the Securities and Exchange Commission rules and
        regulations. Accordingly, they do not include all of the information and
        footnotes required by GAAP for complete annual financial statements.
 
 In
        the
        opinion of management, the unaudited interim financial statements reflect
        all
        normal and recurring adjustments necessary for a fair presentation of the
        results of operations, financial position and cash flows for the interim
        periods. The results of operations for any interim period are not necessarily
        indicative of the results for a full year. The accompanying condensed financial
        statements are unaudited and should be read in conjunction with the most
        recent
        annual report on Form 10-K.
 
 **Use
        of Estimates**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of certain assets
        and
        liabilities, disclosures of contingent assets and liabilities at the date
        of the
        financial statements, and the related reported amounts of revenues and expenses
        during the reporting period. The significant estimates made by management
        in the
        accompanying financial statements include allowances for doubtful accounts,
        determination of income taxes, contingent liabilities, useful lives used
        in
        depreciation and amortization and the assumptions utilized to compute
        stock-based compensation. Actual results could differ from those
        estimates.
 
 **Going
        Concern**
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the settlement of liabilities
        and commitments in the normal course of business.  As of June 30, 2008, the
        Company had cash and cash equivalents on hand of approximately $25.8 million
        and
        working capital of approximately $21.8 million. For the three and six-month
        periods ended June 30, 2008, the Company recognized net losses of approximately
        $4.9 million and $11.8 million, respectively. As a result of these continuing
        net losses, the Company has an accumulated deficit of approximately $135.8
        million that includes the effect of non-cash deemed dividends totaling
        approximately $28.9 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
        2009. Our ability to meet future capital requirements after that date will
        depend primarily upon the ability of the Company to generate material revenue
        from business operations, 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 other than the equity line of credit
        discussed in Note 3. 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.
  6
  **2.**
              **Convertible
                  Notes Payable**
 
 At
        December 31, 2007 and June 30, 2008, the Company had outstanding convertible
        notes payable of approximately $4.7 million (the “Convertible Notes Payable”).
        The Convertible Notes Payable is presented net of the unamortized discount
        related to a beneficial conversion feature present in the terms of the note.
        The
        discount is being accreted into the statement of operations as
        incremental interest
        expense using the effective interest method through July 31, 2009, after
        which
        time the note holders have the ability to accelerate the maturity of the
        Convertible Notes Payable.
 
 As
        of
        June 30, 2008, the net balance of the Note Payable is:
 **June 30, 2008**Assumed
                    proceeds from modified Convertible Notes Payable
                
                $
                4,680,044Less:Discount
                    related to beneficial conversion feature
                
                
                (1,736,550
                )Net
                    Convertible Notes Payable balance
                
                
                2,943,494Add:Discount
                    accretion through June 30, 2008
                
                
                437,382Net
                    Convertible Notes Payable balance at June 30, 2008
                
                $
                3,380,876
  The
        Convertible Notes Payable represents an unsecured obligation of the
        Company.
 
 Interest
        on the Convertible Notes 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 st of each
        year during the remaining term of the Convertible Notes Payable that extends
        through December 31, 2011 when the note matures (unless maturity is otherwise
        accelerated by the note holders to any date after July 31, 2009). For the
        three
        and six-month periods ended June 30, 2008 and 2007, the Company recognized
        total
        interest expense of approximately $0.3 million, $0.2 million, $0.6 million
        and
        $0.3 million, respectively. For the three and six-month periods ended June
        30,
        2008 and 2007, total interest expense recognized by the Company included
        incremental interest expense associated with discount accretion of approximately
        $0.2 million, nil, $0.4 million, and nil, respectively.
 
 **3.**
              ******Capital
                  Stock**
 
 Other
        than the stock-based compensation transactions disclosed in Note 6, the Company
        had the following transactions related to its common stock during the six
        months
        ended June 30, 2008:
 
 During
        the quarter ended June 30, 2008, the Company completed two equity transactions.
        The first involved the sale of 6,818,750 shares of its common stock at a
        price
        of $3.20 per share pursuant to the terms of a Securities Purchase Agreement
        dated May 27, 2008, resulting in net proceeds to the Company of approximately
        $20.3 million before transaction costs. The shares were sold pursuant to
        a shelf
        registration statement declared effective by the Securities and Exchanges
        Commission on September 4, 2007. The second involved the exercise by investors
        of warrants to acquire approximately 1.9 million shares of the Company’s common
        stock at an exercise price of $2.68 per share resulting in net proceeds to
        the
        Company of approximately $5.2 million. Between these two transactions, the
        Company raised net proceeds totaling approximately $25.5
        million.
  7
  During
        the quarter ended June 30, 2008, the Company entered into an equity line
        of
        credit with Azimuth Opportunity Ltd. (“Azimuth”) pursuant to a Common Stock
        Purchase Agreement dated April 30, 2008. Subject to the conditions set forth
        in
        that agreement, Azimuth is committed to purchase up to $60,000,000 of the
        Company’s common stock pursuant to draw down notices that the Company may give
        to Azimuth from time to time at the Company’s discretion until November 1, 2009.
        The price of shares sold is determined by reference to the volume weighted
        average price of the Company’s common stock during a ten trading day pricing
        period at the time of each draw down notice, less a small discount.
 
 **4.**  **Deemed
        Dividend**
 
 On
        March
        12, 2007, the Company executed Amendment No. 1 to Securities Purchase Agreements
        and Warrants (“Amendment No. 1”) with certain warrant holders (the “Warrant
        Holders”) who had been issued warrants by the Company in 2004 (“2004 Warrants,”
and holders of 2004 Warrants, “2004 Warrant Holders”) and in 2006 (“2006
        Warrants,” and holders of 2006 Warrants, “2006 Warrant Holders”) that provided
        inducements to encourage the Warrant Holders to exercise their respective
        warrants. As consideration for Warrant Holders exercising their respective
        warrants, 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 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 Amendment No. 1 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 (the “March 2007
        Warrants”). As a result of the inducements, the Company recorded a non-cash
        deemed dividend of approximately $11.5 million. 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 by 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 March 2007 Warrants
        estimated using the Black-Scholes Valuation Model.
 
 During
        the quarter ended June 30, 2007, 600,000 2006 Warrants held by the 2006 Warrant
        Holders were exercised resulting in the grant of 600,000 additional warrants.
        As
        a result, the Company recorded an additional non-cash deemed dividend of
        approximately $1.7 million that was estimated using the Black-Scholes Valuation
        Model.
 
 On
        November 28, 2007, the Company executed Amendment No. 2 to Securities Purchase
        Agreements and Warrants (“Amendment No. 2”) with certain of the Warrant Holders
        holding approximately 3.95 million of the then outstanding March 2007 Warrants
        wherein the Warrant Holders agreed to exercise up to 50% of their March 2007
        Warrants. In exchange, SulphCo agreed to issue the Warrant Holders additional
        warrants (the “November 2007 Warrants”) on a one-to-one basis with an exercise
        price of $7.00 per share and a term of three years. In addition, the Warrant
        Holders were granted an option to exercise the remaining 50% of their March
        2007
        Warrants on the later of April 15, 2008, or 30 days following the 2008 Annual
        Meeting of Stockholders in which SulphCo’s stockholders approve an increase of
        10 million authorized common shares. If this option were exercised, then
        SulphCo
        would issue the Warrant Holders additional warrants on a one-to-one basis
        with
        an exercise price of $7.00 a share and a term of three years. As a result
        of the
        inducement described above, 1,953,088 of the March 2007 Warrants held by
        the
        Warrant Holders were exercised during the quarter ended June 30, 2008, resulting
        in the grant of 1,953,088 additional warrants (the “May 2008 Warrants”). Based
        on its analysis, the Company concluded that a deemed dividend should be recorded
        to account for the fair value of the inducement that was transferred to the
        Warrant Holders computed as the fair value of the 1,953,088 May 2008 Warrants
        issued to the Warrant Holders. Based on the Black-Scholes valuation prepared
        for
        this transaction, the Company has determined that the amount of the non-cash
        deemed dividend was approximately $4.1 million.
  8
  For
        the
        three and six-month periods ended June 30, 2008 and 2007, the Company recognized
        non-cash deemed dividends of approximately $4.1 million, $1.7 million, $4.1
        million and $13.2 million, respectively.
 
 **5.**
              **Loss
                  Per Share**
 
 The
        computations of basic and diluted loss per common share are based upon the
        weighted average number of common shares outstanding and potentially dilutive
        securities. Potentially dilutive securities include options and warrants
        to
        acquire the Company’s common stock and convertible debt. As of June 30, 2008,
        there were approximately 10.6 million shares issuable in connection with
        these
        potentially dilutive securities. These potentially dilutive securities were
        disregarded in the computations of diluted net loss per share for three and
        six-month periods ended June 30, 2008 and 2007, because inclusion of such
        potentially dilutive securities would have been anti-dilutive.
 
 **6.**
              **Stock
                  Plans and Stock-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. The fair value of each option
        award granted is estimated on the date of grant using a Black-Scholes option
        valuation model. Expected volatilities are based on the historical volatility
        of
        the Company’s stock. The expected term of options granted to employees is
        derived utilizing the simplified method referred to in SEC’s Staff Accounting
        Bulletin No. 107, “Share-Based Payment” (“SAB No. 107”) which represents the
        period of time that options granted are expected to be outstanding. The Company
        utilizes the simplified method because it does not have historical exercise
        data
        which is sufficient to provide a reasonable basis to estimate the expected
        term.
        The Company expects to continue utilizing the simplified method to determine
        the
        expected term until such time as it accumulates historical exercise data
        that
        will provide a sufficient basis for the Company to begin estimating the expected
        term for option exercises. The expected term of options granted to non-employees
        is equal to the contractual term of the option as required by other accounting
        literature. The risk-free rate for periods within the contractual life of
        the
        option is based on the U.S. Treasury yield curve at the time of grant.
 
 Total
        stock-based compensation for the three and six-month periods ended June 30,
        2008
        and 2007, was approximately $0.5 million, $2.5 million, $3.3 million, and
        $2.3
        million, respectively.
 
 **Stock
        Option Grants - Directors, Officers and Employees**
 
 During
        the three and six-month periods ended June 30, 2008 and 2007, the Company
        granted 758,500, 535,000, 1,736,034, and 885,000 stock options, respectively,
        to
        its directors, officers and employees. The stock-based compensation expense
        for
        these stock options for the three and six month periods ended June 30, 2008
        and
        2007 was approximately $0.5 million, $1.6 million, $3.3 million and $1.7
        million, respectively. The fair value of these stock options was estimated
        using
        the Black-Scholes options pricing model with the following
        assumptions:
  9
  
 **Six
                  Months Ended June 30, 2008 and 2007**
              
              **2008**
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              1.5
                  - 6.5
              
              
              5
                  - 6.5Expected
                  Volatility
              
              
              93%
                  - 151
              %
              
              144%
                  - 149
              %Expected
                  Dividend Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              1.6%
                  - 3.57
              %
              
              4.51%
                  - 5.10
              %Weighted
                  Average Grant Date Fair Value
              
              
              $1.60
                  - $3.69
              
              
              $2.46
                  - $4.56**Three
                  Months Ended June 30, 2008 and 2007**
              
              
              **2008**
              
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              1.5
                  - 6.5
              
              
              5.5
                  - 6.5Expected
                  Volatility
              
              
              93%
                  - 151
              %
              
              147%
                  - 149
              %Expected
                  Dividend Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              2.22%
                  - 3.57
              %
              
              4.55%
                  - 4.76
              %Weighted
                  Average Grant Date Fair Value
              
              
              $1.60
                  - $3.48
              
              
              $2.46
                  - $3.37
 
 **Stock
        Option Grants - Non-Employees**
 
 During
        the three and six-month periods ended June 30, 2008 and 2007, the Company
        granted 102,500, 50,500, 102,500 and 50,500 stock options, respectively,
        to
        non-employees. The
        stock-based compensation expense for these stock options for the three and
        six-month periods ended June 30, 2008 and 2007 was $23,000,
        nil, $23,000 and nil, respectively. The fair value of these stock options
        was
        estimated using the Black-Scholes options pricing model with the following
        assumptions:
 
 **Six
                  Months Ended June 30, 2008 and 2007**
              
              **2008**
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              10
              
              
              4Expected
                  Volatility
              
              
              140
              %
              
              144
              %Expected
                  Dividend Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              3.99
              %
              
              5.00
              %Weighted
                  Average Grant Date Fair Value
              
              
              $2.20
              
              
              $3.18**Three
                  Months Ended June 30, 2008 and 2007**
              
              **2008**
              
              **2007**Valuation
                  Assumptions:Expected
                  Term (years)
              
              
              10
              
              
              4Expected
                  Volatility
              
              
              140
              %
              
              144
              %Expected
                  Dividend Rate
              
              
              -
              
              
              -Risk
                  Free Interest Rate
              
              
              3.99
              %
              
              5.00
              %Weighted
                  Average Grant Date Fair Value
              
              
              $2.20
              
              
              $3.18
  10
  **Restricted
        Stock Grants - Directors, Officers and Employees**
 
 During
        the three and six -month periods ended June 30, 2008 and 2007, the Company
        granted zero, 220,206, zero, 270,206 shares of restricted stock, respectively,
        to its directors and officers. All of the restricted shares granted during
        these
        periods were valued by reference to the market price of the Company’s stock on
        the date of grant.
 
 The
        stock-based compensation expense for the restricted stock grants for the
        three
        and six-month periods ended June 30, 2008 and 2007 was nil, $0.9 million,
        nil,
        $0.6 million, respectively.
 
 **7.**
              **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 these financial
        instruments in one U.S. financial institution, which exceed federally insured
        limits by approximately $25.7 million at June 30, 2008. The Company has not
        experienced any losses in such accounts, nor does management believe it is
        exposed to any significant credit risk .
 
 **Registration
        Payment Arrangements**
 
 As
        is
        discussed in Note 4 above, the Company executed Amendment No. 2 with the
        Warrant
        Holders. Amendment No. 2 contained registration provisions requiring the
        Company
        to use commercially reasonable efforts to prepare and file a registration
        statement (the “Amendment No. 2 Additional Registration Statement”) to cover all
        shares of common stock underlying the additional warrants issued under Amendment
        No. 2 as soon as possible, but in no event later than 90 days after May 28,
        2008
        (the “Filing Deadline”).
 
 The
        Amendment No. 2 registration provisions further provided that in the event
        the
        Company does not file the Amendment No. 2 Additional Registration Statement
        by
        the Filing Deadline, each of the Warrant Holders shall be entitled to receive
        on
        the Filing Deadline and on each monthly anniversary of the Filing Deadline
        thereafter, an amount in cash, as partial liquidated damages, equal to 1%
        of the
        aggregate exercise price paid by the Warrant Holders until the Company files
        the
        Amendment No. 2 Additional Registration Statement. The liquidated damages
        payable under Amendment No. 2 shall not exceed 12% of the aggregate purchase
        price paid by the Warrant Holders. The maximum amount of liquidated damages
        the
        Company could be required to pay is approximately $0.6 million.
 
 The
        Company plans to file the Amendment No. 2 Additional Registration Statement
        within the required time frame 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. The following paragraphs set forth the status
        of litigation as of June 30, 2008.
 
 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 the plaintiff.  In general, the
        plaintiff’s alleged claims relate 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 the
        plaintiff EcoEnergy Solutions, Inc. on all of its claims.  As per the final
        judgment, all of the plaintiff’s claims were resolved against the plaintiff and
        were dismissed with prejudice.  In addition, the trial court entered
        judgment in favor of the Company and against the plaintiff for reimbursement
        of
        legal fees and costs of approximately $124,000, with post-judgment interest.
         The plaintiff appealed the judgment on October 5, 2007.  On December
        19, 2007, and as required by Nevada statute, the Company participated in
        a
        mandatory settlement conference at which time a settlement was not reached.
        A
        briefing schedule has been issued, but there has been no date set for oral
        arguments. As of June 30, 2008, no asset or liability has been accrued relative
        to this action.
  11
  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’s claims relate 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. The trial, which was originally
        scheduled for August 4, 2008, has been postponed by the court and will be
        rescheduled to take place in the fourth quarter of 2008 or the first quarter
        of
        2009. As of June 30, 2008, no liability has been accrued relative to this
        action.
 
 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 (the “Non-Qualified Stock Option Agreement”). 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.
  12
  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.
 
 On
        December 21, 2007, the Company filed a motion for summary judgment with the
        court seeking dismissal of Neuhaus's claims. The Company argued that the
        Non-Qualified Stock Option Agreement was not valid in that there was no evidence
        of a board resolution approving the terms of the options, as is required
        by
        Nevada law. Neuhaus opposed the motion. On February 4, 2008, the court denied
        the motion for summary judgment, finding that there remain material issues
        of
        disputed facts relating to the creation of the Non-Qualified Stock Option
        Agreement and the Consulting Agreement. The Company is proceeding with
        discovery.
 
 On
        March
        25, 2008, Neuhaus moved for partial summary judgment of liability against
        the
        Company. On April 21, 2008, the Company filed its response (a) opposing summary
        judgment for Neuhaus and (b) cross-moving for summary judgment in favor of
        the
        Company dismissing all of Neuhaus’s claims, on the ground that discovery had now
        confirmed that there was no Board resolution adopted authorizing the purported
        option grant. Neuhaus has not yet filed his response to the Company’s
        cross-motion, and the motions have not yet been submitted to the court for
        decision.
 
 On
        July
        9, 2008, the Company entered into a Confidential Settlement Agreement and
        Release with Mark Neuhaus (the “Settlement Agreement”), by which Mr. Neuhaus and
        the Company agreed to dismiss the respective legal proceedings each party
        had
        initiated on the other, and by which both parties agreed to a mutual release.
        The total consideration paid by the Company to Mr. Neuhaus under the Settlement
        Agreement was $750,000, of which $250,000 is payable in cash and the remaining
        $500,000 is payable by issuance of 123,763 shares of the Company’s common stock
        to Mr. Neuhaus and 123,762 shares of the Company’s common stock to Mr. Neuhaus’
attorneys, Erickson, Thorpe & Swainston, Ltd, which amount was determined by
        dividing $500,000 by $2.02, the closing price of the Company’s stock on July 9,
        2008. As of June 30, 2008, a liability of $750,000 has been accrued relative
        to
        this action.
  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.
  13
  In
        September of 2007, the Company’s Board of Directors received a demand letter
        (the “Hendrickson Demand Letter”) from Mr. Hendrickson’s attorney reasserting
        the allegations contained in the original derivative claim and requesting
        that
        the Board of Directors conduct an investigation of these matters in response
        thereto. In response to the Hendrickson Demand Letter, the Company’s Board of
        Directors formed a committee comprised of three independent directors to
        evaluate the Hendrickson Demand Letter and to determine what, if any, action
        should be taken. The committee has retained independent counsel to advise
        it. As
        of June 30, 2008, no liability has been accrued relative to this action.
 
 Nevada
        Heat Treating Litigation
 On
        November 29, 2007, Nevada Heat Treating, Inc. (“NHT”) filed a lawsuit against
        the Company, *Nevada
        Heat Treating, Inc., d/b/a California Brazing* ,
        in the
        Second Judicial District Court of the State of Nevada, in and for the County
        of
        Washoe, Case No. CV07-02729. In its complaint, NHT alleges trade secret
        misappropriation and breach of contract relative to certain information alleged
        to have been disclosed to the Company beginning in late 2006 and continuing
        through early 2007 pursuant to a consulting engagement with NHT. Among other
        things, NHT is asserting that certain information, alleged to have been
        disclosed to the Company during the term of the consulting engagement, is
        the
        subject of a nondisclosure/confidentiality agreement executed at the inception
        of the consulting engagement. NHT is contending that this certain information
        represents a trade secret that should no longer be available for use by the
        Company following the termination of the consulting engagement with NHT in
        the
        spring of 2007. In connection with filing this action, NHT also filed a motion
        for preliminary injunction against the Company seeking to enjoin it from
        using
        certain information until the matter can be resolved through the courts.
        Hearings on the preliminary injunction motion took place on March 24 and
        25,
        2008, and May 8, 2008. On May 8, 2008, the court ruled from the bench, at
        the
        conclusion of the hearing on the motion for preliminary injunction. The court
        denied the plaintiff’s motion on grounds that the plaintiff had failed to
        demonstrate a probability of success on the merits of its claims. Trial has
        been
        set for April 27, 2009. As of June 30, 2008, no liability has been accrued
        relative to this action.
 
 Securities
        and Exchange Commission Subpoena
 On
        February 25, 2008, the Company received a subpoena from the Denver office
        of the
        Securities and Exchange Commission (the “SEC”). The subpoena formalizes
        virtually identical requests the Company received in May, June and August
        2007
        and subsequently responded to which requested the voluntary production of
        documents and information, including financial, corporate, and accounting
        information related to the following subject matters: Fujairah Oil Technology
        LLC, the Company’s restatements for the first three quarterly periods of 2006
        and the non-cash deemed dividend for the quarter ended March 31, 2007, and
        information and documents related to certain members of former management,
        all
        of whom have not been employed by the Company for over a year. We have been
        advised by the SEC that, despite the subpoena and formal order of investigation
        authorizing its issuance, neither the SEC nor its staff has determined whether
        the Company or any person has committed any violation of law. The Company
        intends to continue to cooperate with the SEC in connection with its requests
        for documents and information.
  14
  **8.**
              **Related
                  Party Transactions**
 
 During
        the three and six-month periods ended June 30, 2008 and 2007, the Company
        made
        payments of approximately $0.2 million, $0.1 million, $0.5 million and $0.3
        million, respectively, to Märkisches Werk Halver, GmbH (“MWH”) in connection
        with ongoing probe development activities under an existing agreement (the
        “Development Agreement”). On June 27, 2008, the Company renewed the Development
        Agreement with MWH for a period of five years. Pursuant to the terms of the
        renewed Development Agreement, MWH has agreed to continue providing the Company
        with development and manufacturing services related to its SoncrackingTM probe
        assembly and reactor (the “Equipment”). In return, the Company has agreed to pay
        fees to MWH for its probe development and manufacturing services and grant
        MWH
        an option to purchase up to 50,000 shares of the Company’s common stock at an
        exercise price of $2.46 per share. In addition, in the event that within
        the
        next twelve months the Equipment demonstrates certain performance metrics,
        the
        Company has agreed to issue MWH 50,000 restricted shares of the Company’s common
        stock. 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.
 
 The
        Company has a 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 a project manager. As a project manager, Mr. van Maasdijk’s responsibilities
        will include overseeing the installation and testing of commercial Sonocracking
        units at various locations assigned by the Company. Under the terms of the
        contract, Mr. van Maasdijk will receive a monthly payment of approximately
        $7,000 plus reimbursement of all reasonable out-of-pocket expenses, in
        accordance with the Company’s applicable policies and procedures. For the three
        and six-month periods ended June 30, 2008 and 2007, the total expense recognized
        by the Company under this arrangement was approximately $30,000, $25,000,
        $40,000 and $39,000, respectively. Under the renewed agreement, the Company
        granted MWH a worldwide non-exclusive license to utilize the Company’s
        ultrasound probe technology for all applications outside the treatment of
        crude
        oil and crude oil fractions.
 
 **9.**
              **Recent
                  Accounting
                  Pronouncements**
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157 (SFAS 157), “Fair Value Measurements,” which defines fair value, establishes
        guidelines for measuring fair value and expands disclosures regarding fair
        value
        measurements. SFAS 157 does not require any new fair value measurements but
        rather eliminates inconsistencies in guidance found in various prior accounting
        pronouncements. SFAS 157 is effective for fiscal years beginning after November
        15, 2007. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2,
        “Effective Date of FASB Statement No. 157,” which defers the effective date of
        Statement 157 for nonfinancial assets and nonfinancial liabilities, except
        for
        items that are recognized or disclosed at fair value in an entity’s financial
        statements on a recurring basis (at least annually), to fiscal years beginning
        after November 15, 2008, and interim periods within those fiscal years. Earlier
        adoption is permitted, provided a company has not yet issued financial
        statements, including for interim periods, for that fiscal year. As of January
        1, 2008, the Company does not have any recurring fair value measurements
        and has
        opted for the deferral. Accordingly, the Company has not implemented and
        is
        currently evaluating the impact of SFAS 157, but does not expect the adoption
        of
        SFAS 157 to have a material impact on its results from operations or financial
        position.
  In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial
        Liabilities — Including an amendment of FASB Statement No. 115.” SFAS 159
        permits entities to measure eligible assets and liabilities at fair value.
        Unrealized gains and losses on items for which the fair value option has
        been
        elected are reported in earnings. SFAS 159 is effective for fiscal years
        beginning after November 15, 2007. As of March 31, 2008, the Company did
        not
        elect the fair value option on any financial instruments or certain other
        items
        as permitted by SFAS 159.
  15




In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      141 (revised 2007) (SFAS 141R), “Business Combinations,” which replaces SFAS
      141. SFAS 141R establishes principles and requirements for how an acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, the liabilities assumed, any non-controlling interest in the acquiree
      and the goodwill acquired. The statement also establishes disclosure
      requirements that will enable users to evaluate the nature and financial effects
      of the business combination. SFAS 141R is effective for fiscal years beginning
      after December 15, 2008. The adoption of SFAS 141R is not expected to have
      a
      material impact on the Company’s results from operations or financial position.




In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      160 (SFAS 160), “Non-controlling Interests in Consolidated Financial Statements
— an amendment of ARB No. 51.” SFAS 160 requires that accounting and reporting
      for minority interests be re-characterized as non-controlling interests and
      classified as a component of equity. SFAS 160 also establishes reporting
      requirements that provide sufficient disclosures that clearly identify and
      distinguish between the interests of the parent and the interests of the
      non-controlling owners. SFAS 160 applies to all entities that prepare
      consolidated financial statements, except not-for-profit organizations, but
      will
      affect only those entities that have an outstanding non-controlling interest
      in
      one or more subsidiaries or that deconsolidate a subsidiary. This statement
      is
      effective for fiscal years beginning after December 15, 2008. The adoption
      of
      SFAS 160 is not expected to have a material impact on our results from
      operations or financial position.




In
      March
      2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS
      161), “Disclosures about Derivative Instruments and Hedging Activities — an
      amendment of FASB Statement No. 133.” SFAS 161 changes the disclosure
      requirements for derivative instruments and hedging activities. This statement
      is effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008. Early adoption is encouraged. SFAS
      161 applies to all entities but will only affect those entities that use
      derivative instruments. As of March 31, 2008, the Company does not have any
      derivative instruments and does not expect SFAS 161 to have a material impact
      on
      our results from operations or financial position.





**10.**  **Subsequent
      Events**





On
      July
      9, 2008, the Company entered into a Confidential Settlement Agreement and
      Release with Mark Neuhaus (the “Settlement Agreement”), by which Mr. Neuhaus and
      the Company agreed to dismiss the respective legal proceedings each party had
      initiated on the other, and by which both parties agreed to a mutual release.
      The total consideration paid by the Company to Mr. Neuhaus under the Settlement
      Agreement was $750,000, of which $250,000 is payable in cash and the remaining
      $500,000 is payable by issuance of 123,763 shares of the Company’s common stock
      to Mr. Neuhaus and 123,762 shares of the Company’s common stock to Mr. Neuhaus’
attorneys, Erickson, Thorpe & Swainston, Ltd, which amount was determined by
      dividing $500,000 by $2.02, the closing price of the Company’s stock on July 9,
      2008. As of June 30, 2008, a liability of $750,000 has been accrued relative
      to
      this action.


16





**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.





**Business
      Development Activities Update**





The
      following is an update on the more significant activities the Company has been
      pursuing.




With
      respect to the Company’s ongoing commercial efforts, we continue to see a high
      level of interest in the SonocrackingTM process as potential customers see the
      value that can be driven by the technology. We are pursuing what we believe
      are
      opportunities presenting the highest likelihood of success for the technology
      (i.e., crudes with high sulphur content, fuel oil, also known as bunker fuel,
      and high sulphur crude fractions such as high sulphur diesel) and are working
      with several potential customers to achieve that goal.





Houston,
      Texas





We
      are
      in discussions with several potential North American clients. In
      anticipation of the need for processing capacity in North America, we shipped
      a
      15,000 Bpd SonocrackingTM unit from Europe to Houston. The SonocrackingTM unit
      arrived in Houston during May 2008.




Research
      and development activities in SulphCo’s Houston facility have been centered
      around two principal areas: 1) the building and commissioning of a mobile unit
      capable of processing up to 5,000 Bpd of crude oil that can quickly be
      installed at a potential customer site and 2) the building and performance
      validation of a laboratory pilot scale unit (with flow rates of 1 - 15 gallons
      per minute), which will provide potential customers with laboratory scale data
      replicating the performance of a commercial scale SonocrackingTM
unit.





Construction
      and commissioning of the 5,000 Bpd mobile unit has been completed and we began
      evaluation of the unit in field validation tests at a potential customer site
      in
      May 2008. The goal of this evaluation will be to demonstrate the effectiveness
      of the SonocrackingTM process on the customer’s own crude at commercial flow
      rates. We expect this evaluation to take place for much of the third and fourth
      quarter of 2008 . If
      such
      tests are successful, we would anticipate moving forward to commercial operating
      agreements with such customers.





Given
      the
      increased interest in the 5,000 Bpd mobile unit by potential customers, the
      Company has decided to construct a second 5,000 Bpd mobile unit for use in
      other
      installations. The construction of the second mobile unit commenced in Houston
      in June 2008 and is expected to be completed during August 2008. Once completed,
      the unit will be installed at a potential customer site for technology and
      process evaluation.





We
      continue to make progress in the development of the pilot scale laboratory
      unit
      and are currently in the process of incorporating new probe and reactor
      technology. We conducted test runs on the pilot scale laboratory unit throughout
      the first quarter of 2008 and expanded the scale of this test program throughout
      the second quarter of 2008. Potential customers have supplied a variety of
      crudes in various quantities for laboratory testing. We expect to conduct
      extensive laboratory testing on potential customers’ crudes during the third
      quarter of 2008 and beyond. If such tests are successful on a laboratory scale,
      we would anticipate moving forward to field testing and/or commercial operating
      agreements with such potential customers.




17




Middle
      East





On
      July
      10, 2008, we announced an agreement with Amira Group Company LLC. (“Amira”), a
      US-based oil and gas services company, granting Amira an exclusive
      distributorship in certain regions of the Middle East and North Africa and
      certain customer specific opportunities (the "Amira Sales Territories"). The
      Company and Amira personnel have made formal presentations to several
      prospective customers within the Amira Sales Territories, providing technical
      and commercial information on the SonocrackingTM process.




Southeast
      Asia




On
      February 11, 2008, we announced an agreement with Pt. Isis Megah (“Isis”), an
      Indonesian oil and gas services company, granting Isis an exclusive
      distributorship in the sales territories of India, Malaysia, Singapore and
      Indonesia (the “Sales Territories”). We concurrently announced a customer order
      procured through Isis, conditioned upon the execution of an operating agreement,
      for SonocrackingTM units having at least 30,000 barrels per day (“Bpd”) of
      processing capacity to be shipped at our expense from Fujairah to a designated
      port within the Sales Territories. Subsequently, the Company shipped 90,000
      Bpd
      of processing capacity from our facility in Fujairah, UAE, that arrived in
      Singapore during the week of April 14, 2008 . The
      SonocrackingTM units will remain in storage there pending finalization of a
      refinery placement agreement.





During
      the week of March 31, 2008, SulphCo personnel conducted joint site inspections
      with the customer at two of its Southeast Asian refineries to evaluate their
      suitability for the proposed SonocrackingTM unit installations. Following these
      inspections the parties reached a preliminary understanding as to the placement
      of the Company’s first 30,000 Bpd commercial scale SonocrackingTM unit within the
      customer’s refinery (the “Placement Agreement”). Upon execution of the Placement
      Agreement among Isis, the customer, and SulphCo, the 30,000 Bpd SonocrackingTM
unit will be shipped by barge from Singapore to the customer’s refinery
      site. An operating agreement cannot be signed before finalization of
      the Placement Agreement, since the character of the crude oil or
      fractionates to be processed is dependent upon both the selection
      of and location within the refinery where the SonocrackingTM
unit is to be installed.





Subsequent
      to the initial discussions with the customer, several unanticipated and
      uncontrollable events occurred leading to delays in reaching a final Placement
      Agreement. Primarily, the customer experienced a significant turnover in
      management and operating personnel. Given the change in personnel and
      organization, a further review was required by the customer prior to
      implementing SulphCo’s technology within their refineries. During the month of
      June, SulphCo personnel traveled to Southeast Asia and visited with the customer
      to discuss open technology and commercial items as well as to determine an
      appropriate resolution between Isis, SulphCo, and the customer. Based on those
      meetings and further discussions with new management, we expect to see further
      definition of the relationship between Isis, the customer and the Company within
      the third quarter of 2008.


18





Fujairah




The
      Company had originally scheduled additional rounds of testing at the Fujairah
      Facility during the second quarter of 2008. These tests were to be conducted
      for
      the benefit of potential customers to allow them to observe the SonocrackingTM
technology and process performance first hand. However, the principal potential
      customers decided they did not require testing in Fujairah at that time, so
      the
      scheduled tests were put on hold. The Company does plan on executing a new
      round
      of validation testing at the Fujairah facility during the third or fourth
      quarter of 2008 for the primary purposes of further data generation and
      potential customer demonstrations. We are currently in the process of procuring
      the necessary crude oil and residual fuel oil for the validation
      testing.




European
      Testing Activities





The
      Company is in the process of developing and evaluating a series of next
      generation probes and reactors that should provide significant results when
      utilized in treating the crude available at the European testing partner’s
      location. The Company expects the equipment modifications to be complete within
      the third quarter and the scheduling of additional rounds of evaluation to
      occur
      shortly thereafter.





Pending
      the evaluations of the new equipment mentioned above , the
      Company postponed meetings with its European testing partner until later in
      the
      third quarter of 2008. This will allow for updated discussions on the following
      items 1) the results of all testing performed to date in the European testing
      partner’s facilities, 2) the commercial significance of those results, 3)
      potential commercial opportunities between SulphCo and the European testing
      partner, 4) additional commercial opportunities that may arise as a result
      of
      improvements made to the probe and reactor chamber technology subsequent to
      earlier rounds of testing in Europe, and 5) the attendance of European testing
      partner personnel at future testing trials in Fujairah.




South
      Korea





The
      SulphCo KorAsia project has experienced delays due to unanticipated equipment
      problems that occurred during the testing conducted in the first quarter of
      2008. During the course of the limited trials, issues arose with a certain
      switching component of an electrical driver for the ultrasound probes. Those
      issues were ultimately attributed to factors related to the original electrical
      equipment supplied with the earlier generation 2,000 Bpd SonocrackingTM unit in
      2005. Given the limited resources of the Company and the higher priority
      attached to more immediate opportunities that have presented themselves
      elsewhere, we have been proceeding in South Korea at a more measured pace than
      originally anticipated. Once the technical updates are completed and several
      outstanding business issues are resolved we intend to resume testing utilizing
      Khafji crude oil (sulphur content ~2.9%) later this year. Once a full set of
      trials have been performed and the data analyzed, we will determine, in
      conjunction with SulphCo KorAsia, the appropriate technical and commercial
      paths
      forward. There can be no assurance that the technical updates or outstanding
      business issues will be resolved favorably.


19





***Three
      and six-months ended June 30, 2008 compared to the three and six-months ended
      June 30, 2007***





**Research
      and Development Expenses**




For
      the
      three and six-month periods ended June 30, 2008, we incurred expenses of
      approximately $1.0 million and $2.0 million, respectively, related to research
      and development of our Sonocracking technology. This compares to expenses of
      approximately $2.0 million and $2.9 million, respectively, for the comparable
      periods in 2007. During the three and six-month periods ended June 30, 2008,
      we
      incurred approximately $94,000 and $132,000, respectively, related to the test
      facility in Fujairah, UAE. This compares to expenses of $1.1 million and $1.3
      million, respectively, for the comparable periods in 2007.




For
      the
      three and six-month periods ended June 30, 2008, we paid approximately $0.1
      million and $0.2 million 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 $0.1 million
      and $0.1 million, respectively, for the comparable periods in 2007. For the
      three and six-month periods ended June 30, 2008, approximately $0.6 million
      and
      $0.9 million in expenses, respectively, was incurred for the procurement of
      control panels, probes, centrifuges, and generators related to the ongoing
      research and development of our units. This compares to expenses of
      approximately $0.3 million and $0.7 million, respectively, for the comparable
      periods in 2007. The balance of our research and development expenses are
      recurring monthly expenses related to the maintenance of our laboratory and
      warehouse facilities.




**Selling,
      General and Administrative Expenses**




For
      the
      three and six-month periods ended June 30, 2008, we incurred approximately
      $3.6
      million and $9.2 million, respectively, in selling, general and administrative
      expenses. This compares to expenses of approximately $5.1 million and $7.1
      million, respectively, for the comparable periods in 2007. The amounts for
      the
      three and six-month periods ended June 30, 2008, include stock-based
      compensation of $0.5 million and $3.3 million, respectively.





Stock-based
      compensation was $0.5 million and $3.3 million for the three and six months
      ended June 30, 2008, respectively. This compares to stock-based compensation
      of
      approximately of $2.5 million and $2.3 million, respectively, for the comparable
      period in 2007.





Legal
      fees were approximately $0.9 million and $1.8 million for the three and
      six-months ended June 2008, respectively. This compares to expenses of
      approximately $1.1 million and $1.7 million, respectively, for the comparable
      periods in 2007. We expect to continue to incur significant litigation fees
      through the end of 2008.





Consulting
      fees, payroll and related expenses were approximately $1.5 million and $2.6
      million for the three and six-months ended June 30, 2008, respectively. This
      compares to expenses of approximately $1.0 million and $1.8 million,
      respectively, for the comparable periods in 2007. This represents increases
      of
      $0.5 million and $0.7 million, respectively relative to the comparable periods
      in 2007. The increases were primarily attributable to the engagement of
      additional consultants in the first half of 2008 and additional expenses
      recognized in the second quarter of 2008 related to a settlement agreement
      with
      a former consultant.





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


20





**Interest
      Expense**




Interest
      expense was approximately $0.3 million and $0.6 million for the three and
      six-month periods ended June 30, 2008, respectively, reflecting increases of
      approximately 40% and 90%, respectively, over comparable periods in 2007. The
      majority of the increases for the three and six month periods is a result of
      the
      Company recognizing non-cash expenditures of approximately $0.4 million in
      interest related to the accretion of a discount on the Convertible Notes Payable
      discussed in the financial statement footnotes.





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




The
      difference between net losses and net losses attributable to common stockholders
      for each period is solely attributable to the deemed dividend recorded in that
      period.




**Deemed
      Dividend**




For
      the
      three and six-month periods ended June 30, 2008 and 2007, the Company recognized
      non-cash deemed dividends of approximately $4.1 million, $1.7 million, $4.1
      million and $13.2 million, respectively.





On
      March
      12, 2007, the Company executed Amendment No. 1 to Securities Purchase Agreements
      and Warrants (“Amendment No. 1”) with certain warrant holders (the “Warrant
      Holders”) who had been issued warrants by the Company in 2004 (“2004 Warrants,”
and holders of 2004 Warrants, “2004 Warrant Holders”) and in 2006 (“2006
      Warrants,” and holders of 2006 Warrants, “2006 Warrant Holders”) that provided
      inducements to encourage the Warrant Holders to exercise their respective
      warrants. As consideration for Warrant Holders exercising their respective
      warrants, 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 Amendment No. 1 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 (the “March 2007
      Warrants”). As a result of the inducements, the Company recorded a non-cash
      deemed dividend of approximately $11.5 million. 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 March 2007 Warrants
      estimated using the Black-Scholes Valuation Model.





During
      the quarter ended June 30, 2007, 600,000 2006 Warrants held by the 2006 Warrant
      Holders were exercised resulting in the grant of 600,000 additional warrants.
      As
      a result, the Company recorded an additional non-cash deemed dividend of
      approximately $1.7 million that was estimated using the Black-Scholes Valuation
      Model.





On
      November 28, 2007, the Company executed Amendment No. 2 to Securities Purchase
      Agreements and Warrants (“Amendment No. 2”) with certain of the Warrant Holders
      holding approximately 3.95 million of the then outstanding March 2007 Warrants
      wherein the Warrant Holders agreed to exercise up to 50% of their March 2007
      Warrants. In exchange, SulphCo agreed to issue the Warrant Holders additional
      warrants (the “November 2007 Warrants”) on a one-to-one basis with an exercise
      price of $7.00 per share and a term of three years. In addition, the Warrant
      Holders were granted an option to exercise the remaining 50% of their March
      2007
      Warrants on the later of April 15, 2008, or 30 days following the 2008 Annual
      Meeting of Stockholders in which SulphCo’s stockholders approve an increase of
      10 million authorized common shares. If this option were exercised, then SulphCo
      would issue the Warrant Holders additional Warrants on a one-to-one basis with
      an exercise price of $7.00 a share and a term of three years. As a result of
      the
      inducement described above, 1,953,088 of the March 2007 Warrants held by the
      Warrant Holders were exercised during the quarter ended June 30, 2008, resulting
      in the grant of 1,953,088 additional warrants (the “May 2008 Warrants”). Based
      on its analysis, the Company concluded that a deemed dividend should be recorded
      to account for the fair value of the inducement that was transferred to the
      Warrant Holders computed as the fair value of the 1,953,088 May 2008 Warrants
      issued to the Warrant Holders. Based on the Black-Scholes valuation prepared
      for
      this transaction, the Company has determined that the amount of the non-cash
      deemed dividend was approximately $4.1 million.




21





**Liquidity
      and Capital Resources**





During
      the quarter ended June 30, 2008, the Company completed two equity transactions.
      The first involved the sale of 6,818,750 shares of its common stock at a price
      of $3.20 per share pursuant to the terms of a Securities Purchase Agreement
      dated May 27, 2008, resulting in net proceeds to the Company of approximately
      $20.3 million. The shares were sold pursuant to a shelf registration statement
      declared effective by the Securities and Exchanges Commission on September
      4,
      2007. The second involved the exercise by investors of warrants to acquire
      approximately 1.9 million shares of the Company’s common stock at an exercise
      price of $2.68 per share resulting in net proceeds to the Company of
      approximately $5.2 million. Between these two transactions, the Company has
      raised net proceeds totaling approximately $25.5 million.





During
      the quarter ended June 30, 2008, the Company entered into an equity line of
      credit with Azimuth Opportunity Ltd. (“Azimuth”) pursuant to a Common Stock
      Purchase Agreement dated April 30, 2008. Subject to the conditions set forth
      in
      that agreement, Azimuth is committed to purchase up to $60,000,000 of the
      Company’s common stock pursuant to draw down notices that the Company may give
      to Azimuth from time to time at the Company’s discretion until November 1, 2009.
      The price of shares sold is determined by reference to the volume weighted
      average price of the Company’s common stock during a ten trading day pricing
      period at the time of each draw down notice, less a small discount. The use
      of
      this credit facility is entirely discretionary.




As
      of
      June 30, 2008, we had cash and cash equivalents of $25.8 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 2009. Our ability to meet future capital requirements after
      that date will depend primarily upon the ability of the Company to generate
      material revenue from business operations, 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 other than the equity line of
      credit discussed above. 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.


22





**Forward-Looking
      Statements**





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





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





Forward-looking
      statements are only predictions. Although we believe that the expectations
      reflected in these forward-looking statements are reasonable, we cannot
      guarantee future results, levels of activity, performance or achievements.
      All
      of our forward-looking information is subject to risks and uncertainties that
      could cause actual results to differ materially from the results expected.
      Although it is not possible to identify all factors, these risks and
      uncertainties include the risk factors and the timing of any of those risk
      factors identified in “Part II, Item 1A. Risk Factors” section
      contained herein, as well as the risk factors described in the Company’s Form
      10-Q for the quarter ended June 30, 2008 and those set forth from time to time
      in our filings with the Securities and Exchange Commission (“SEC”). These
      documents are available through our web site, http://www.sulphco.com ,
      or
      through the SEC’s Electronic Data Gathering and Analysis Retrieval System
      (“EDGAR”) at http://www.sec.gov .





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





**Interest
      Rates**





As
      of
      June 30, 2008, the Company had variable rate debt aggregating approximately
      $4.7 million. 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 June 2008
      levels, interest expense would increase by approximately $47,000 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 June 30, 2008,
      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
      June 30, 2008, the Company’s disclosure controls and procedures were
      effective.




23




**Changes
      in Internal Controls**





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 June
      30, 2008, that have materially affected, or are reasonably likely to materially
      affect, our internal control over financial reporting.


24


**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 the plaintiff.  In general, the
      plaintiff’s alleged claims relate 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 the
      plaintiff EcoEnergy Solutions, Inc. on all of its claims.  As per the final
      judgment, all of the plaintiff’s claims were resolved against the plaintiff and
      were dismissed with prejudice.  In addition, the trial court entered
      judgment in favor of the Company and against the plaintiff for reimbursement
      of
      legal fees and costs of approximately $124,000, with post-judgment interest.
       The plaintiff appealed the judgment on October 5, 2007.  On December
      19, 2007, and as required by Nevada statute, the Company participated in a
      mandatory settlement conference at which time a settlement was not reached.
      A
      briefing schedule has been issued, but there has been no date set for oral
      arguments. As of June 30, 2008, no asset or 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’s claims relate 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 trial, which
      was
      originally scheduled for August 4, 2008, has been postponed by the court and
      will be rescheduled to take place in the fourth quarter of 2008 or the first
      quarter of 2009. As of June 30, 2008, no liability has been accrued relative
      to
      this action.





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 (the “Non-Qualified Stock Option Agreement”).. 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.




25




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.





On
      December 21, 2007, the Company filed a motion for summary judgment with the
      court seeking dismissal of Neuhaus's claims. The Company argued that the
      Non-Qualified Stock Option Agreement was not valid in that there was no evidence
      of a board resolution approving the terms of the options, as is required by
      Nevada law. Neuhaus opposed the motion. On February 4, 2008, the court denied
      the motion for summary judgment, finding that there remain material issues
      of
      disputed facts relating to the creation of the Non-Qualified Stock Option
      Agreement and the Consulting Agreement. The Company is proceeding with
      discovery.





On
      March
      25, 2008, Neuhaus moved for partial summary judgment of liability against the
      Company. On April 21, 2008, the Company filed its response (a) opposing summary
      judgment for Neuhaus and (b) cross-moving for summary judgment in favor of
      the
      Company dismissing all of Neuhaus’s claims, on the ground that discovery had now
      confirmed that there was no Board resolution adopted authorizing the purported
      option grant. Neuhaus has not yet filed his response to the Company’s
      cross-motion, and the motions have not yet been submitted to the court for
      decision.





On
      July
      9, 2008, the Company entered into a Confidential Settlement Agreement and
      Release with Mark Neuhaus (the “Settlement Agreement”), by which Mr. Neuhaus and
      the Company agreed to dismiss the respective legal proceedings each party had
      initiated on the other, and by which both parties agreed to a mutual release.
      The total consideration paid by the Company to Mr. Neuhaus under the Settlement
      Agreement was $750,000, of which $250,000 is payable in cash and the remaining
      $500,000 is payable by issuance of 123,763 shares of the Company’s common stock
      to Mr. Neuhaus and 123,762 shares of the Company’s common stock to Mr. Neuhaus’
attorneys, Erickson, Thorpe & Swainston, Ltd, which amount was determined by
      dividing $500,000 by $2.02, the closing price of the Company’s stock on July 9,
      2008. As of June 30, 2008, a liability of $750,000 has been accrued relative
      to
      this action.




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.





26




In
      September of 2007, the Company’s Board of Directors received a demand letter
      (the “Hendrickson Demand Letter”) from Mr. Hendrickson’s attorney reasserting
      the allegations contained in the original derivative claim and requesting that
      the Board of Directors conduct an investigation of these matters in response
      thereto. In response to the Hendrickson Demand Letter, the Company’s Board of
      Directors formed a committee comprised of three independent directors to
      evaluate the Hendrickson Demand Letter and to determine what, if any, action
      should be taken. The committee has retained independent counsel to advise it.
      As
      of June 30, 2008, no liability has been accrued relative to this action.





Nevada
      Heat Treating Litigation


On
      November 29, 2007, Nevada Heat Treating, Inc. (“NHT”) filed at lawsuit against
      the Company, *Nevada
      Heat Treating, Inc., d/b/a California Brazing* ,
      in the
      Second Judicial District Court of the State of Nevada, in and for the County
      of
      Washoe, Case No. CV07-02729. In its complaint, NHT alleges trade secret
      misappropriation and breach of contract relative to certain information alleged
      to have been disclosed to the Company beginning in late 2006 and continuing
      through early 2007 pursuant to a consulting engagement with NHT. Among other
      things, NHT is asserting that certain information, alleged to have been
      disclosed to the Company during the term of the consulting engagement, is the
      subject of a nondisclosure/confidentiality agreement executed at the inception
      of the consulting engagement. NHT is contending that this certain information
      represents a trade secret that should no longer be available for use by the
      Company following the termination of the consulting engagement with NHT in
      the
      spring of 2007. In connection with filing this action, NHT also filed a motion
      for preliminary injunction against the Company seeking to enjoin it from using
      certain information until the matter can be resolved through the courts.
      Hearings on the preliminary injunction motion took place on March 24 and 25,
      2008, and May 8, 2008. On May 8, 2008, the court ruled from the bench, at the
      conclusion of the hearing on the motion for preliminary injunction. The court
      denied the plaintiff’s motion on grounds that the plaintiff had failed to
      demonstrate a probability of success on the merits of its claims. Trial has
      been
      set for April 27, 2009. As of June 30, 2008, no liability has been accrued
      relative to this action.





Securities
      and Exchange Commission Subpoena


On
      February 25, 2008, the Company received a subpoena from the Denver office of
      the
      Securities and Exchange Commission (the “SEC”). The subpoena formalizes
      virtually identical requests the Company received in May, June and August 2007
      and subsequently responded to which requested the voluntary production of
      documents and information, including financial, corporate, and accounting
      information related to the following subject matters: Fujairah Oil Technology
      LLC, the Company’s restatements for the first three quarterly periods of 2006
      and the non-cash deemed dividend for the quarter ended March 31, 2007, and
      information and documents related to certain members of former management,
      all
      of whom have not been employed by the Company for over a year. We have been
      advised by the SEC that, despite the subpoena and formal order of investigation
      authorizing its issuance, neither the SEC nor its staff has determined whether
      the Company or any person has committed any violation of law. The Company
      intends to continue to cooperate with the SEC in connection with its requests
      for documents and information.





**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, 2007. 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.


27





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





The
      Form
      8-K filed by the Company on May 29, 2008, is hereby incorporated by reference
      as
      a response to this Item 2.





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





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





Our
      2008
      Annual Meeting of Stockholders was held on June 18, 2008.  At the Annual
      Meeting, (i) each of our seven nominees was elected to serve as a director
      until
      the end of their respective terms, (ii) the proposed amendment to the Company’s
      Articles of Incorporation to remove the right of stockholders to act by written
      consent in lieu of a meeting was approved by the stockholders, and (iii) the
      appointment of Hein & Associates LLP as the Company’s independent registered
      public accountants for the fiscal year 2008 was ratified by the
      stockholders. The election results are as follows:





**Election
      of Seven Directors (Proposal No. 1)****:**





Name
            
            For
            
            WithheldDr.
                Larry D. Ryan
            
            
            72,347,501
            
            
            3,258,623Robert
                van Maasdijk
            
            
            70,936,712
            
            
            4,669,412Dr.
                Hannes Farnleitner
            
            
            70,895,828
            
            
            4,710,296Edward
                E. Urquhart
            
            
            70,927,173
            
            
            4,678,951Lawrence
                G. Schafran
            
            
            70,927,079
            
            
            4,679,045Michael
                T. Heffner
            
            
            72,318,944
            
            
            3,287,180Edward
                G. Rosenblum
            
            
            72,331,175
            
            
            3,274,949





**Amendment
      to the Company’s Articles of Incorporation (Proposal No.
      2):**





**Total**
            
            **For**
            
            **Against**
            
            **Abstain**50,083,519
            
            
            43,029,262
            
            
            6,974,012
            
            
            80,245





**Ratification
      of Appointment of Independent Registered Public Accountants (Proposal No.
      3):**





**Total**
            
            **For**
            
            **Against**
            
            **Abstain**75,606,122
            
            
            75,385,533
            
            
            180,704
            
            
            39,885





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





28





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





14.1
            Form
                8-K filed by the Company on June 13, 2008 (incorporated by
                reference).31.1
            Certifications
                pursuant to Rule 13a-14 under the Securities Exchange Act of
                1934.31.2
            Certifications
                pursuant to Rule 13a-14 under the Securities Exchange Act of
                1934.32.1
            Certifications
                of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906
                of the Sarbanes-Oxley Act of 2002.99.1
            Form
                8-K disclosure filed by the Company on March 29, 2008 (incorporated
                by
                reference).


29





**SIGNATURES**





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





SULPHCO,
                INC.(Registrant)Date:
                August 1, 2008
            /s/
                Larry D. RyanBy:
                Larry D. RyanChief
                Executive Officer(Principal Executive Officer)/s/
                Stanley W. FarmerDate:
                August 1, 2008
            By:
                Stanley W. FarmerVice President andChief Financial Officer(Principal
                Financial and Accounting
                Officer)


30