**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**Form
      10-Q**





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





For
      the
      quarterly period ended.................................................September
      30, 2006


OR





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


**SECURITIES
      EXCHANGE ACT OF 1934**





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


Commission
      file number 001-32636





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


(Exact
      Name of Registrant as Specified in its Charter)





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








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





**(775)
      829-1310**


Registrant's
      telephone number, including area code





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





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





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





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





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





Class
            
            Outstanding
                at November 13, 2006Common
                Stock, par value $.001
            
            72,570,910
                shares











**PART
      I.**





**Item
      1. Financial Statements**





SULPHCO,
          INC.
 (A
          Company in the Development Stage)
 BALANCE
          SHEETS
 September
          30, 2006 and December 31, 2005
 (unaudited)
  **September
                  30, 2006**
              
              **December
                  31, 2005****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              12,086,059
              
              $
              6,874,653Loans
                  and accrued interest receivable
              
              
              345,455
              
              
              -Prepaid
                  expenses and other
              
              
              64,107
              
              
              137,577Total
                  current assets
              
              
              12,495,621
              
              
              7,012,230**Property
                  and Equipment (net of accumulated depreciation of
                  $989,233)**
              
              
              274,724
              
              
              397,416**Other
                  Assets**Intangible
                  assets (net of accumulated amortization of $37,602)
              
              
              452,492
              
              
              355,218Investment
                  in Joint Venture
              
              
              113,263
              
              
              139,550Deposits
              
              
              36,822
              
              
              140,822Deferred
                  tax asset (net of valuation allowance of $10,921,480)
              
              
              -
              
              
              -Total
                  other assets
              
              
              602,577
              
              
              635,590Total
                  assets
              
              $
              13,372,922
              
              $
              8,045,236**Current
                  Liabilities**Accounts
                  payable and accrued liabilities
              
              $
              3,278,624
              
              $
              779,413Refundable
                  deposit
              
              
              550,000
              
              
              550,000Accrued
                  fees and interest
              
              
              1,004,247
              
              
              1,035,572Related
                  party note payable
              
              
              -
              
              
              500,000Total
                  current liabilities
              
              
              4,832,871
              
              
              2,864,985**Long
                  Term Related Party Note Payable**
              
              
              5,000,000
              
              
              7,000,000Total
                  liabilities
              
              
              9,832,871
              
              
              9,864,985**Commitments
                  and Contingencies**
              
              
              -
              
              
              -**Stockholders'
                  Equity (Deficiency)**Preferred
                  stock: 10,000,000 shares authorized ($0.001 par value) none
                  issued
              
              
              -
              
              
              -Common
                  stock: 100,000,000 shares authorized ($0.001 par value)72,570,910
                  shares issued and outstanding at September 30, 2006
              
              
              72,57160,536,795
                  shares issued and outstanding at December 31, 2005
              
              
              
              
              
              60,537Paid
                  in capital
              
              
              69,410,500
              
              
              30,604,342Stock
                  subscriptions receivable
              
              
              (744,500
              )
              
              (744,500
              )Deficit
                  accumulated during the development stage
              
              
              (65,195,060
              )
              
              (31,740,128
              )Accumulated
                  other comprehensive loss
              
              
              (3,460
              )
              
              -Total
                  stockholders' equity (deficiency)
              
              
              3,540,051
              
              
              (1,819,749
              )Total
                  liabilities and stockholders' equity (deficiency)
              
              $
              13,372,922
              
              $
              8,045,236
   The
        Accompanying Notes are an Integral Part of the Financial
        Statements




1


SULPHCO,
        INC.
 (A
        Company in the Development Stage)
 STATEMENTS
        OF OPERATIONS and COMPREHENSIVE LOSS
 For
        the
        Three and Nine Months ended September 30, 2006 and 2005 and from
        Inception
 (unaudited)
   **Three
                  Months Ended**
              
              **Nine
                  Months Ended****September**
              
              **September**
              
              **Inception****2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **to
                  date****Revenue**Sales
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              42,967**Expenses**Selling,
                  general, and administrative expenses:Stock
                  and options issued for services
              
              
              (1,109,500
              )
              
              -
              
              
              (2,449,000
              )
              
              (1,027,150
              )
              
              (10,462,567
              )Other
              
              
              (2,145,893
              )
              
              (834,542
              )
              
              (8,913,926
              )
              
              (2,470,250
              )
              
              (28,865,625
              )Research
                  and development expenses:Purchase
                  and construction of equipment and building for
                  commercial purposes
              
              
              (1,632,379
              )
              
              -
              
              
              (19,163,435
              )
              
              -
              
              
              (19,163,435
              )Other
              
              
              (686,113
              )
              
              (930,384
              )
              
              (2,951,944
              )
              
              (1,912,211
              )
              
              (5,060,598
              )Loss
                  on investment in joint venture
              
              
              (10,107
              )
              
              -
              
              
              (22,827
              )
              
              -
              
              
              (22,827
              )Loss
                  on disposal of asset
              
              
              -
              
              
              -
              
              
              (423
              )
              
              -
              
              
              (222,134
              )Loss
                  on impairment of asset
              
              
              -
              
              
              -
              
              
              -
              
              
              (233,900
              )
              
              (233,900
              )Total
                  operating expenses
              
              
              (5,583,992
              )
              
              (1,764,926
              )
              
              (33,501,555
              )
              
              (5,643,511
              )
              
              (64,031,086
              )Loss
                  from operations
              
              
              (5,583,992
              )
              
              (1,764,926
              )
              
              (33,501,555
              )
              
              (5,643,511
              )
              
              (63,988,119
              )**Other
                  income (expense)**Interest
                  income
              
              
              142,684
              
              
              52,976
              
              
              390,216
              
              
              146,930
              
              
              640,815Interest
                  expense
              
              
              (103,450
              )
              
              (117,868
              )
              
              (343,596
              )
              
              (267,831
              )
              
              (1,087,516
              )Late
                  registration fees
              
              
              -
              
              
              -
              
              
              -
              
              
              (760,240
              )
              
              (760,240
              )Loss
                  before taxes
              
              
              (5,544,758
              )
              
              (1,829,818
              )
              
              (33,454,935
              )
              
              (6,524,652
              )
              
              (65,195,060
              )Income
                  tax benefit (provision)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Net
                  loss**
              
              $
              (5,544,758
              )
              $
              (1,829,818
              )
              $
              (33,454,935
              )
              $
              (6,524,652
              )
              $
              (65,195,060
              )**Other
                  comprehensive income (loss)**Foreign
                  currency translation loss
              
              
              (4
              )
              
              -
              
              
              (3,460
              )
              
              -
              
              
              (3,460
              )**Net
                  comprehensive loss**
              
              $
              (5,544,762
              )
              $
              (1,829,818
              )
              $
              (33,458,395
              )
              $
              (6,524,652
              )
              $
              (65,198,520
              )Loss
                  per share - basic and diluted
              
              $
              (0.08
              )
              $
              (0.03
              )
              $
              (0.48
              )
              $
              (0.12
              )
              $
              (1.59
              )Weighted
                  average shares - basic and diluted
              
              
              72,537,577
              
              
              56,670,862
              
              
              70,137,713
              
              
              56,603,766
              
              
              41,098,571




The
        Accompanying Notes are an Integral Part of the Financial Statements
   2
  SULPHCO,
          INC.
 (A
          Company in the Development Stage)
 STATEMENTS
          OF CASH FLOWS
 For
          the Nine Months ended September 30, 2006 and 2005 and from
          Inception
 (unaudited)
   **Nine
                    Months Ended****September
                    30**
                
                **Inception****2006**
                
                **2005**
                
                **to
                    date****Cash
                    Flows From Operating Activities**Net
                    loss
                
                $
                (33,454,935
                )
                $
                (6,524,652
                )
                $
                (65,195,060
                )Adjustments
                    to reconcile net loss to cash used in operating
                    activities:Depreciation
                    & amortization
                
                
                182,747
                
                
                146,871
                
                
                1,068,113Stock
                    and options issued for services
                
                
                3,580,775
                
                
                1,027,150
                
                
                10,950,292Stock
                    issued for interest expense
                
                
                -
                
                
                -
                
                
                296,000Contribution
                    from stockholder
                
                
                -
                
                
                -
                
                
                555,000Loss
                    from joint venture
                
                
                22,827
                
                
                -
                
                
                22,827Losses
                    on disposal and impairment of assets
                
                
                423
                
                
                233,900
                
                
                456,034Deposit
                    used for expense
                
                
                100,000
                
                
                
                
                
                100,000(Increase)
                    decrease in receivables
                
                
                45,897
                
                
                317,800
                
                
                45,897(Increase)
                    decrease in prepaid expenses and other
                
                
                77,470
                
                
                60,092
                
                
                (60,107
                )Increase
                    (decrease) in accounts payableand
                    accrued liabilities
                
                
                2,490,970
                
                
                70,568
                
                
                3,270,380Increase
                    in refundable deposit
                
                
                -
                
                
                550,000
                
                
                550,000Increase
                    (decrease) in accrued fees and interest
                
                
                (31,325
                )
                
                760,240
                
                
                789,660Net
                    cash used in operating activities
                
                
                (26,985,151
                )
                
                (3,358,031
                )
                
                (47,150,964
                )**Cash
                    Flows From Investing Activities**Advances
                    for loans receivable
                
                
                (391,352
                )
                
                -
                
                
                (391,352
                )Purchase
                    of property and equipment
                
                
                (40,298
                )
                
                (291,047
                )
                
                (1,161,386
                )Investments
                    in joint ventures and subsidiaries
                
                
                -
                
                
                -
                
                
                (361,261
                )Return
                    (payment) of deposits
                
                
                -
                
                
                10,000
                
                
                (140,822
                )Investments
                    in intangible assets
                
                
                (109,210
                )
                
                (161,486
                )
                
                (497,692
                )Net
                    cash used in investing activities
                
                
                (540,860
                )
                
                (442,533
                )
                
                (2,552,513
                )**Cash
                    Flows from Financing Activities**Net
                    proceeds from issuance of stock
                
                
                27,054,950
                
                
                173,721
                
                
                42,765,489Proceeds
                    from conversion of stock options and warrants
                
                
                8,182,467
                
                
                
                
                
                12,474,574Proceeds
                    from issuance of related party notes payable
                
                
                -
                
                
                -
                
                
                11,000,000Proceeds
                    from issuance of line of credit
                
                
                -
                
                
                -
                
                
                750,000Return
                    on capital
                
                
                -
                
                
                -
                
                
                (118,427
                )Principal
                    payments on related party notes payable
                
                
                (2,500,000
                )
                
                -
                
                
                (3,250,000
                )Decrease
                    in related party receivable
                
                
                -
                
                
                -
                
                
                1,359,185Payments
                    on contract payable
                
                
                -
                
                
                -
                
                
                (250,000
                )Principal
                    payments on line of credit
                
                
                -
                
                
                -
                
                
                (750,000
                )Principal
                    payments on advance from related party
                
                
                -
                
                
                -
                
                
                (2,191,285
                )Net
                    cash provided by financing activities
                
                
                32,737,417
                
                
                173,721
                
                
                61,789,536Net
                    increase (decrease) in cash and cash equivalents
                
                
                5,211,406
                
                
                (3,626,843
                )
                
                12,086,059Cash
                    and cash equivalents at beginning of period
                
                
                6,874,653
                
                
                9,872,839
                
                
                -Cash
                    and cash equivalents at end of period
                
                $
                12,086,059
                
                $
                6,245,996
                
                $
                12,086,059**Supplemental
                    Information and non cash transactions**Total
                    interest payments included in operations
                
                $
                160,335
                
                $
                228,000The
                    Company paid no income taxes during the nine months ended September
                    30,
                    2006 and 2005.The
                    Company had the following noncash investing and financing activities
                    in
                    2006:Incurred
                    fees payable for issuing securities
                
                $
                330,098Issued
                    stock in exchange for a payable
                
                
                330,215Incurred
                    a payable for intangible assets
                
                
                8,244




The
        Accompanying Notes are an Integral Part of the Financial
        Statements




3





SULPHCO,
      INC.


(A
      Company in the Development Stage)


NOTES
      TO THE INTERIM FINANCIAL STATEMENTS


September
      30, 2006 (unaudited)





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




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





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





**Restatement
      of Construction to Research and Development**





The
      Company’s management and its Audit Committee believe that the construction and
      purchase of equipment being installed in Fujairah, UAE, (see Note 4) and the
      building to house it, are beyond the development stage and thus not subject
      to
      expense under the Statement of Financial Accounting Standards No. 2.
      Accordingly, these items were capitalized in the first and second quarter of
      2006 and management proposed to continue this accounting treatment for the
      third
      quarter of 2006. However, in connection with the review by the Company’s
      independent auditors of the financial statements for the quarter ended September
      30, 2006, the auditors advised the Company that they did not agree that the
      construction and purchase of equipment should be capitalized, and are now
      requiring that these items be expensed as research and development commencing
      in
      the third quarter of 2006.  Because management believes that there has been
      no change in circumstances since the first or second quarter of 2006 relating
      to
      the Company’s initial decision to capitalize construction and equipment
      expenditures for these quarters, other than the auditor’s determination
      subsequent to the end of the third quarter of 2006 that for the third quarter
      these items should be expensed, management has determined that restatement
      of
      such amounts for the first and second quarters of 2006 is required in order
      to
      present these periods consistent with the third quarter, as
      follows:




4





Quarter
                EndedMarch,
                2006
            
            Quarter
                EndedJune,
                2006
            
            Six
                Months EndedJune, 2006Construction
                in progress:Original
                filing
            
            $
            4,675,165
            
            $
            15,881,055
            
            $
            15,881,055Previous
                quarter restatement
            
            
            
            
            
            (4,675,165
            )Restated
                as research and development
            
            
            (4,675,165
            )
            
            (11,205,890
            )
            
            (15,881,055
            )Restated
                amount
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-Investment
                in Fujairah Oil Technology:Original
                filing
            
            $
            938,774
            
            $
            947,740
            
            $
            947,740Restated
                as research and development
            
            
            (800,000
            )
            
            (824,365
            )
            
            (824,365
            )Restated
                amount
            
            $
            138,774
            
            $
            123,375
            
            $
            123,375Deficit
                accumulatedOriginal
                filing
            
            $
            35,802,149
            
            $
            42,944,246
            
            $
            42,944,246Previous
                quarter restatement
            
            
            
            
            
            5,475,165Current
                restatement
            
            
            5,475,165
            
            
            11,230,890
            
            
            16,706,055Restated
                amount
            
            $
            41,277,314
            
            $
            59,650,301
            
            $
            59,650,301Accumulated
                other comprehensive lossOriginal
                filing
            
            
            
            
            $
            4,091
            
            $
            4,091Restated
            
            
            
            
            
            (635
            )
            
            (635
            )Restated
                amount
            
            
            
            
            $
            3,456
            
            $
            3,456Research
                and development:Equipment
                and building constructionOriginal
                filing
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-Restated
                as research and development
            
            
            5,475,165
            
            
            12,055,890
            
            
            17,531,055Restated
                amount
            
            $
            5,475,165
            
            $
            12,055,890
            
            $
            17,531,055Loss
                on investment in Fujairah OilTechnology,
                LLCOriginal
                filing
            
            
            
            
            $
            836,944
            
            $
            837,720Restated
                as research and development
            
            
            
            
            
            (825,000
            )
            
            (825,000
            )Restated
                amount
            
            
            
            
            $
            11,944
            
            $
            12,720





**Reclassification**





For
      comparative purposes, certain amounts previously included in selling, general
      and administrative expenses have been reclassified to research and development
      expenses for prior periods from the beginning of 2005 through the first quarter
      of 2006. The reclassifications do not require any adjustments to assets,
      liabilities, equity, or income.





The
      following summarizes the reclassifications made:





Quarter
                ended
            
            March,
              2005
            
            June,
              2005
            
            September,2005
            
            December,
              2005
            
            March,
              2006Sales,
                general, &administrative
                expensesOriginal
                filing
            
            $
            1,434,115
            
            $
            1,660,431
            
            $
            1,070,379
            
            $
            2,479,202
            
            $
            3,770,144Depreciation
                &amortization
                (separatelystated
                in original filing)
            
            
            44,519
            
            
            62,993
            
            
            39,359
            
            
            -
            
            
            -Reclassifications
            
            
            -258,609
            
            
            -276,061
            
            
            -275,196
            
            
            -266,053
            
            
            -294,658Reclassified
            
            $
            1,220,025
            
            $
            1,447,363
            
            $
            834,542
            
            $
            2,213,149
            
            $
            3,475,486Research
                & developmentOriginal
                filing
            
            $
            141,515
            
            $
            246,119
            
            $
            655,188
            
            $
            399,274
            
            $
            219,771Reclassifications
            
            
            258,609
            
            
            276,061
            
            
            275,196
            
            
            266,053
            
            
            294,658Reclassified
            
            $
            400,124
            
            $
            522,180
            
            $
            930,384
            
            $
            665,327
            
            $
            514,429







5


**Going
        Concern**
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the settlement of liabilities
        and commitments in the normal course of business.  As reflected in the
        accompanying financial statements, as of September 30, 2006, the Company
        has
        cash on hand of approximately $12.1 million, working capital of approximately
        $7.7 million, and an accumulated deficit of approximately $65.2 million. 
These factors raise substantial doubt about its ability to continue as a
        going
        concern.  The ability of the Company to continue as a going concern is
        dependent on the Company’s ability to raise additional funds and implement its
        business plan.




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





On
      February 16, 2006 the Company committed to a loan agreement with SulphCo KorAsia
      (formerly known as OIL-SC, Ltd.) of South Korea. The agreement called for
      advances of $50,000 per month through May 15, 2006. A total of $150,000 was
      advanced through May, 2006. An additional $50,000 was advanced June 6, 2006,
      with a revision to the loan agreement that the full $200,000 in advances and
      related interest would be immediately repaid from revenues or from proceeds
      of
      any equity financings. Interest accrues at Prime rate plus 1%. Although SulphCo
      KorAsia has never had material revenue streams, the Company believes that the
      full amounts of principal and interest will be collected and that no allowance
      for doubtful collection is necessary. Also the Company holds a refundable
      deposit of SulphCo KorAsia as summarized in Note 6.


On
      July
      10, 2006 the Company advanced $191,352 (690,000 Dirhams) to Fujairah Oil
      Technology, LLC to more easily pay for Company expenditures. Funds totaling
      187,394 Dirhams have been expended by Fujairah Oil Technology, LLC on behalf
      of
      the Company. The net result of 502,606 Dirhams is reflected as a loan
      receivable. The dollar amount has been adjusted to $136,799 which includes
      a
      foreign currency transaction loss of $3,554.








**3.** **Property
      and Equipment**





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





**September
                30, 2006**
            
            **December
                31, 2005**Equipment
                in Nevada
            
            $
            923,884
            
            $
            911,438Computers
            
            
            199,582
            
            
            176,226Office
                furniture
            
            
            57,116
            
            
            54,517Leasehold
                improvements
            
            
            83,375
            
            
            83,3751,263,957
            
            
            1,225,556Less:
                Accumulated depreciation
            
            
            (989,233
            )
            
            (828,140
            )Total
            
            $
            274,724
            
            $
            397,416





Depreciation
      expense was $52,415 and $162,567 for the three and nine months ended September
      30, 2006, respectively, and $35,534 and $137,097 for the three and nine months
      ended September 30, 2005, respectively.







6


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





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





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





The
      LLC’s
      operations began in 2006. In the nine months ended September 30, 2006 its
      financial activities consisted primarily of leasing office space, and acquiring
      leasehold improvements and office furniture and equipment. The lease commenced
      March 15, 2006. There was a loss of 167,735 Dirhams of which 50% (US $22,827)
      has been reflected by the Company.





The
      Company entered into an agreement to construct a building for $1.6 million
      for
      the LLC operations. Subsequently the building plans were expanded requiring
      an
      additional $600,000 for construction. The Company has paid $1.65 million to
      the
      construction company. Although it is anticipated that the cost of the building
      will be borne by the LLC, there is no agreement currently in place. As specified
      in Note 1 the Company expensed the entire investment in the building as research
      and development as required by its independent auditors.





The
      Company’s 50% share of distributions made by the joint venture will also be
      subject to other costs and expenses incurred directly by the Company from time
      to time, including commissions payable directly by the Company to third parties,
      presently estimated at up to 20% of the Company’s net joint venture
      profits.





As
      of
      September 30, 2006, and for the nine months then ended, the LLC had the
      following condensed balance sheet and operating statement converted to US
      dollars:








Condensed
                Balance Sheet, September 30, 2006:Current
                assets
            
            $
            254,891Depreciable
                assets (net)
            
            
            106,801Other
                assets
            
            
            1,633Total
                assets
            
            $
            363,325Current
                liabilities
            
            $
            136,799Members’
                equity
            
            
            _
                _226,526Total
                liabilities and members’ equity
            
            $
            363,325Operating
                Statement, Nine Months Ended September 30, 2006:Revenue
            
            $
            -0-Operating
                expenses
            
            
            (42,257
            )Non-operating
                expense
            
            
            (3,397
            )Net
                loss
            
            $
            (45,654
            )Operating
                Statement, Three Months Ended September 30, 2006:Revenue
            
            $
            -0-Operating
                expenses
            
            
            _
                (20,214
            )Net
                loss
            
            $
            (20,214
            )





A
      foreign
      currency translation loss of $3,460 has also been recognized as other
      comprehensive loss relative to this investment for the nine months ended
      September 30, 2006.




7





**5.** **Deposits**





The
      Company had a deposit of $36,822 as of September 30, 2006 on the lease of
      facilities in Nevada.





**6.** **Refundable
      Deposit**





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





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





The
      Company’s note payable as of September 30, 2006 is as follows:





On
      December 31, 2004, under the Board’s approval, the Company borrowed $7,000,000
      in the form of a long-term note from the Chairman and CEO. Interest on the
      note
      is adjusted quarterly based on a London Inter-Bank Offering Rate (“LIBOR”) plus
      0.5% per annum, with payments due on December 31 of 2005, and 2006, and the
      remaining accrued interest and principal due on December 31, 2007 when the
      note
      matures. On May 15, 2006, under Board approval, the Company paid $2,000,000
      in
      principal on the note. Also the accrued interest through May 15, 2006 of
      $133,809 was paid. As of September 30, 2006, interest payable of $93,136 has
      been accrued on this note at the adjusted rate for the quarter of 5.84625%.
      Beginning October 1, 2006 the rate was adjusted to 5.8225%.








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





Other
      than the compensation transactions disclosed in Note 10 and the related party
      transactions disclosed in Note 12, the Company had the following transactions
      related to its common stock during the nine months ended September 30,
      2006:





Additional
      Investment Rights and Warrants for 7,866,612 shares were exercised in 2006
      through September 30, generating $8,531,858. These rights and warrants relate
      to
      a June 2004 private placement.





On
      March
      29, 2006, the Company completed a private placement to a small number of
      accredited investors for the sale of 4,000,000 units, each unit consisting
      of
      one share of the Company’s common stock and one warrant to purchase a share of
      common stock. Each unit was sold at a price of $6.805 per share, resulting
      in
      gross proceeds at closing of $27.2million. The warrants are exercisable, in
      whole or in part, at a fixed price equal to $6.805 per share, and are
      exercisable for a period of 18 months following their issuance. The Company
      filed a registration statement with the SEC covering the resale of the shares
      of
      common stock issued at closing and shares issuable upon exercise of warrants.
      The registration statement was declared effective by the SEC on June 23,
      2006.




8





A
      fee of
      $100,000 was paid to an unrelated third party in consideration of introducing
      an
      investor to the Company relative to the March 29, 2006 placement. This amount
      was reflected as a reduction of the proceeds.





The
      Company is obligated to pay $760,240 in late registration fees due to the
      registration statement related to a private placement in June of 2004 not having
      become effective on time, as per the agreement with the investors. The agreement
      requires the Company to pay late registration fees to the selling security
      holders at the rate of 2% per month of the invested amount if the registration
      covering the placement shares is not declared effective by the SEC within 90
      days of the date of the investment. As of September 30, 2006, the full amount
      of
      fees has been accrued plus $150,871 of accrued interest at 18% per annum on
      the
      balance of unpaid fees since the registration date. The registration statement
      was declared effective by the SEC on June 27, 2005.








**9.** **Loss
      Per Share**





The
      computations of basic and diluted loss per common share are based upon the
      weighted average number of common shares outstanding and potentially dilutive
      securities. Potentially dilutive securities include stock options and unvested
      shares of restricted stock. Options to purchase 7,256,980 and 10,019,508 shares
      of common stock were not included in the September 30, 2006 and 2005
      computations of diluted net loss per share, respectively, because inclusion
      of
      such shares would have an anti-dilutive effect on net loss per
      share.







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





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





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





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





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




9





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





On
      June
      19, 2006 the stockholders of the Company approved the 2006 Stock Option Plan
      (“Plan”), which authorizes the granting of options for up to 2,000,000 shares of
      the Company’s common stock. The Plan is administered by an Option Committee
      comprised of three independent directors. Effective May 23, 2006, subject to
      stockholder approval of the Plan, the Option Committee granted an option for
      125,000 shares to Vice Chairman of the Board Robert van Maasdijk and an option
      for 1,000,000 shares to Chairman and CEO Rudolf Gunnerman. Each option has
      a
      term of three years and an exercise price of $9.03 per share.




Robert
      van Maasdijk’s option was valued at $687,500 based on the Black-Scholes
      valuation model using the assumptions described below.




Dr.
      Gunnerman’s option provides that he may not exercise it until the Company has
      reported at least $50 million in annual revenues or there is a “change in
      control” of the Company as defined in the Plan. This option was valued at $3.72
      million based on the Black-Scholes valuation model using the assumptions
      described below. This is restated from the amount of $5.5 million reported
      in
      the quarter ending June 30, 2006, as the term of the option previously used
      in
      the calculation was for the full term of the option. It should have been for
      the
      expected term of 646 days based upon the history of employees of the Company
      exercising options.




For
      purposes of determining the period over which Dr. Gunnerman’s option will be
      expensed, the Company had made the assumption in the second quarter of 2006
      that
      it would generate at least $50 million in revenue by the end of the first
      quarter of 2007. The Company now assumes that such revenue will be generated
      by
      the end of the second quarter of 2007. The option value is being expensed
      pro-rata over the period from the effective grant date of June 19, 2006, to
      June
      30, 2007, the implicit vesting period. In the second quarter of 2006, $212,000
      was expensed based on the value previously calculated. The second quarter
      expense as recalculated is $144,000. The difference of $68,000 is considered
      immaterial enough to leave the second quarter as reported and adjust the third
      quarter accordingly. For the third quarter of 2006, $901,000 of the option
      value
      is the calculated expense which is reduced to $833,000 due to the $68,000
      recalculation of the second quarter.






10




The
      timing and amount of revenues generated by the Company is subject to various
      risks and uncertainties. For further information regarding risks and
      uncertainties, please refer to the other information in this Report together
      with previous reports on Form 10-KSB for the year ended December 31, 2005,
      and
      Form 10-Q for the quarter ended March 31, 2006.




On
      August
      16, 2006 the Company granted to Edward E. Urquhart 50,000 restricted shares
      of
      common stock valued at $5.53 per share, the closing price that day, the
      effective date of his appointment to the Board of Directors, for services valued
      at $276,500.





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





For
      options fully vested when issued:


Nardi
            Mustang
            van
                MaasdijkDates
                of options
            2/28/06
                & 3/31/06
            3/29/06
            6/19/06Term
            One
                year
            to
                4/1/10
            to
                5/22/09Expected
                volatility
            129%
                - 131%
            162%
            147%Expected
                dividends
            None
            None
            NoneRisk-free
                interest rate
            5%
            5%
            5.2%Discount
                for post-vesting restrictions
            None
            None
            None




For
      Dr.
      Gunnerman’s option:


Date
                of option
            6/19/2006Term
            to
                5/22/09Expected
                term used to calculate value
            646
                DaysExpected
                volatility
            117%Expected
                dividends
            NoneRisk-free
                interest rate
            5.2%Discount
                for post-vesting restrictions
            None







**11.** **Commitments
      and Contingencies**





Financial
      instruments, which potentially subject the Company to concentrations of credit
      risk, consist mainly of cash equivalents. The Company maintains amounts in
      three
      U.S. accounts, two checking accounts and a money market account on deposit
      with
      two financial institutions, which exceed federally insured limits by
      approximately $11.74 million at September 30, 2006, and an account in Saudi
      Arabia. The Company has not experienced any significant losses in such accounts,
      nor does management believe it is exposed to any significant credit
      risk.





At
      September 30, 2006 the Company has a $550,000 refundable deposit in connection
      with an agreement with KorAsia (formerly OIL-SC) for a pilot plant in South
      Korea. Until KorAsia accepts in writing the results of the pilot plant, the
      $550,000 is refundable at their option. The Company has agreed to receive the
      remaining payment of $450,000 within seven days after the first commercial
      license agreement for the SonocrackingTM technology between the Company and a
      Korean refining company, provided that KorAsia uses the funds for continued
      marketing activities regarding the Sonocracking technology in
      Korea.




11





The
      Company has committed to spend approximately $20 million for the production
      of
      equipment for the Fujairah project. Through September 30, 2006 $17,513,435
      million has been incurred. The Company expects these processors will be
      operational prior to December 31, 2006, and has included their costs in property
      and equipment as construction-in-progress.





There
      are
      various claims and lawsuits pending against the Company arising in the normal
      course of the Company’s business. Although the amount of liability at September
      30, 2006, cannot be ascertained, management is of the opinion that these claims
      and lawsuits will not materially affect the Company’s financial position. We
      have and will continue to devote significant resources to our defense, as
      necessary.


In
        the
        case *Clean Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc.
        and
        SulphCo, Inc.* , which
        is
        now styled *EcoEnergy
        Solutions, Inc. v. Rudolf W. Gunnerman, et al.* ,
        the
        court has issued its ruling on cross-motions for summary judgment. The court
        granted summary judgment in favor of Dr. Gunnerman on a claim against him
        for
        unjust enrichment. The court also dismissed the plaintiff’s fraud claims against
        Dr. Gunnerman and Peter Gunnerman. The court granted partial summary judgment
        to
        the plaintiff concerning two legal issues in dispute; however, the court
        did not
        grant plaintiff summary judgment on any of the claims in its Complaint. One
        of
        the two issues involved whether a particular document partially signed by
        the
        Clean Fuels Technology Board of Directors was valid, and the other issue
        involved whether a license agreement between Dr. Gunnerman and the plaintiff
        was
        amended in 2003 to modify the scope of the license agreement. A trial date
        of
        December 4, 2006, has been set.





As
      disclosed in Form 10-Q for the second quarter of 2006, the case *SulphCo,
      Inc. v. Alexander H. Walker, Jr. and Nevada Agency & Trust Company* has
      been
      set for trial on December 4, 2006. ** In
      this
      case the Company claims it did not receive approximately $737,000 of the
      purchase price for the shares sold.


The
        Company entered into an agency agreement with Atlas Commercial Holdings,
        LLC on
        July 25, 2006 to advise and assist the company with establishing and
        implementing an ongoing business venture with Petrobras (Brazil).  The
        Company shall pay to Atlas a transaction fee equal to ten percent of the
        net
        income received by the company from any transaction with Petrobras in respect
        of
        net income which accrues to the company through and including December 31,
        2016.
 
 The
        Company has agreed to a commission for ten percent of the net income to be
        received by the Company from the operations in Fujairah if an oil contract
        is
        secured.





**12.** **Related
      Party Transactions**





Under
      agreements entered into on July 1, 2004, and July 1, 2005, the Company was
      obligated to pay a consulting fee of $480,000 annually to RWG, Inc., a company
      wholly owned by Dr. Rudolf Gunnerman, the Chairman and CEO. Effective November
      1, 2004, this amount was reduced by mutual agreement from $40,000 to $30,000
      per
      month until the Company received substantial additional funds. On May 8, 2006,
      the Company’s Board of Directors approved the reinstatement of RWG, Inc.’s
      consulting fees to $40,000 per month effective April 1, 2006. Under the
      agreement $90,000 and $120,000, respectively, were paid during the first and
      second quarters of 2006. The agreement terminated on July 1, 2006, and on July
      5, 2006 the Board of Directors approved a new agreement effective July 1, 2006,
      wherein the Company is obligated to pay RWG, Inc. $40,000 per month through
      June
      30, 2007. Under the new agreement, RWG, Inc. was also entitled to receive
      amounts it previously waived under prior engagement agreements, totaling
      $170,000. This amount was accrued at June 30, 2006 and paid in July, 2006.





See
      Note
      10 for share-based payments to Michael Applegate, an officer, and Michael
      Heffner, a director.




Dr.
      Rudolf Gunnerman personally granted to Mr. Kirk Schumacher, upon his termination
      December 28, 2004, an option to acquire 100,000 shares of the Company’s Common
      Stock owned by Dr. Gunnerman at an exercise price of $0.55 per share. That
      option was exercised in February 2006. As Dr. Gunnerman is the Chairman, CEO,
      and controlling shareholder of the Company, the Company recognized an expense
      in
      2004 of $555,000, the difference between the exercise price of the option and
      the market price on the date of grant on December 28, 2004. Mr. Schumacher
      takes
      the position that the options received in 2004 were not for compensation for
      tax
      purposes.  The Company is maintaining an accrued liability for payroll
      taxes until it is reasonably certain of its position.




12





The
      Company had a consulting agreement with Peak One Consulting, Inc., a company
      owned 100% by a Director Richard Masica, which was paid $29,711 in fees for
      management and technical consulting and reimbursed $2,784 in travel related
      expenses in the first half of 2006.





The
      Company had a consulting arrangement with a Director Michael Heffner who was
      paid $5,216 in travel related expense reimbursements and $48,871 in technical
      consulting fees which were accrued in the first half of 2006.





The
      Company had a short-term note payable due to the Chairman and CEO Dr. Rudolf
      Gunnerman in the amount of $500,000. The note carried an annual interest rate
      of
      8%, payable quarterly, and matured on the earlier of December 30, 2006, or
      upon
      the demand of Dr. Gunnerman. The note was paid in full on May 15, 2006. Interest
      of $10,000 was paid for the first quarter of 2006 and $5,000 for the second
      quarter of 2006 when paid in full.





See
      Note
      7 for other related party debt and interest.






13


**Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**
 
 **Results
        of Operations**
 
 As
        a
        development stage company, we have not generated any material revenues since
        we
        commenced our current line of business in 1999. We anticipate generating
        material revenue on a sustained basis beginning in the first quarter of 2007
        when we have successfully commercialized our Sonocracking Ô technology. When we emerge from the development stage, our reporting will
        change
        to reflect costs of sales against revenues. As revenue increases and prior
        tax
        losses are offset, the deferred tax estimate will require revision.
 
 As
        indicated in footnote 1 of our financial statements, our management and Audit
        Committee believe that the construction and purchase of equipment being
        installed in Fujairah, UAE and the building to house it, are beyond the
        development stage and thus not subject to expense under accounting standards.
        Accordingly, these items were capitalized in the first and second quarter
        of
        2006 and management proposed to continue this accounting treatment for the
        third
        quarter of 2006. However, in connection with the review by our independent
        auditors of the financial statements for the quarter ended September 30,
        2006,
        the auditors advised us that they did not agree that the construction and
        purchase of equipment should be capitalized, and are now requiring that these
        items be expensed as research and development commencing in the third quarter
        of
        2006. Therefore, our third quarter results of operations reflect accounting
        treatment recommended by our independent auditors.  Because we believe that
        there has been no change in circumstances since the first or second quarter
        of
        2006 relating to our initial decision to capitalize construction and equipment
        expenditures for these quarters, other than the auditor’s determination
        subsequent to the end of the third quarter of 2006 that for the third quarter
        these items should be expensed, we have determined that restatement of such
        amounts for the first and second quarters of 2006 is required in order to
        present these periods consistent with the third quarter.
  ***Three
        and nine months ended September 30, 2006 compared to the three and nine months
        ended September 30, 2005***
 
 **Research
        and Development Expenses**
  For
        the
        three and nine months ended September 30, 2006, we incurred approximately
        $2.3
        million and $22.1 million, respectively, related to research and development
        of
        our SonocrackingTM technology. These compare to approximately $930,000 and
        $1,912,000, respectively, for comparable periods in 2005 as reclassified
        (see
        note 1 of the financial statements). Approximately $19.1 million and $1.6
        million for the respective periods were spent on building construction and
        construction, purchase, and installation of equipment in Fujairah, UAE.
        Approximately $1.1 million in construction of a testing unit to be utilized
        in
        Austria was expensed in the second quarter of 2006.
  For
        the
        three and nine months ended September 30, 2006, approximately $181,000 and
        $576,000, respectively, represent amounts paid to our engineers and other
        research and development employees as wages and related benefits and for
        design
        and testing of our SonocrackerTM units. For those periods approximately $311,000
        and $1,758,000, respectively, were incurred for the procurement of control
        panels, probes, centrifuges, and generators related to the ongoing research
        and
        development of our units. The remainder of our research and development costs
        are recurring monthly expenses related to the maintenance of our warehouse
        facilities.
  14
  We
        expect
        our research and development expenses to decrease significantly as we
        successfully transition into generating sustained revenue. Thereafter, research
        and development will continue as needed to enhance our technology.
 
 **Selling,
        General and Administrative Expenses**
  For
        the
        three and nine months ended September 30, 2006, we incurred approximately
        $3,255,000 and $11,363,000, respectively, in selling, general and administrative
        expenses. These compare to approximately $835,000 and $3,502,000, respectively
        for comparable periods in 2005 as reclassified (see note 1 of the financial
        statements).
 
 Legal
        fees were approximately $987,000 and $4,260,000 for the three and nine months
        ended September 30, 2006, respectively, reflecting increases over comparable
        periods in 2005 of approximately $864,000 and $3,860,000, respectively. These
        increases were primarily due to litigation fees relating to the lawsuits
        against
        us. We expect to continue to incur significant litigation fees relating to
        these
        lawsuits through the end of 2006.
 
 Consulting
        fees, payroll and related expenses were approximately $1,306,000 and $3,752,000
        for the three and nine months ended September 30, 2006, respectively, reflecting
        increases over comparable periods in 2005 of approximately $916,000 and
        $2,348,000, respectively. Salaries in the nine month periods include grants
        of
        50,000 shares to new officers, $636,000 in the first quarter of 2006 and
        $204,000 in the first quarter of 2005. In the second and third quarters of
        2006,
        $1,045,000 in stock option expense was incurred with related payroll taxes
        of
        approximately $13,000. Excluding the stock grants and options, our consulting
        fees, payroll and related expenses increased 21% and 73% for the respective
        periods which reflect the increased number and quality of our work
        force.
 
 Travel
        and travel related expenses were approximately $366,000 and $924,000 for
        the
        three and nine months ended September 30, 2006, respectively, reflecting
        increases over comparable periods in 2005 of approximately $261,000 and
        $607,000, respectively. These increases were due to meetings of the Board
        of
        Directors, meetings with the European manufacturers of our equipment, and
        meetings with our joint venture partner in Fujairah, United Arab
        Emirates.
 
 Director
        fees were $276,500 and $1,404,000 for the three and nine months ended September
        30, 2006, respectively, reflecting increases over comparable periods in 2005
        of
        $276,500 and $669,500. Director fees in these periods represent grants to
        each
        new director of 50,000 shares each and a grant of options to Robert van
        Maasdijk, a director, in the second quarter of 2006. Specifically, in the
        first
        quarter of 2005, 50,000 shares valued at $273,500 were granted; in the second
        quarter of 2005, 100,000 shares valued at $461,000 were granted; in the first
        quarter of 2006, 50,000 shares valued at $440,000 were granted; in the second
        quarter of 2006, options valued at $687,500 were granted to acquire 125,000
        shares; and in the third quarter of 2006, 50,000 shares valued at $276,500
        were
        granted.
 
 The
        remainder of the amounts incurred relate to normal recurring operating expenses
        such as lease expense, utilities, marketing, and investor
        relations.
  15
 
 **Interest
        Expense**
  Interest
        expense was approximately $103,000 and $344,000 for the three and nine months
        ended September 30, 2006, respectively. These reflect a decrease of
        approximately $14,000 or 12% for the comparable three month periods and an
        increase of approximately $76,000 or 28% for the comparable nine month periods.
        The decrease for the three month periods is primarily a result of the payments
        of debt principal to Dr. Rudolf Gunnerman in the second quarter of 2006.
        This
        included paying off a $500,000 note bearing interest of 8% and paying $2,000,000
        against the $7,000,000 note which has a variable interest rate ( 5.84625%  during
        the third quarter of 2006) .
        The
        increase for the nine month periods consists of an increase of approximately
        $29,000 due to the interest on the late registration (see “Late Registration”
below) which began accruing at the end of June, 2005, and the result of
        quarterly increases in the interest rate on the $7,000,000 note payable to
        Dr.
        Gunnerman, as the rate is indexed to a LIBOR rate.
 
 **Late
        Registration**
  In
        accordance with the terms of our 2004 private placement, we accrued late
        fees of
        approximately $760,000, during the first two quarters of 2005, due to a delay
        in
        the effective date of our registration statement filed with the SEC. Our
        registration statement was declared effective by the SEC in June 2005.
        Accordingly, we have not accrued any such amounts for 2006 other than interest
        of approximately $90,000
        ($30,000 per quarter) which accrues on the unpaid amount at the rate of 18%
        per
        annum. However,
        as of the date of this report no formal demands have been made by investors
        to
        pay these fees.
  **Depreciation
        and Amortization**
  For
        the
        three and nine months ended September 30, 2006, exclusive of
        construction-in-progress, we expended approximately $8,000 and $156,000,
        respectively, for equipment and to maintain exclusivity for the sale and/or
        licensing of our SonocrackingTM technology in the United States and abroad. Our
        depreciation and amortization expense related to these additions, and to
        our
        previously capitalized equipment and rights, for the three and nine months
        ended
        September 30, 2006 were approximately $60,000, and $183,000, respectively,
        reflecting increases relative to the comparable three and nine month periods
        in
        2005 of approximately $20,000 and $36,000, respectively. We expect to continue
        our pursuit of exclusive distribution and licensing of our technology and
        purchasing equipment for the manufacture and upgrading of our Sonocracking
        technology.
  **Loss
        on Impairment of Asset**
  In
        accordance with SFAS No. 144 *Accounting
        for the Impairment or Disposal of Long Lived Assets* we
        determined in the first quarter of 2005 that a previously capitalized prototype
        no longer reflected the value of our commercially viable technology, resulting
        in an impairment loss of approximately $234,000. There were no comparable
        items
        in subsequent periods through September 30, 2006.
 
 **Net
        Loss**
  We
        incurred net losses of approximately $5.5 million and $33.5 million for the
        three and nine month periods ending September 30, 2006, respectively, compared
        to approximately $1.8 million and $6.5 million, respectively, for comparable
        periods in 2005. These increases in net loss in the 2006 periods primarily
        reflect the construction and purchase of building and equipment which has
        been
        expensed as research and development in 2006, as indicated above under the
        heading Research and Development.
  16
  **Liquidity
        and Capital Resources**
 
 ***Fujairah
        Oil Technology, LLC Project***
 
 In
        December 2005 we formed Fujairah Oil Technology, LLC, a 50/50 joint venture
        with
        the Government of Fujairah, one of the United Arab Emirates. Under the terms
        of
        the joint venture, SulphCo is respons ible
        for
        contributing its Sonocracking unit, and operation and maintenance of the
        Fujairah facility is the responsibility of the joint venture. Our present
        timetable calls for sustained commercial operation to begin in the first
        quarter
        of 2007. Until Fujairah Oil Technology, LLC generates revenues, operating
        expenses of the Fujairah Sonocracking facility are expected to be funded
        from
        capital contributions of the partners. We do not expect to have material
        operating expense until commercial operations commence.
 
 During
        the first three quarters of 2006 we incurred approximately $19.2 million
        of
        expenditures relating to the startup of the Fujairah facility, including
        $17.5
        million related to the construction of Sonocracking equipment and $1.7 million
        relating to building and infrastructure. We expect to incur approximately
        an
        additional $1.2 million in 2006 in connection with the fabrication and
        installation of our Sonocracking equipment and completion of the infrastructure
        associated with the 210,000 bb/day facility.
 
 The
        majority of the facility construction activities have been completed. Onsite
        assembly and installation of Sonocracking equipment has begun, and we expect
        that assembly and installation of the initial five units with a processing
        capacity of 150,000 barrels per day will be substantially completed in November
        2006 with an additional 30,000 barrels per day of capacity by December 2006.
        Commissioning and testing is expected to commence in December 2006, including
        the testing of Sonocracking units on a sustained basis with crude oil. The
        seventh 30,000 bbl/day unit has been held back in Europe to be used for testing,
        and we expect to add a seventh unit in the first quarter of 2007. Commencement
        of initial commercial production is targeted for the first quarter of 2007,
        following commissioning and testing. Commencement of commercial production
        activities will require that Fujairah Oil Technology, LLC complete arrangements
        for the construction of a pipeline from the storage tanks to the Fujairah
        Oil
        Technology, LLC facility, as well as arrangements for oil storage, purchase
        and
        sale. We expect that the pipeline construction and arrangements for oil storage
        will be completed by the end of this year and that firm commitments for the
        purchase and sale of oil will be in place shortly thereafter. Delays in
        finalizing and implementing these arrangements could affect the overall project
        timing **.**
 
 Due
        to
        the inherent complexities involved in the installation of a facility of this
        magnitude, and because the Fujairah facility will be the first commercial
        installation of its kind utilizing our Sonocracking technology, there have
        been
        delays in our timetable for completing the construction, installation and
        commission of this facility, and there may be further delays in our current
        timetable, which will in turn affect the timing and availability of revenues.
        In
        addition, future costs and expenses are estimates, and therefore our costs
        may
        vary significantly from current estimates.
 
 ***Liquidity***
 
 Working
        capital at September 30, 2006, was approximately $7.7 million. Current assets
        as
        of such date approximately $12.5 million, consisted primarily of cash and
        cash
        equivalents of approximately $12.1 million. Current liabilities of approximately
        $4.8 million as of such date consisted primarily of accounts payable and
        accrued
        liabilities of approximately $3.3 million and accrued fees and interest of
        $1
        million. Accounts payable and accrued liabilities include legal fees related
        to
        pending litigation of approximately $2 million and equipment construction
        and
        installation costs of approximately $740,000. Accrued fees and interest include
        approximately $910,000 of late fees and interest relating to delays in the
        effective date of an SEC registration statement in 2004 and 2005 relating
        to our
        2004 private placement. However, no formal demands have been made by investors
        to pay these late fees.
  17
 
 We
        anticipate that our existing capital resources will be sufficient to fund
        our
        cash requirements through June, 2007 from cash presently on hand, based upon
        our
        expected levels of expenditures and anticipated needs during this period.
        We
        expect attorney fees to be reduced substantially beginning in the first quarter
        of 2007, and we expect to reduce our expenditures for research and development.
        The extent and timing of our future capital requirements will depend primarily
        upon the rate of our progress in the commercialization of our technologies,
        including the successful implementation of our venture with Fujairah Oil
        Technology, LLC and other third parties, and the timing of future customer
        orders. Potential sources of additional working capital include future revenues,
        debt and equity financings, third party lease financing of Sonocracking
        equipment and components, and proceeds from future exercises of outstanding
        warrants and options. Presently we have no binding commitments for additional
        financings. To date we have generated no material revenues from our business
        operations. We are unable to predict when or if we will be able to generate
        future revenues from commercial activities or the amounts expected from such
        activities.
 
 ***Recent
        Financing Activities***
 
 On
        March
        29, 2006, we completed a private placement to a small number of accredited
        investors for the sale of 4,000,000 units, each unit consisting of one share
        of
        the Company’s Common Stock and one Warrant to purchase a share of Common Stock.
        Each unit was sold at a price of $6.805 per share, resulting in gross proceeds
        at closing of $27.2 million. The Warrants are exercisable, in whole or in
        part,
        at a fixed price equal to $6.805 per share, and are exercisable for a period
        of
        18 months following their issuance. Up
        to an
        additional $27.2 million may be generated upon exercise of warrants by these
        investors. On June 23, 2006 the SEC approved a registration for the resale of the common stock acquired by these
        investors.
 
 In
        2004
        we conducted two private placements with institutional and other third party
        investors for the sale of units consisting of our common stock, warrants,
        and
        rights to acquire additional stock and warrants, generating net cash proceeds
        of
        approximately $4.6 million. An additional amount of approximately $3.8 million
        was generated in 2005, approximately $7.8 million was generated in the first
        quarter of 2006 from the exercise of outstanding rights and warrants, and
        up to
        approximately $2.6 million may be generated in the future if investors in
        the
        June 2004 private placements exercise all of the remaining
        warrants.
 
 In
        December 2004 Dr. Gunnerman advanced $7 million to us as a loan. The loan
        is
        evidenced by a promissory note which bears interest at the rate of 0.5% above
        the 30 day “LIBOR” rate, adjusted quarterly and payable annually,
        and the entire principal amount is due and payable in December 2007. In April,
        2006 we repaid $2 million of loan principal.
 
 **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.
 
 18
  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 and Form 10-Q/A for the quarter ended March 31, 2006, this report and
        those set forth from time to time in our filings with the Securities and
        Exchange Commission (“SEC”). These documents are available through our web site, http://www.sulphco.com ,
        or
        through the SEC’s Electronic Data Gathering and Analysis Retrieval System
        (“EDGAR”) at http://www.sec.gov .
 
 
 **Item
        3. Quantitative and Qualitative Disclosures about Market
        Risk**
 
 Not
        applicable.
 
 
 **Item
        4. Controls and Procedures**
 
 We
        maintain disclosure controls and procedures designed to ensure that information
        required to be disclosed in reports filed under the Securities Exchange Act
        of
        1934, as amended, is recorded, processed, summarized and reported within
        the
        specified time periods and that such information is accumulated and communicated
        to management to allow timely decisions on required disclosure . As of
        the end of the period covered by this report, our management evaluated, with
        the
        participation of our Chief Executive Officer and Chief Financial Officer,
        the
        effectiveness of our disclosure controls and procedures. Based on the
        evaluation, our Chief Executive Officer and Chief Financial Officer concluded
        that our disclosure controls and procedures were effective as of the end
        of the
        period, except as follows. In
        September 2006 management executed and delivered a stock option agreement
        to an
        optionee under the 2006 Stock Option Plan.  However, the accounting
        department was not advised that this agreement was entered into until after
        the
        end of the September 30 quarter.  Management has subsequently instituted a
        new internal control requiring the Option Committee to immediately inform
        the
        Chief Financial Officer of any actions taken regarding the granting of stock
        options under the Plan.  This new procedure is in addition to existing
        procedures requiring executed contracts to be supplied to the accounting
        department. It was determined after the end of the quarter that this stock
        option agreement should not be reflected as a third quarter transaction as
        the
        grant was made subject to ratification by the Board of Directors, which had
        not
        occurred as of September 30, 2006.
 
 There
        has
        been no change in our internal controls over financial reporting during the
        quarter ended September 30, 2006 that has materially affected, or is
        reasonably likely to materially affect, our internal controls over financial
        reporting, except as follows. We
        added
        additional procedures relating to the review of computations for quarterly
        and
        annual financial statements prior to submission to the SEC. We have also
        proceeded with our efforts to conform to section 404 of the Sarbanes-Oxley
        Act
        within the timeframe allowed by the SEC. We have also added an additional
        procedure regarding internal reporting of stock option grants, described
        in the
        preceding paragraph.
  19
  **PART
        II. OTHER INFORMATION**
 
 **Item
        1.**  **Legal Proceedings**
 
 No
        legal
        proceedings have been instituted against the Company during the three months
        ended September 30, 2006. Except as described below, during the three months
        ended September 30, 2006, there have been no material developments in litigation
        previously reported in the Company's Form 10-KSB for the year ended December
        31,
        2005, or in its quarterly reports on Form 10-Q for the quarters ended March
        31,
        2006, or June 30, 2006. The Company believes that these cases are wholly
        without
        merit and we will continue to vigorously defend ourself in these matters.
        However, an adverse outcome may have a materially adverse effect on our
        financial condition or operations.
 
 *Talisman
        Capital Talon Fund, Ltd. v. Rudolf Gunnerman and Sulphco, Inc* .; *Clean
        Fuels Technology v. Rudolf W. Gunnerman, Peter Gunnerman, RWG, Inc. and SulphCo,
        Inc.* As
        previously reported in our Form 10-KSB for the year ended December 31, 2005,
        and
        Form 10-Q for the quarters ended March 31, 2006, and June 30, 2006, on June
        9,
        2005, our company, our CEO, Rudolf Gunnerman, and our President, Peter
        Gunnerman, were named as defendants in two separate legal actions commenced
        in
        Reno, Nevada. Though the plaintiffs, factual allegations and theories of
        recovery asserted in the two cases are different, they both allege claims
        to
“sulfur removal technology” originally developed by Professor Teh Fu Yen and Dr.
        Gunnerman with financial assistance provided by Dr. Gunnerman, and subsequently
        assigned to us, which claims we and the other named defendants regard as
        wholly
        without merit.
 
 Discovery
        in both of these cases formally concluded on May 24, 2006. Summary judgment
        motions by both parties are still pending in the *Talisman* case.
        The court in the *Clean
        Fuels Technology* matter,
        which is now styled *EcoEnergy
        Solutions, Inc. v. Rudolf W. Gunnerman, et al.* ,
        has
        issued its ruling on cross-motions for summary judgment. The court granted
        summary judgment in favor of Dr. Gunnerman on a claim against him for unjust
        enrichment. The court dismissed the plaintiff's fraud claims against Dr.
        Gunnerman and Peter Gunnerman. The court granted partial summary judgment
        to the plaintiff concerning two legal issues in dispute; however, the court
        did
        not grant plaintiff summary judgment on any of the claims in its Complaint.
        One
        of the two issues involved whether a particular document partially signed
        by the
        Clean Fuels Technology Board of Directors was valid, and the other issue
        involved whether a license agreement between Dr. Gunnerman and the plaintiff
        was
        amended in 2003 to modify the scope of the license agreement. A trial date
        of December 4, 2006, has been set in the *EcoEnergy* case.  A trial date has not yet been set in the *Talisman* case **.**
 
 *In
        The Matter of the Arbitration between Stan L. McLelland v. SulphCo, Inc.* On
        July
        12, 2005, Stan McLelland filed an arbitration demand against the Company
        before
        the American Arbitration Association. The demand alleges that Mr. McLelland
        was
        the Company's president from August 13, 2001, until he resigned on September
        12,
        2001. The demand seeks to exercise stock options that had not vested prior
        to
        Mr. McLelland's resignation. Mr. McLelland also seeks salary for the six
        months
        following his resignation and $20,000 of alleged unpaid commuting expenses,
        as
        well as attorneys' fees and costs. Discovery is closed, and the arbitrator
        recently denied the parties’ cross-motions for summary judgment on the options
        issue. The date for the arbitration hearing has not been set.
 
 20
 
 **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-Q as amended by Form
        10-Q/A for the period ended March 31, 2006 (“March 2006 Filings”). 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 March 2006 Filings. These risks and uncertainties are not
        the
        only ones facing us and there may be additional matters that we are unaware
        of
        or that we currently consider immaterial. All of these could adversely affect
        our business, financial condition, results of operations and cash flows and,
        thus, the value of an investment in our company.
 
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 During
        the three months ended September 30, 2006, we sold unregistered securities
        in
        the following transactions.
 
 In
        consideration of Edward E. Urquhart’s agreement to join our Board of Directors
        in August 2006, we agreed to grant to Mr. Urquhart 50,000 shares of our common
        stock valued at $5.53 per share, for an aggregate value of $276,500. The
        number
        of shares issued is based our policy of issuing 50,000 shares of our common
        stock to non-employee directors upon joining our board of directors.




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





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


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


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










21


**SIGNATURES**








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


SULPHCO,
              INC.Date: November
              14, 2006
            By:
            /s/ Rudolf
              W.
              GunnermanRudolf
                W. Gunnerman
              Chairman of the Board of Directors
              and Chief Executive
                Officer


By:
            /s/ Loren
              J. KalmenLoren
                J. Kalmen,
              Chief Financial Officer
              (Principal Financial and Accounting
                Officer)






22