**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**Form
      10-Q/A**


______





**Amendment
      No. 1**





**[** **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 March 21, 2007Common
                Stock, par value $.001
            76,355,478
                shares











**EXPLANATORY
      NOTE**




SulphCo,
      Inc. (the "Company") is filing this Form 10-Q/A ("Amendment No. 1") to amend
      its
      Quarterly Report on Form 10-Q for the quarterly period ended September 30,
      2006,
      in order to refile in its entirety Part I, Item 1, of the Financial Statements.
      Note 1 to the Financial Statements is revised to explain the reasons for
      charging as research and development expense, the costs associated
      with test facility in Fujairah under construction since 2006 and summarizes
      the prior restated amounts. Additionally, the Company discovered that it had
      reflected the full value of options issued to Mustang International, L.P. rather
      than allocating them over the service period. As these services were originally
      capitalized as part of construction work-in-progress, the restatement includes
      the necessary adjustments to expense them over the service period from April
      through September 2006 as research and development expense. The Company also
      is
      revising its Deferred Tax Asset and related Valuation Allowance amounts which
      still net to zero.





This
      Amendment No. 1 also amends Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and
      Part I, Item 4, Controls and Procedures. The
      Original Filing is hereby superseded and amended with respect to the information
      set forth in this Amendment No. 1.








2


**PART
      I.**





**Item
      1. Financial Statements**






3


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 $18,521,312)
                  (restated)
              
              
              -
              
              
              -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


4


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**(restated)
              
              
              
              (restated)
              
              
              
              (restated)**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
              )
              
              (10,950,292
              )Other
              
              
              (2,145,893
              )
              
              (834,542
              )
              
              (8,913,926
              )
              
              (2,470,250
              )
              
              (28,377,900
              )Research
                  and development expenses:Fujairah
                  test facility
              
              
              (1,811,142
              )
              
              
              
              
              (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
              
              
              (5,762,755
              )
              
              (1,764,926
              )
              
              (33,501,555
              )
              
              (5,643,511
              )
              
              (64,031,086
              )Loss
                  from operations
              
              
              (5,762,755
              )
              
              (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
              
              
              (5,723,521
              )
              
              (1,829,818
              )
              
              (33,454,935
              )
              
              (6,524,652
              )
              
              (65,195,060
              )Income
                  tax benefit (provision)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Net
                  loss**
              
              $
              (5,723,521
              )
              $
              (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**
              
              $
              (5,723,525
              )
              $
              (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


5


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 usedin
                  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


6


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 Work-in-Progress to Research and
      Development**





In
      connection with the preparation of the Company’s unaudited financial statements
      at March 31, 2006, and June 30, 2006, and for the periods then ended, the
      Company’s management and its Audit Committee originally concluded that the
      construction and purchase of equipment being installed in Fujairah, UAE (see
      Note 4), and the building to house it, were beyond the development stage and
      thus not subject to expense under the Statement of Financial Accounting
      Standards (“FAS”) No. 2. Accordingly, these items were capitalized in the first
      and second quarters of 2006. For the third quarter, however, the Company
      reassessed its position with respect to the capitalization of the equipment
      and
      its related building for the Fujairah facility and determined that the project
      in Fujairah was better characterized as a test facility because the building
      had
      not progressed to the point that processing equipment could be installed.
      Successful testing of the probe transducer assembly had not been completed.
      Contracting for testing oil and trucking thereof was not secure. Additionally
      the Company discovered that it had reflected the full value of options issued
      to
      Mustang International, L.P. (see Note 10) rather than allocating them over
      the
      service period. As these services were originally capitalized as part of
      construction work-in-progress, the restatement includes the necessary
      adjustments to expense them over the service period from April through September
      2006.




The
      restatements for the first two quarters of 2006 as reflected in the accompanying
      financial statements are as follows:





7




**SULPHCO,
                INC.****(A
                Company in the Development Stage)**
              **BALANCE
                SHEET (unaudited)**
            
            **September
                30, 2006**
            
            **Adjustments**
            
            **September
                30, 2006****(as
                reported)**
            
            
            
            **(as
                restated)****Current
                Assets:**Cash
                and cash equivalents
            
            $
            12,086,059
            
            $
            -
            
            $
            12,086,059Loan
                and accrued interest receivable
            
            
            345,455
            
            
            -
            
            
            345,455Prepaid
                expenses and other
            
            
            64,107
            
            
            -
            
            
            64,107Total
                current assets
            
            
            12,495,621
            
            
            -
            
            
            12,495,621**Property
                and Equipment (net of accumulated depreciation of
                $989,233)**
            
            
            274,724
            
            
            -
            
            
            274,724**Other
                Assets**Intangible
                assets (net of accumulated amortization of $37,602)
            
            
            452,492
            
            
            -
            
            
            452,492Investment
                in Joint Venture
            
            
            113,263
            
            
            -
            
            
            113,263Deposits
            
            
            36,822
            
            
            -
            
            
            36,822Deferred
                tax asset (net of valuation allowance of
                $18,521,312(restated))
            
            
            -
            
            
            -
            
            
            -Total
                other assets
            
            
            602,577
            
            
            -
            
            
            602,577Total
                assets
            
            $
            13,372,922
            
            $
            -
            
            $
            13,372,922**Current
                Liabilities**Accounts
                payable and accrued liabilities
            
            $
            3,278,624
            
            $
            -
            
            $
            3,278,624Refundable
                deposit
            
            
            550,000
            
            
            -
            
            
            550,000Accrued
                fees and interest
            
            
            1,004,247
            
            
            -
            
            
            1,004,247Related
                party note payable
            
            
            -
            
            
            -
            
            
            -Total
                current liabilities
            
            
            4,832,871
            
            
            -
            
            
            4,832,871**Long
                Term Related Party Note Payable**
            
            
            5,000,000
            
            
            -
            
            
            5,000,000Total
                liabilities
            
            
            9,832,871
            
            
            -
            
            
            9,832,871**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
            
            
            72,571
            
            
            -
            
            
            72,571Paid
                in capital
            
            
            69,410,500
            
            
            -
            
            
            69,410,500Stock
                subscriptions receivable
            
            
            (744,500
            )
            
            -
            
            
            (744,500
            )Deficit
                accumulated during the development stage
            
            
            (65,195,060
            )
            
            -
            
            
            (65,195,060
            )Accumulated
                other comprehensive loss
            
            
            (3,460
            )
            
            -
            
            
            (3,460
            )Total
                stockholders' equity (deficiency)
            
            
            3,540,051
            
            
            -
            
            
            3,540,051Total
                liabilities and stockholders' equity (deficiency)
            
            $
            13,372,922
            
            $
            -
            
            $
            13,372,922








8




**SULPHCO,
                INC.****(A
                Company in the Development Stage)****STATEMENT
                OF OPERATIONS**




**Three
                Months Ended September 30, 2006**
            
            **Adjustments**
            
            **Three
                Months Ended September 30, 2006**(as
                reported)
            
            
            
            (as
                restated)**Revenue**Sales
            
            $
            -
            
            $
            -
            
            $
            -**Expenses**Selling,
                general, and administrative expenses:Stock
                and options issued for services
            
            
            (1,109,500
            )
            
            -
            
            
            (1,109,500
            )Other
            
            
            (2,145,893
            )
            
            -
            
            
            (2,145,893
            )Research
                and development expenses:Fujairah
                test facility
            
            
            (1,632,379
            )
            
            (178,763
            )
            
            (1,811,142
            )Other
            
            
            (686,113
            )
            
            -
            
            
            (686,113
            )Loss
                on investment in joint venture
            
            
            (10,107
            )
            
            -
            
            
            (10,107
            )Loss
                on disposal of asset
            
            
            -
            
            
            -
            
            
            -Loss
                on impairment of asset
            
            
            -
            
            
            -
            
            
            -Total
                operating expenses
            
            
            (5,583,992
            )
            
            (178,763
            )
            
            (5,762,755
            )Loss
                from operations
            
            
            (5,583,992
            )
            
            (178,763
            )
            
            (5,762,755
            )**Other
                income (expense)**Interest
                income
            
            
            142,684
            
            
            -
            
            
            142,684Interest
                expense
            
            
            (103,450
            )
            
            -
            
            
            (103,450
            )Late
                registration fees
            
            
            -
            
            
            -
            
            
            -Loss
                before taxes
            
            
            (5,544,758
            )
            
            (178,763
            )
            
            (5,723,521
            )Income
                tax benefit (provision)
            
            
            -
            
            
            -
            
            
            -**Net
                loss**
            
            $
            (5,544,758
            )
            $
            (178,763
            )
            $
            (5,723,521
            )**Other
                comprehensive income (loss)**Foreign
                currency translation loss
            
            
            (4
            )
            
            -
            
            
            (4
            )**Net
                comprehensive loss**
            
            $
            (5,544,762
            )
            $
            (178,763
            )
            $
            (5,723,525
            )Loss
                per share - basic and diluted
            
            $
            (0.08
            )
            $
            (0.00
            )
            $
            (0.08
            )Weighted
                average shares - basic and diluted
            
            
            72,537,577
            
            
            72,537,577
            
            
            72,537,577





**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:





9


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
            )
            
            (294,658
            )Reclassified
            
            $
            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




**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:





10


**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 (as originally reported and as restated) 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.








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





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





The
      formation agreement called for each shareholder to contribute 500,000 Dirhams
      for a 50% ownership in the LLC. On December 14, 2005, the Company wired to
      the
      LLC its 500,000 Dirhams, ($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% ($22,827)
      has
      been reflected by the Company.





The
      Company entered into an agreement to construct a building for $1,600,000 for
      the
      LLC operations. The Company paid $800,000 to the construction company
      Subsequently the building plans were expanded which will require an additional
      $600,000 for construction. As specified in Note 1 the Company restated and
      expensed the entire investment in the building as research and development
      expense.





The
      test
      facility constructed by the Company for use in Fujairah will be owned by the
      Company, and the Company anticipates that it will lease the equipment to the
      LLC. The Facility is on land owned by the Government of Fujairah and the
      Government anticipates that it will lease the land to the LLC.





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:





11




Condensed
                Balance Sheet, September 30, 2006:
            
            (unaudited)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
            
            $
            -Operating
                expenses
            
            
            (42,257
            )Non-operating
                expense
            
            
            (3,397
            )Net
                loss
            
            $
            (45,654
            )Operating
                Statement, Three Months Ended September 30, 2006:Revenue
            
            $
            -Operating
                expenses
            
            
            _
                (20,214
            )Net
                loss
            
            $
            (20,214
            )





A
      foreign
      currency translation loss of $4 and$3,460 has also been recognized as other
      comprehensive loss relative to this investment for the three and nine months
      ended September 30, 2006.





Based
      on
      the restatement as further explained in Footnote 1, there is uncertainty that
      the company can recover its investment in the LLC.








**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%.





12





**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.





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.





13


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.





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 oversaw engineering
      and construction for the project in Fujairah, United Arab Emirates. The fee
      for
      these services includes grants of stock 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 and are fully vested at project completion, exercisable
      by
      April 1, 2010. This agreement was amended on September 13, 2006 which made
      it
      clear that the grants were fully vested by September 29, 2006. 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 were 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 assumed at the end of the third quarter 2006 that
      such revenue would 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.





14


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
            NoneVesting
                method
            2/28/2006
            3/31/2006
            9/29/2006




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.





The
      Company had planned 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.





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.





15


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.




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.





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.





16


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.






17




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





**Results
      of Operations**





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





In
      connection with the preparation of the Company’s unaudited financial statements
      at March 31, 2006, and June 30, 2006, and for the periods then ended, the
      Company’s management and its Audit Committee originally concluded that the
      construction and purchase of equipment being installed in Fujairah, UAE, and
      the
      building to house it, were beyond the development stage and thus not subject
      to
      expense under the Statement of Financial Accounting Standards (“FAS”) No. 2.
      Accordingly, these items were capitalized in the first and second quarters
      of
      2006. For the third quarter, however, the Company reassessed its position with
      respect to the capitalization of the equipment and its related building for
      the
      Fujairah facility and determined that it was an appropriate exercise of judgment
      to classify expenses as development costs in the third quarter rather than
      to
      continue capitalization, based on the absence of a commercial history for this
      type of facility. As there had been no change in circumstances relating to
      the
      reclassification since December 31, 2005, the Company also determined that
      it is
      appropriate to restate these classifications in the first two quarters of 2006
      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 expenses of
      approximately $2.3 million and $22.1 million, respectively, related to research
      and development of our Sonocracking technology. These compare to approximately
      $930,000 and $1,908,000, respectively, for comparable periods in 2005 as
      reclassified (see note 1 of the financial statements). Approximately $1.8
      million and $19.1 million for the respective periods were spent on the test
      facility 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 Sonocracker units. For those periods approximately $311,000
      and $1,758,000 in expenses, respectively, were incurred for the procurement
      of
      control panels, probes, centrifuges, and generators related to the ongoing
      research and development of our units. The remainder of our research and
      development costs are recurring monthly expenses related to the maintenance
      of
      our warehouse facilities.




We
      expect
      our research and development expenses to decrease significantly as we
      successfully transition into generating sustained revenue. Thereafter, research
      and development will continue as needed to enhance our technology. During the
      first three quarters of 2006 we incurred approximately $19.2 million of
      expenditures relating to development of the Fujairah facility. We expect to
      incur approximately an additional $1.2 million in 2006 in connection with the
      test facility in Fujairah.





18





**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.





**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 period 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 the LIBOR rate.





19


**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 Sonocracking technology in the United States and abroad. Our
      depreciation and amortization expense related to these additions, and to our
      previously capitalized equipment and rights, for the three 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 current test unit, 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 of a test facility in Fujairah, UAE, which has
      been expensed as research and development in 2006, as indicated above under
      the
      heading Research and Development.




**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 the facility that houses it. Operation
      and maintenance of the Fujairah facility is the responsibility of the joint
      venture. Until Fujairah Oil Technology, LLC generates revenues, operating
      expenses of the Fujairah Sonocracking facility are expected to be funded from
      capital contributions of the Company. We do not expect to have material
      operating expense until commercial operations commence.





Due
      to
      the inherent complexities involved in the installation of a facility of this
      magnitude, and because the Fujairah facility will be the first 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.





20


***Liquidity***





Working
      capital at September 30, 2006, was approximately $7.7 million. Current assets
      of
      approximately $12.5 million as of such date, 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.





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. Our
      future capital requirements will depend primarily upon debt and equity
      financings, third party lease financing of Sonocracking equipment and
      components, and proceeds from future exercises of outstanding warrants and
      options. Presently, we have no binding commitments for additional financings.
      To
      date, we have generated no material revenues from our business operations.
      We
      are unable to predict when or if we will be able to generate future revenues
      from commercial activities or the amounts expected from such
      activities.





***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.





21


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





Forward-looking
      statements are only predictions. Although we believe that the expectations
      reflected in these forward-looking statements are reasonable, we cannot
      guarantee future results, levels of activity, performance or achievements.
      All
      of our forward-looking information is subject to risks and uncertainties that
      could cause actual results to differ materially from the results expected.
      Although it is not possible to identify all factors, these risks and
      uncertainties include the risk factors and the timing of any of those risk
      factors identified in “Part II, Item 1A. Risk Factors” section
      contained herein, as well as the risk factors described in the Company’s Form
      10-Q 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
      4. Controls and Procedures**





We
      strive
      to maintain disclosure controls and procedures designed to ensure that
      information required to be disclosed in reports filed under the Securities
      Exchange Act of 1934, as amended, is recorded, processed, summarized and
      reported within the specified time periods and that such information is
      accumulated and communicated to management to allow timely decisions on required
      disclosure.





After
      a
      thorough reexamination of the events that led to the restatement of the first
      and second quarters of 2006, the Chief Executive Officer and Interim Chief
      Financial Officer believe that the Company’s disclosure controls and procedures
      were not effective during the period ended September 30, 2006.
      There were deficiencies in the communications between previous
      management to the board of directors and the Audit
      Committee. The
      Company also lacked personnel with sufficient financial expertise and experience
      to make appropriate judgments resulting in appropriate accounting and financial
      reporting.  The Company has attempted to address these issues as part of
      transitions with new management. The Company has hired
      a
      new CEO and President and intends to hire additional personnel with the
      financial expertise it currently lacks. Our CFO resigned effective March 23,
      2007 and we are actively seeking a replacement. In the interim Michael Abend
      our
      Controller is the acting CFO.




Our
          management and our independent registered public accounting firm identified
          deficiencies in disclosure controls and procedures including the
          following:
 ·  We
        did
        not have adequate controls over the accounting, review and processing of
        transactions involving decisions to expense or capitalize certain items
        involving research and development, fixed assets and patent
        maintenance.
  ·  We
        did
        not have adequate transaction controls over the accounting, review and
        processing of liability recognition at the end of accounting
        periods.
  ·  We
        did
        not have adequate controls over the accounting, review and processing of
        transactions involving issuances of stock and options or cash
        commitments.
  In
        order
        to correct these material weaknesses and improve the effectiveness of our
        disclosure controls and procedures, management of the Company, in consultation
        with the Audit Committee, reviewed policies and procedures in place with
        a view
        towards supplementing existing procedures and adopting new procedures. The
        Company's management and Audit Committee have discussed the matters disclosed
        in
        this Item 8A with the Company's independent registered public accounting
        firm.





During
      the quarter ended September 30, 2006, we
      added
      additional procedures relating to the review of computations for quarterly
      and
      annual financial statements prior to submission to the SEC. We proceeded with
      our efforts to conform to section 404 of the Sarbanes-Oxley Act within the
      timeframe allowed by the SEC. We also added an additional procedure regarding
      internal reporting of stock option grants, described in the preceding paragraph.
      We believe that t hese
      changes in our internal controls over financial reporting are reasonably likely
      to materially affect our internal controls over financial reporting by better
      enabling us to disclose reportable financial transactions accurately and
      timely.




22


**PART
      II. OTHER INFORMATION**








**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.








23


**SIGNATURES**





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


SULPHCO,
                INC.
              (Registrant)Date: March
              27,
              2007
            By:
            /s/ Larry
              RyanLarry
                Ryan
              Chief
                Executive Officer


By:
            /s/ Michael
              A. AbendMichael
                A. Abend
              Interim
                Chief Financial Officer
              (Principal
                Financial and Accounting
                Officer)




24