**SECURITIES      AND EXCHANGE COMMISSION**
**Washington,      D.C. 20549 **

**FORM      10-KSB/A**

----

**Amendment      No. 1**

**[x]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934**

**[       ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE      ACT OF 1934 **

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

| **Nevada**                                                                                   | **88-0224817**                                                        |
|----------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|
| (State                or Other Jurisdiction of Incorporation                or Organization) | (I.R.S.                Employer Identification                Number) |

| **850                Spice Islands Drive, Sparks, NV**(Address                of Principal Executive                Offices) | **89431**(Zip                Code) |
|------------------------------------------------------------------------------------------------------------------------------|------------------------------------|

**Issuer’s      Telephone No.:**

**Securities      registered pursuant to Section 12(b) of the Act: None**

**Securities      registered pursuant to Section 12(g) of the Act:**

**Common      Stock, Par Value $0.001 Per Share**

----

**EXPLANATORY      NOTE **

|   | · | The                Company has revised the presentation of the loss on disposal of                investments to reflect it as an operating activity. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                Company has separated intangible assets on the face of the balance                sheet                and made appropriate revisions to Note 4 of the financial statements                in                accordance with applicable sections of SFAS 142. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                Company reclassified a receivable due from a former employee from                a                contra-equity account to a related party receivable asset. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      7. FINANCIAL STATEMENTS**

----

**ITEM      13. EXHIBITS AND REPORTS ON FORM 8-K**

|   | 3.1* | Restated                Articles of Incorporation, as filed on December 30, 2003, with the                Nevada                Secretary of State. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3.2              ** | Amended                and Restated Bylaws. |
|--|---------------------|---------------------------------------------|

|  | 4.1+ | Form                  of Additional Investment Rights initially issued on June 3,                  2004. |
|--|------|----------------------------------------------------------------------------------------------------------|

|  | 4.2++ | Form                    of Additional Investment Rights initially issued on June 15,                    2004. |
|--|-------|---------------------------------------------------------------------------------------------------------------|

|  | 4.3+ | Form                    of Warrant initially issued on June 3,                    2004. |
|--|------|-----------------------------------------------------------------------------------------|

|  | 4.4++  | Form                        of Warrant initially issued on June 15,                        2004. |
|--|-------------|--------------------------------------------------------------------------------------------------|

|  | 4.5# | Form                        of Warrant dated November 11, 2004, issued to Rubenstein                        Public Relations,                        Inc. |
|--|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5.1# | Opinion                re Legality of Securities. |
|--------|------|---------------------------------------------------|

|   | 10.1** | Executive                Employment Agreement dated as of February 17, 2003, by and between                SulphCo, Inc. and Kirk S.                Schumacher. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.2* | 2003                Non-Officer Limited Stock Appreciation Rights                Plan. |
|--------|-------|----------------------------------------------------------------------------------------|

|   | 10.3+ | Securities                Purchase Agreement dated as of June 1, 2004, by and between SulphCo,                Inc.                and the Purchasers parties thereto. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.4++ | Securities                Purchase Agreement dated as of June 14, 2004, by and between SulphCo,                Inc.                and the Purchasers parties thereto. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.5# | Engagement                Agreement dated July 1, 2002, by and between SulphCo, Inc. and RWG,                Inc. |
|--------|-------|-------------------------------------------------------------------------------------------------------------------|

|   | 10.6# | Engagement                Agreement dated July 1, 2004, by and between SulphCo, Inc. and RWG,                Inc. |
|--------|-------|-------------------------------------------------------------------------------------------------------------------|

|   | 10.7# | Stock                Subscription Agreement dated as of January 13, 2003, by and between                SulphCo, Inc. and Kirk S.                Schumacher. |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.8# | Promissory                Note dated February 28, 2003, from SulphCo, Inc. to Rudolf W. Gunnerman. |
|--------|-------|----------------------------------------------------------------------------------------------------|

|   | 10.9# | Stock                Option Agreement dated as of May 8, 2003, between SulphCo, Inc. and                Patrick E. Lacy. |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------|

|   | 10.10# | Engagement                Agreement dated July 1, 2003, by and between SulphCo, Inc. and RWG,                Inc. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | 10.11# | Stock                Subscription Agreement dated as of October 28, 2003, by and between                SulphCo, Inc. and Rudolf W.                Gunnerman. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.12# | Promissory                Note dated December 30, 2003, from SulphCo, Inc. to Rudolf W. Gunnerman                and Doris Gunnerman. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.13# | Promissory                Note dated December 30, 2003, from SulphCo, Inc. to Erika                Herrmann. |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

----

|   | 10.14# | Stock                Issuance Agreement dated as of December 30, 2003, by and between                SulphCo,                Inc. and Erika Herrmann. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.15# | Stock                Issuance Agreement dated as of December 30, 2003, by and between                SulphCo,                Inc. and Rudolf W. Gunnerman. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.16# | Stock                Issuance Agreement dated as of January 21, 2004, by and between SulphCo,                Inc. and Fuad A M A Alghareeb. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.17# | Letter                dated April 28, 2004, from Rudolf W. Gunnerman to SulphCo,                Inc. |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | 10.18# | Promissory                Note dated April 28, 2004, from SulphCo, Inc. to Rudolf W.                Gunnerman. |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | 10.19# | Finder’s                Fee Agreement made as of May 11, 2004 between SulphCo, Inc. and Vantage                Investments Group, Inc. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.20# | Letter                Agreement dated May 28, 2004 between SulphCo, Inc. and Olympus Securities,                LLC. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | 10.21# | Engagement                Agreement dated July 1, 2004, by and between SulphCo, Inc. and RWG,                Inc. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | 10.22# | Consulting                Agreement dated July 15, 2004, by and between SulphCo, Inc. and InteSec                Group LLC. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | 10.23# | Collaboration                Agreement dated August 6, 2004, by and between SulphCo, Inc. and                ChevronTexaco Energy Technology                Company. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.24# | Contract                for Establishment of a Limited Liability Company (SulphCo Oil Technologies                Kuwait). |
|--|--------|----------------------------------------------------------------------------------------------------------------------------|

|  | 10.25# | Laboratory                Test Agreement dated November 2002 by and between SulphCo, Inc. and                ChevronTexaco Energy Research and Technology                Company. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.26# | Refinery                Test Agreement dated May 2003 by and between SulphCo, Inc. and Chevron                U.S.A., Inc. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | 10.27# | Loan                Extension Agreement, dated for reference the 12th                day of December, 2004, between Rudolf W. Gunnerman and SulphCo,                Inc. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.28# | Loan                Extension Agreement, dated for reference the 12th                day of December, 2004, between Erika Herrmann and SulphCo,                Inc. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.29(1) | Separation                      Agreement and General Release dated as of December 28, 2004,                      by and                      between SulphCo, Inc. and Kirk S. Schumacher. |
|--------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.30(2) | Letter                Agreement dated as of January 6, 2005, by and between SulphCo, Inc.                and                Alan L. Austin, Jr. |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.31(3) | Promissory                Note from SulphCo, Inc. to Rudolf W. Gunnerman dated December 31,                2004. |
|--------|----------|------------------------------------------------------------------------------------------------------------------|

|   | 10.32# | Letter                Agreement dated February 4, 2005, by and between SulphCo, Inc. and                ChevronTexaco Energy Technology                Company. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 10.33(4) | Agreement                dated February 22, 2005, by and between SulphCo, Inc. and OIL-SC,                Ltd. |
|--------|----------|----------------------------------------------------------------------------------------------------------------|

|   | 14* | Code                of Ethics adopted by the Board of Directors on March 12,                2004. |
|--------|-----|---------------------------------------------------------------------------------------------------|

|  | 16.1+++ | Letter                from Forbush and Associates to the SEC dated May 14,                2004. |
|--|---------|-------------------------------------------------------------------------------------------------|

|   | 23.1 | Consent                of Mark Bailey & Company, Ltd. |
|--------|------|-----------------------------------------------------------|

|  | 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. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (1) | On                November 3, 2004, we filed a Current Report on Form 8-K under Items                3.02                and 9.01 to report the sale of $2.6 million of units of our securities                in                a private placement pursuant to the securities purchase agreements                with                certain institutional and individual investors, including filing                the form                of the securities purchase agreement, warrant and additional investment                rights, as well as the related press                release. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | On                December 6, 2004 we filed a Current Report on Form 8-K under Item                5.02 to                report the resignation of Kirk S. Schumacher as a director and the                appointment of Richard L. Masica as a director, both effective November                30, 2004. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SIGNATURES**

|                         |                                                                                                                   |                                        |
|------------------------------|------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
|                         | SULPHCO,                  INC.                                                                                         |
|                    |                                                                                                              |                                   |
| June                10, 2005 | By:                                                                                                          | /s/ Rudolf                W. Gunnerman |
|                         |                                                                                                                        |
|                         | Rudolf                W. Gunnerman,Chairman                  of the Board and Chief                  Executive Officer |

|  /s/                Rudolf W. GunnermanRudolf                  W. Gunnerman | Chairman              of the Board, Chief ExecutiveOfficer,                Director(Principal                Executive Officer)                                                  | June                10, 2005 |
|----------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|
|                                                                                  |                                                                                                                                                                             |                         |
| /s/                Richard L. Masica Richard                  L. Masica          | Director                                                                                                                                                                         | June                10, 2005 |
|                                                                             |                                                                                                                                                                             |                         |
| /s/                Alan L. Austin, Jr. Alan                  L. Austin, Jr.      | Vice                President of Finance,Chief                  Financial Officer(Principal                  Financial Officer andPrincipal                  Accounting Officer) | June                10, 2005 |
|                                                                             |                                                                                                                                                                             |                         |
| /s/                Loren J. Kalmen Loren                J. Kalmen                | Director                                                                                                                                                                         | June                10, 2005 |
|                                                                             |                                                                                                                                                                             |                         |
|  Robert                Henri Charles van                Maasdijk            | Director                                                                                                                                                                         | June                __, 2005 |
|                                                                             |                                                                                                                                                                             |                         |
|  Raad                Alkadiri                                               | Director                                                                                                                                                                         | June                __, 2005 |

----

**SULPHCO,        INC.**

**(A        DEVELOPMENT STAGE COMPANY)**

**FINANCIAL        STATEMENTS**

**FOR        THE YEARS ENDED**

**DECEMBER        31, 2004**

**AND**

**DECEMBER        31, 2003**

**WITH**

**AUDIT        REPORT OF**

**REGISTERED        PUBLIC ACCOUNTING FIRM**

----

| **TABLE                OF                CONTENTS**               |
|-------------------------------------------------------------------|
|                                                              |   |   |
| Report                of Registered Public Accounting Firm        | F-2 |   |
|                                                              |   |   |
| Balance                Sheet                                      | F-3 |   |
|                                                              |   |   |
| Statements                of Operations                           | F-4 |   |
|                                                              |   |   |
| Statement                of Changes in Stockholders’ Equity | F-5 |   |
|                                                              |   |   |
| Statement                of Cash Flows                            | F-9 |   |
|                                                              |   |   |
| Notes                to Financial Statements                      | F-10 |   |
|                                                              |   |   |

F-1

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

| **Report                  of Registered Public Accounting                  Firm**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| March                4, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Board                of Directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Sulphco,                Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| We                  have audited the accompanying balance sheet of Sulphco, Inc., (a                  company in the development stage) as of December 31, 2004, and                  the related                  statements of operations, stockholders’ equity and cash flows for the                  years ended December 31, 2004 and 2003. These financial statements                  are the                  responsibility of the Company’s management**.**Our                  responsibility is to express an opinion on these financial statements                  based on our audits.                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| We                  conducted our audits in accordance with standards of the Public                  Company Accounting Oversight Board (United States). Those standards                  require that we plan and perform the audits to obtain reasonable                  assurance                  about whether the financial statements are free of material misstatement.                  An audit includes examining, on a test basis, evidence supporting                  the                  amounts and disclosures in the financial statements. An audit also                  includes assessing the accounting principles used and significant                  estimates made by management, as well as evaluating the overall                  financial                  statement presentation. We believe that our audits provide a reasonable                  basis for our opinion. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| In                  our opinion, the financial statements referred to above present                  fairly, in all material respects, the financial position of Sulphco,                  Inc.,                  (a company in the development stage), as of December 31, 2004,                  and the                  results of its operations and its cash flows for the years ended                  December                  31, 2004 and 2003, in conformity with accounting principles generally                  accepted in the United States.                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| /s/                Mark Bailey & Company, Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Reno,                Nevada                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

F-2

----

SULPHCO,        INC.(A Company in the Development        Stage)BALANCE SHEETDecember 31, 2004

| ASSETS                                                                                                                |    |    |    |
|-----------------------------------------------------------------------------------------------------------------------|--------------|--------------|--------------|
||
|                                                                                                                  |              |         |
| **Current                Assets**                                                                                     |         |         |         |
|    Cash                                                                                                | $            | 9,872,839    |         |
|    Related                party accounts receivable                                                    |         | 317,800      |         |
|    Prepaid                expenses                                                                     |         | 38,860       |         |
|                                                                                                                  |              |         |
|                                                                                                             |
|       Total                current assets                                               |         | 10,229,499   |         |
|                                                                                                                  |              |         |
|                                                                                                             |
| **Property                and equipment (net of accumulated depreciation                of $630,084)**                |         | 604,410      |         |
|                                                                                                                  |              |         |
||
| Deferred                tax asset (net of valuation allowance of                $7,584,189)                           |         | —      |         |
| Patents                and trademarks                                                                                 |         | 172,628      |         |
| Deposits                                                                                                              |         | 46,823       |         |
|                                                                                                                  |              |         |
|                                                                                                             |
|       Total                other assets                                                 |         | 219,451      |         |
|                                                                                                             |
|          Total                assets                                     | $            | 11,053,360   |         |
|                                                                                                                  |              |         |
||
|                                                                                                                  |         |         |         |
| **Current                Liabilities**                                                                                |         |         |         |
|    Accounts                payable                                                                     | $            | 294,513      |         |
|    Accrued                expenses                                                                     |         | 485,969      |         |
|    Related                party notes payable                                                          |         | 1,000,000    |         |
|                                                                                                                  |              |         |
|                                                                                                             |
|       Total                current                liabilities                           |         | 1,780,483    |         |
|                                                                                                                  |              |         |
| **Long-Term                Liabilities**                                                                              |         |         |         |
|    Related                party note payable                                                           |         | 7,000,000    |         |
|                                                                                                                  |              |         |
|                                                                                                             |
|       Total                long term                liabilities                         |         | 7,000,000    |         |
|                                                                                                                  |              |         |
|                                                                                                             |
| **Commitments                and                Contingencies**                                                       |         | —      |         |
|                                                                                                                  |              |         |
|                                                                                                             |
|          Total                liabilities                                |         | 8,780,483    |         |
|                                                                                                                  |              |         |
| **Stockholders’                Equity**                                                                         |         |         |         |
|    Preferred                stock: 10,000,000 shares authorized                ($0.001 par value)      |         |         |         |
|       none                issued                                                        |         | —      |         |
|    Common                stock, $.001 par value, 100,000,000 shares                authorized          |         |         |         |
|      56,429,385                shares issued and                outstanding                  |         | 56,429       |         |
|    Additional                paid-in-capital                                                           |         | 25,347,781   |         |
|    Prepaid                expenses via stock issuance                                                  |         | (75,075      | )            |
|    Stock                subscriptions receivable                                                       |         | (744,500     | )            |
|    Deficit                accumulated during the development                stage                      |         | (22,311,758  | )            |
|                                                                                                                  |              |         |
|                                                                                                             |
|       Total                stockholders’                equity                    |         | 2,272,877    |         |
|                                                                                                                  |              |         |
|                                                                                                             |
|          Total                liabilities and stockholders’ equity | $            | 11,053,360   |         |
|                                                                                                                  |              |         |
|                                                                                                                  |         |         |
| The                  Accompanying Notes are an Integral Part of the Financial                  Statements             |
| F-3                                                                                                                   |

----

SULPHCO,        INC.(A Company in the Development        Stage)STATEMENTS OF OPERATIONSFor the Years Ended December 31,        2004 and 2003 and From Inception

|                                                                                                      | 2004   |   | 2003       |   | Inceptionto                date |       |
|-----------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|---------------------------------|------------|
|                                                                                                      |   |        |       |        |                            |            |   |
| **Revenue**                                                                                               |   |   |       |   |                            |       |   |   |   |   |
|   Sales                                                                                         |   | $      | —    |   | $                               | —    |   | $ | 42,967 |   |
|                                                                                                      |   |   |       |   |                            |       |   |   |   |   |
| **Expenses**                                                                                              |   |   |       |   |                            |       |   |   |   |   |
|                                                                                                 |
|    General                and administrative expenses                                      |   |   | (3,349,115 | )      |                            | (2,111,300 | ) |   | (19,430,228 | ) |
|    Research                and development expenses                                        |   |   | (407,613   | )      |                            | (620,416   | ) |   | (1,740,712 | ) |
|    Loss                on disposal of investment                                           |   |   | —    |   |                            | (221,711   | ) |   | (221,711 | ) |
|    Depreciation                expense                                                     |   |   | (104,242   | )      |                            | (191,043   | ) |   | (669,889 | ) |
|                                                                                                      |   |        |       |        |                            |            |   |
|                                                                                                 |
|      Total                expenses                                               |   |   | (3,860,970 | )      |                            | (3,144,470 | ) |   | (22,062,540 | ) |
|                                                                                                      |   |        |       |        |                            |            |   |
| Loss                from operations                                                                       |   |   | (3,860,970 | )      |                            | (3,144,470 | ) |   | (22,019,573 | ) |
|                                                                                                      |   |   |       |   |                            |       |   |   |   |   |
| **Other                income                (expense)**                                                  |   |   |       |   |                            |       |   |   |   |   |
| Interest                income                                                                            |   |   | 17,303     |   |                            | —    |   |   | 56,612 |   |
| Interest                expense                                                                           |   |   | (302,786   | )      |                            | (26,489    | ) |   | (348,797 | ) |
|                                                                                                      |   |        |       |        |                            |            |   |
|                                                                                                 |
|      Loss                before income taxes                                     |   |   | (4,146,453 | )      |                            | (3,170,959 | ) |   | (22,311,758 | ) |
|                                                                                                 |
| Provision                for income taxes                                                                 |   |   | —    |   |                            | —    |   |   | — |   |
|                                                                                                      |   |        |       |        |                            |            |   |
|                                                                                                 |
|      Net                loss                                                     |   | $      | (4,146,453 | )      | $                               | (3,170,959 | ) | $ | (22,311,758 | ) |
|                                                                                                      |   |        |       |        |                            |            |   |
|                                                                                                 |
| Loss                per share: basic and diluted                                                          |   | $      | (0.08      | )      | $                               | (0.07      | ) | $ | (0.64 | ) |
|                                                                                                      |   |        |       |        |                            |            |   |
|                                                                                                 |
| Weighted                average shares: basic and diluted                                                 |   |   | 53,713,346 |   |                            | 47,965,000 |   |   | 34,938,170 |   |
|                                                                                                      |   |        |       |        |                            |            |   |
|                                                                                                      |   |   |       |   |                            |       |   |
| The                  Accompanying Notes are an Integral Part of the Financial                  Statements |
| F-4                                                                                                       |

----

SULPHCO,        INC. (A Company in the Development Stage) STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYFor the Years        Ended December 31, 2004 and 2003 and From Inception

|                                                                                                       |       | **Common                Stock**     |       | **AdditionalPaid-inCapital** |                           | **AccumulatedDeficit** |   | **Stock                issuedfor prepaidinterest**                                              |   | **Stock                issuedfor prepaidexpenses** |                                                                                             | **CommonStockSubscribed** |   | **StockSubscriptionsReceivable** |   | **TotalEquity** |                                |
|------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|--------------------------------|------------------------|--------|-------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|--------------------------------------------------------------------------------------------------|---------------------------|--------|----------------------------------|--------|-----------------|-------------------------------------|
|                                                                                                       | **Shares** |                                | **Amount** |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |
|                                                                                                       |            |                                |            |                         |                                |                   |        |                                                                                            |        |                                               |                                                                                                  |                      |        |                             |        |            |                                     |   |
| Balance,                January                13, 1999                                                    |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for                cash at $167 per share                                      |       | 1,000                               |       | $                            |                   1  |                   | $      |                             166,999 |   | $                                                  |          —                                    |                      | $      |    —        |   | $               |                   — |   | $ |                                 — |   | $ |        — |   | $ |                           167,000 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Restate                from                recapitalization of GRD, Inc.                                   |       | 19,999,000                          |       |                         | 19,999                         |                   |   |                  (19,999                                                                   | )      |                                               |                            —        |                      |   |                             |   |            |                                |   |   |   |   |   |                          — |   |   |        — |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                                    |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               | (128,802                                                                                         | )                         |   |                             |   |            |                                |   |   |   |   |   |   |   |   |                           (128,802 | ) |
|                                                                                                       |            |                                |            |                         |                                |                   |        |                                                                                            |        |                                               |                                                                                                  |                      |        |                             |        |            |                                     |   |
| Balance                at                December 31, 1999                                                 |       | 20,000,000                          |       | $                            | 20,000                         |                   | $      |                             147,000 |   | $                                                  |                             (128,802 | )                         | $      |    —        |   | $               |                   — |   | $ |                   — |   | $ |        — |   | $ |                             38,198 |   |
|                                                                                                       |            |                                |            |                         |                                |                   |        |                                                                                            |        |                                               |                                                                                                  |                      |        |                             |        |            |                                     |   |
| Contributions                from stockholders                                                             |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           in                December 2000                |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|      Cash                                                                         |       |                                |       |                         |                           |                   |   | 169,168                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   | 169,168 |   |
|      Equipment                                                                    |       |                                |       |                         |                           |                   |   | 362,331                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   | 362,331 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Acquisition                of                Filmworld, Inc.                                               |       | 1,200,000                           |       |                         |                  1,200    |                   |   |                  (251,200                                                                  | )      |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |                  (250,000 | ) |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for                cash and subscription                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           receivable                at $0.50 per share   |       |                   820,000 |       |                         | 820                            |                   |   | 409,180                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |                             (208,500 | ) |   |                             201,500 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                options                issued at $.50 per share                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           in                December 2000                |       |                                |       |                         |                           |                   |   |      919,401                                                           |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |                    919,401 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                options                issued at $1.50 per share                                      |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           in                December 2000                |       |                                |       |                         |                           |                   |   |                   94,799                                                              |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   | 94,799 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                                    |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                            (1,364,393     | )                         |   |                             |   |            |                                |   |   |   |   |   |   |   |   |                  (1,364,393 | ) |
|                                                                                                       |            |                                |            |                         |                                |                   |        |                                                                                            |        |                                               |                                                                                                  |                      |        |                             |        |            |                                     |   |
| Balance                at                 December 31, 2000                                           |       | 22,020,000                          |       | $                            | 22,020                         |                   | $      | 1,850,679                                                                                       |   | $                                                  |                          (1,493,195                 | )                         | $      |    —        |   | $               |                   — |   | $ |                   — |   | $ |                           (208,500 | ) | $ |                           171,004 |   |
|                                                                                                       |            |                                |            |                         |                                |                   |        |                                                                                            |        |                                               |                                                                                                  |                      |        |                             |        |            |                                     |   |
| Stock                issued for                intangible assets at $4.25                                  |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           per                share in January 2001       |       |  292,800                       |       |                         | 293                            |                   |   | 1,244,107                                                                                       |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   | 1,244,400 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for                intangible assets at $2.85                                  |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           per                share in February 2001      |       | 400,000                             |       |                         |     400    |                   |   | 1,139,600                                                                                       |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |                  1,140,000 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                sold to a                related party at $1.47                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           per                share February 2001         |       | 24,750                              |       |                         |                   25 |                   |   |                   36,431                                                              |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   | 36,456 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for                marketing services                                          |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           at                $2.86 per share April 2001   |       | 200,000                             |       |                         | 200                            |                   |   | 571,800                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   | 572,000 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Issuance                of                options to related parties for                                   |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           services                in June 2001           |       |                                |       |                         |                           |                   |   | 773,931                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   | 773,931 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued in                exchange for notes payable                                   |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           at                $0.50 per share in June 2001 |       | 9,556,000                           |       |                         |                  9,556    |                   |   | 4,768,444                                                                                       |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   | (4,778,000 | ) |   |          — |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued in                exchange for notes payable                                   |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           at                $1.50 per share in June 2001 |       | 425,000                             |       |                         | 425                            |                   |   | 637,075                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   | (637,500 | ) |   |          — |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |          — |   |
| Stock                sold for                cash at $2.94 per share                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           in                June                2001     |       | 100,000                             |       |                         | 100                            |                   |   | 293,900                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |                             294,000 |   |
|                                                                                                       |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for                a note receivable at $1.41                                  |       |                                |       |                         |                           |                   |   |                                                                                            |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |
|           per                share in June 2001          |       | 200,000                             |       |                         | 200                            |                   |   | 281,800                                                                                         |   |                                               |                                                                                             |                      |   |                             |   |            |                                |   |   |   |   |   |                  (282,000 | ) |   |          — |   |

The        Accompanying Notes are an Integral Part of the Financial        Statements

F-5

----

SULPHCO,        INC. (A Company in the Development Stage) STATEMENTS        OF CHANGES IN STOCKHOLDERS’ EQUITYFor the Years Ended December 31, 2004        and 2003 and From Inception

|                                                                                                         |       | **Common                Stock** |       | **AdditionalPaid-inCapital** |           | **AccumulatedDeficit** |   | **Stock                issuedfor prepaidinterest** |   | **Stock                issuedfor prepaidexpenses** |          | **CommonStockSubscribed** |   | **StockSubscriptionsReceivable** |   | **TotalEquity** |                |
|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|------------------------------|----------------|------------------------|--------|----------------------------------------------------|--------|----------------------------------------------------|---------------|---------------------------|--------|----------------------------------|--------|-----------------|---------------------|
|                                                                                                         | **Shares** |                            | **Amount** |                         |           |                   |   |                                               |   |                                               |          |
|                                                                                                         |            |                            |            |                         |                |                   |        |                                               |        |                                               |               |                      |        |                             |        |            |                     |   |
| Stock                issued to a related party for                                                           |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|    cash at $0.50 per shares in                                                                     |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|     June                2001                                                             |       | 350,000                         |       |                         | 350            |                   |   | 174,650                                            |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   | 175,000 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Cash                received for subscription                                                                |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    in July 2001                                                               |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   | 282,000 |   |   | 282,000 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Cash                received for subscriptions                                                               |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    in August 2001                                                             |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   | 340,000 |   |   | 340,000 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for subscription                                                                 |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|     receivable of $2,000,000                in                                                |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|     September 2001                                                                            |       | 2,758,620                       |       |                         | 2,759          |                   |   | 1,997,241                                          |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   | (2,000,000 | ) |   | — |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued to a related party for                                                           |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|     consulting                fees at $0.85 per                                          |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    share in November 2001                                                     |       |   4,000,000           |       |                         | 4,000          |                   |   | 3,396,000                                          |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   | 3,400,000 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Shares                returned in November 2001                                                              |       |    (300,000      | )          |                         | (300           | )                      |   |  (1,558,147                                   | )      |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   | 784,500 |   |   |  (773,947 | ) |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Cash                received for subscriptions                                                               |       |                            |       |                         |           |                   |   |                                               |   |                                               |  — |                      |   |                             |   |            |                |   |   |   |   |   | 200,000 |   |   | 200,000 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in December 2001                                                               |       |    (100,000      | )          |                         | (100           | )                      |   |  (49,900                                      | )      |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   50,000 |   |   | — |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                options issued at a weighted                                                            |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    average issue price of $0.75 per                                           |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    share in October 2001                                                      |       |                            |       |                         |           |                   |   |   89,020                                 |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   | 89,020 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                                      |       |                            |       |                         |           |                   |   |                                               |   |                                               | (6,927,525    | )                         |   |                             |   |            |                |   |   |   |   |   |   |   |   | (6,927,524 | ) |
|                                                                                                         |            |                            |            |                         |                |                   |        |                                               |        |                                               |               |                      |        |                             |        |            |                     |   |
| Balance                at December 31, 2001                                                                  |       | 39,927,170                      |       | $                            | 39,928         |                   | $      | 15,646,632                                         |   | $                                                  | (8,420,720    | )                         | $      |    —        |   | $               |   — |   | $ |   — |   | $ | (6,249,500 | ) | $ | 1,016,340 |   |
|                                                                                                         |            |                            |            |                         |                |                   |        |                                               |        |                                               |               |                      |        |                             |        |            |                     |   |
| Stock                issued for related party    services at $0.50 per                share   |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    in March 2002                                                              |       | 10,000,000                      |       |                         | 10,000         |                   |   | 4,990,000                                          |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   | 5,000,000 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in May 2002                                                                    |       | (1,000,000                      | )          |                         | (1,000         | )                      |   |                  (499,000                     | )      |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   | 500,000 |   |   | — |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in June 2002                                                                   |       |    (100,000      | )          |                         | (100           | )                      |   |  (71,900                                      | )      |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   72,000 |   |   | — |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in July 2002                                                                   |       | (25,000                         | )          |                         | (25            | )                      |   |  (37,475                                      | )      |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   37,500 |   |   | — |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Payment                on stock subscription                                                                 |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    received in July 2002                                                      |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   | 515,500 |   |   | 515,500 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in July 2002                                                                   |       | (1,000,000                      | )          |                         | (1,000         | )                      |   |                  (499,000                     | )      |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   | 500,000 |   |   | — |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for services at $0.10 per                                                        |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
|                    share in September 2002                                                    |       | 50,000                          |       |                         |   50 |                   |   |     4,950                      |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   5,000 |   |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in September 2002                                                              |       |    (431,000      | )          |                         | (431           | )                      |   |                  (440,069                     | )      |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |  (440,500 | ) |
|                                                                                                         |       |                            |       |                         |           |                   |   |                                               |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for services at $0.27    per share in October                2002 |       | 50,000                     |       |                         | 50        |                   |   | 13,450                                        |   |                                               |          |                      |   |                             |   |            |                |   |   |   |   |   |   |   |   | 13,500  |   |

The        Accompanying Notes are an Integral Part of the Financial        Statements

F-6

----

SULPHCO,        INC. (A Company in the Development Stage) STATEMENTS        OF CHANGES IN STOCKHOLDERS’ EQUITYFor the Years Ended December 31, 2004        and 2003 and From Inception

|                                                                                                            |       | **Common                Stock**        |       | **AdditionalPaid-inCapital** |                         | **AccumulatedDeficit** |   | **Stock                issuedfor prepaidinterest** |   | **Stock                issuedfor prepaidexpenses** |                              | **CommonStockSubscribed** |   | **StockSubscriptionsReceivable**     |   | **TotalEquity** |    |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|------------------------------|------------------------------|------------------------|--------|----------------------------------------------------|--------|----------------------------------------------------|-----------------------------------|---------------------------|--------|--------------------------------------|--------|-----------------|---------|
|                                                                                                            | **Shares** |                                   | **Amount** |                         |                         |                   |   |                                               |   |                                               |                              |
|                                                                                                            |            |                                   |            |                         |                              |                   |        |                                               |        |                                               |                                   |                      |        |                                 |        |            |         |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                Options issued in November 2002                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           for                $0.10 per share (restated)       |       |                                   |       |                         |                         |                   |   | 31,500                                             |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   | 31,500 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                issued to a related party for cash at                                                      |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           $0.10                per share in November 2002     |       |                  100,000          |       |                         | 100                          |                   |   |   9,900                                  |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   | 10,000 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                issued to a related party for cash at                                                      |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           $0.10                per share in December 2002     |       | 50,000                                 |       |                         | 50                           |                   |   |   4,950                                  |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   | 5,000 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Net                loss (restated)                                                                              |       |                                   |       |                         |                         |                   |   |                                               |   |                                               | (6,573,627                        | )                         |   |                                 |   |            |    |   |   |   |   |   |   |   |   |                  (6,573,627) |   |
|                                                                                                            |            |                                   |            |                         |                              |                   |        |                                               |        |                                               |                                   |                      |        |                                 |        |            |         |   |
| Balance                at December 31, 2002                                                                     |       |                   47,621,170 |       | $                            |                  47,621 |                   | $      |                  19,153,938                   |   | $                                                  |                  (14,994,346 | )                         | $      |  —                        |   | $               | — |   | $ | — |   | $ |                  (4,624,500 | ) | $ |                   (417,287 | ) |
|                                                                                                            |            |                                   |            |                         |                              |                   |        |                                               |        |                                               |                                   |                      |        |                                 |        |            |         |   |
| Stock                subscribed for services at $0.42 per                                                       |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           share                in February 2003               |       |                                   |       |                         |                         |                   |   | 20,950                                             |   |                                               |                              |                      |   |                                 |   |            |    |   |   |  50 |   |   |   |   |   | 21,000 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Payment                on stock subscription                                                                    |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           received                in February 2003            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   | 3,575,000 |   |   | 3,575,000 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                issued to a related party for cash at                                                      |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           $0.33                per share in March 2003        |       | 50,000                                 |       |                         | 50                           |                   |   | 16,450                                             |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   | 16,500 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for services at $0.32 per                                                           |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           share                in June 2003                   |       | 50,000                                 |       |                         | 50                           |                   |   | 15,950                                             |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   | 16,000 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in August 2003                                                                    |       |                   (196,870   | )          |                         |  (197                   | )                      |   |   (196,678                               | )      |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   | 196,875 |   |   |   — |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in September 2003                                                                 |       | (3,130                                 | )          |                         | (3                           | )                      |   |  (3,322                                       | )      |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   3,325 |   |   |                    — |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                issued to a related party for cash at                                                      |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           $0.23                per share in November 2003     |       |                  2,173,913        |       |                         | 2,174                        |                   |   | 497,826                                            |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |  500,000 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                returned in December 2003                                                                  |       |                  (25,000          | )          |                         | (25                          | )                      |   |  (37,275                                      | )      |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   | 37,300 |   |   |   — |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                subscribed for prepaid interest                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|           at                $0.296 per share in December 2003 |       |                                   |       |                         |                         |                   |   | 295,000                                            |   |                                               |                              |                      |   |                   (296,000 | )      |            |    |   |   |  1,000 |   |   |   |   |   |   — |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                                         |       |                                   |       |                         |                         |                   |   |                                               |   |                                               | (3,170,959                        | )                         |   |                                 |   |            |    |   |   |   |   |   |   |   |   |                  (3,170,959 | ) |
|                                                                                                            |            |                                   |            |                         |                              |                   |        |                                               |        |                                               |                                   |                      |        |                                 |        |            |         |   |
| Balance                at December 31, 2003                                                                     |       |                   49,670,083 |       | $                            |                  49,670 |                   | $      |                  19,762,839                   |   | $                                                  |                  (18,165,305 | )                         | $      | (296,000                             | )      | $               | — |   | $ |                  1,050 |   | $ |                  (812,000 | ) | $ |                  540,254 |   |
|                                                                                                            |            |                                   |            |                         |                              |                   |        |                                               |        |                                               |                                   |                      |        |                                 |        |            |         |   |
| Restricted                stock issued for                                                                      |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|   interest                on notes at $0.296 per share                                                |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|                  in January 2004.                                                                          |       | 1,000,000                              |       |                         | 1,000                        |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   | (1,000 | ) |   |   |   |   |   — |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for services at $0.85 per                                                           |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|                  share in January 2004                                                                     |       | 100,000                                |       |                         | 100                          |                   |   | 84,900                                             |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   | 85,000 |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Issued                subscribed stock at $0.42 per                                                             |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|                  share in March 2004                                                                       |       | 50,000                                 |       |                         | 50                           |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   | (50 | ) |   |   |   |   |   — |   |
|                                                                                                            |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
| Stock                issuance at $0.90 per                                                                      |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|                  share in June 2004 (See Note 10 for                                                       |       |                                   |       |                         |                         |                   |   |                                               |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   |   |   |
|                  attached rights and warrants)                                                             |       | 1,489,170                              |       |                         | 1,489                        |                   |   | 1,338,766                                          |   |                                               |                              |                      |   |                                 |   |            |    |   |   |   |   |   |   |   |   | 1,340,255 |   |

The        Accompanying Notes are an Integral Part of the Financial        Statements

F-7

----

SULPHCO,        INC. (A Company in the Development Stage) STATEMENTS        OF CHANGES IN STOCKHOLDERS’ EQUITYFor the Years Ended December 31, 2004        and 2003 and From Inception

|                                                      |       | **Common                Stock**        |       | **AdditionalPaid-inCapital** |                                                             | **AccumulatedDeficit** |   | **Stock                issuedfor prepaidinterest**                   |   | **Stock                issuedfor prepaidexpenses** |                                                                  | **CommonStockSubscribed** |   | **StockSubscriptionsReceivable**                                                                                              |   | **TotalEquity** |                                                              |
|-----------------------------------------------------------|------------|----------------------------------------|------------|------------------------------|------------------------------------------------------------------|------------------------|--------|----------------------------------------------------------------------|--------|----------------------------------------------------|-----------------------------------------------------------------------|---------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-------------------------------------------------------------------|
|                                                      | **Shares** |                                   | **Amount** |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |
|                                                      |            |                                   |            |                         |                                                                  |                   |        |                                                                 |        |                                               |                                                                       |                      |        |                                                                                                                          |        |            |                                                                   |   |
| Stock                issuance at $1.25                    |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  per share in June 2004 (See         |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   (Note 10 for attached rights                       |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  and warrants)                       |       | 1,015,480                              |       |                         | 1,015                                                            |                   |   | 994,204                                                              |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 995,219 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Stock                options exercised at $0.55           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  per share in June 2004              |       | 200,000                                |       |                         | 200                                                              |                   |   | 109,800                                                              |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 110,000 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Stock                options exercised at $0.35           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  per share in June 2004              |       | 100,000                                |       |                         | 100                                                              |                   |   | 34,900                                                               |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 35,000 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Stock                issued for services at $2.86         |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   per share in July 2004                             |       | 45,000                                 |       |                         | 45                                                               |                   |   | 128,655                                                              |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            | (128,700                                                          | ) |   |   |   |   |   |   |   | — |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Stock                issuance at $.90 per share           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  for June private placement in       |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   August 2004 (Note 10 for                           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   attached rights and warrants)                      |       | 22,500                                 |       |                         | 22                                                               |                   |   | (2,516                                                               | )      |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | (2,494 | ) |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Stock                issuance at $1.25 per share          |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  for June private placement in       |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   August 2004 (Note 10 for                           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   attached rights and warrants)                      |       | 15,000                                 |       |                         | 15                                                               |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 15 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Cancellation                of subscribed stock at        |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   $1.50 per shares in September                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   2004                                               |       | (45,000                                | )          |                         | (45                                                              | )                      |   | (67,455                                                              | )      |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   | 67,500 |   |   | — |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Second                close -  June stock            |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  issuance at $.90 per share in       |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  October 2004  (See Note 10 for |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   attached rights and warrants)                      |       | 1,466,672                              |       |                         | 1,467                                                            |                   |   | 1,003,757                                                            |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 1,005,224 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Second                close -  June stock            |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  issuance at $1.25 per share in      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  October 2004  (See Note 10 for |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|   attached rights and warrants)                      |       | 1,000,480                              |       |                         | 1,001                                                            |                   |   | 1,240,231                                                            |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 1,241,232 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Stock                options exercised at $0.55           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
|                  per share in December 2004          |       | 300,000                                |       |                         | 300                                                              |                   |   | 164,700                                                              |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 165,000 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Amortization                of prepaid interest           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   | 296,000                                                                                                                       |   |            |                                                              |   |   |   |   |   |   |   |   | 296,000 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Amortization                of prepaid expenses           |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            | 53,625                                                            |   |   |   |   |   |   |   |   | 53,625 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Contribution                from stockholder              |       |                                   |       |                         |                                                             |                   |   | 555,000                                                              |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | 555,000 |   |
|                                                      |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               |                                                                  |                      |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                   |       |                                   |       |                         |                                                             |                   |   |                                                                 |   |                                               | (4,146,453                                                            | )                         |   |                                                                                                                          |   |            |                                                              |   |   |   |   |   |   |   |   | (4,146,453 | ) |
|                                                      |            |                                   |            |                         |                                                                  |                   |        |                                                                 |        |                                               |                                                                       |                      |        |                                                                                                                          |        |            |                                                                   |   |
| Balance                December 31, 2004                  |       |                   56,429,385 |       | $                            |                        56,429 |                   | $      |                        25,347,781 |   | $                                                  |                        (22,311,758 | )                         | $      |                                  — |   | $               |                        (75,075 | ) | $ |                                 — |   | $ |                           (744,500 | ) | $ |                        2,272,877 |   |
|                                                      |            |                                   |            |                         |                                                                  |                   |        |                                                                 |        |                                               |                                                                       |                      |        |                                                                                                                          |        |            |                                                                   |   |

The        Accompanying Notes are an Integral Part of the Financial        Statements

F-8

----

SULPHCO,        INC.(A Company in the Development        Stage)STATEMENTS OF CASH FLOWSFor the Years Ended December 31,        2004 and 2003 and From Inception

|                                                                                                                                                                                                                                                                                            | 2004   |   | 2003       |   | Inceptionto                Date |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|---------------------------------|------------|
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
| **Cash                Flows from Operating Activities**                                                                                                                                                                                                                                         |   |   |       |   |                            |       |   |   |   |   |
|                      Net loss                                                                                                                                                                                                                                               |   | $      | (4,146,453 | )      | $                               | (3,170,959 | ) | $ | (22,311,758 | ) |
|                                                                                                                                                                                                                                                                                       |
| Adjustments                to reconcile net loss to net cashused                in                operating activities:                                                                                                                                                                         |   |   |       |   |                            |       |   |   |   |   |
|                      Depreciation expense                                                                                                                                                                                                                                   |   |   | 104,242    |   |                            | 191,043    |   |   | 669,889 |   |
|                      Shares issued for services                                                                                                                                                                                                                             |   |   | 138,625    |   |                            | 16,000     |   |   | 5,778,793 |   |
|                      Shares subscribed for services                                                                                                                                                                                                                         |   |   |       |   |                            | 21,000     |   |   | 21,000 |   |
|                      Shares issued for interest                expense                                                                                                                                                                                                      |   |   | 296,000    |   |                            | —    |   |   | 296,000 |   |
|                      Contribution from stockholder                                                                                                                                                                                                                          |   |   | 555,000    |   |                            |       |   |   | 555,000 |   |
|                      Increase in accounts receivable                                                                                                                                                                                                                        |   |   | (317,569   | )      |                            | (231       | ) |   | (317,800 | ) |
|                      Loss on disposal of subsidiary                                                                                                                                                                                                                         |   |   |       |   |                            | 221,711    |   |   | 221,711 |   |
|                      (Increase) decrease in prepaid                expenses                                                                                                                                                                                                 |   |   | (27,887    | )      |                            | 211        |   |   | (37,359 | ) |
|                      Increase (decrease) in accounts                payable                                                                                                                                                                                                 |   |   | 244,875    |   |                            | (103,800   | ) |   | 271,129 |   |
|                      Increase (decrease) in accrued                liabilities                                                                                                                                                                                              |   |   | 405,593    |   |                            | 4,644      |   |   | 509,353 |   |
|                      Decrease in legal settlement                                                                                                                                                                                                                           |   |   | (13,636    | )      |                            | (86,364    | ) |   | — |   |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
|                                                                                                                                                                                                                                                                                       |
|                      Net cash used in operating                activities                                                                                                                                                                                                   |   |   | (2,761,210 | )      |                            | (2,906,745 | ) |   | (14,344,042 | ) |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
| **Cash                Flows from Investing                Activities**                                                                                                                                                                                                                          |   |   |       |   |                            |       |   |   |   |   |
| Purchase                of property and equipment                                                                                                                                                                                                                                               |   |   | (58,508    | )      |                            | (276,854   | ) |   | (896,126 | ) |
| Investment                in subsidiary                                                                                                                                                                                                                                                         |   |   | —    |   |                            | —    |   |   | (221,711 | ) |
| Payment                of deposits                                                                                                                                                                                                                                                              |   |   | (10,000    | )      |                            | (15,742    | ) |   | (46,822 | ) |
| Development                of intangible assets                                                                                                                                                                                                                                                 |   |   | (172,628   | )      |                            | —    |   |   | (188,472 | ) |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
|                                                                                                                                                                                                                                                                                       |
| Net                cash provided by (used in) investing activities                                                                                                                                                                                                                              |   |   | (241,136   | )      |                            | (292,596   | ) |   | (1,353,131 | ) |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
| **Cash                Flows from Financing                Activities**                                                                                                                                                                                                                          |   |   |       |   |                            |       |   |   |   |   |
|                      Proceeds from issuance of stock                                                                                                                                                                                                                        |   |   | 4,889,452  |   |                            | 516,500    |   |   | 11,779,652 |   |
|                      Proceeds from stock                subscriptions                                                                                                                                                                                                       |   |   | —    |   |                            | 1,655,000  |   |   | 4,240,887 |   |
|                      Proceeds from issuance of related party                notes payable                                                                                                                                                                                   |   |   | 7,500,000  |   |                            | 2,250,000  |   |   | 11,000,000 |   |
|                      Proceeds from issuance of line of                credit                                                                                                                                                                                                |   |   | —    |   |                            | —    |   |   | 750,000 |   |
|                      Return of capital                                                                                                                                                                                                                                      |   |   | —    |   |                            | —    |   |   | (118,427 | ) |
|                      Principal payments on related party notes                payable                                                                                                                                                                                       |   |   | (250,000   | )      |                            |       |   |   | (250,000 | ) |
|                      Decrease in related party                receivable                                                                                                                                                                                                    |   |   | —    |   |                            | —    |   |   | 1,359,185 |   |
|                      Payments on contracts payable                                                                                                                                                                                                                          |   |   | —    |   |                            | —    |   |   | (250,000 | ) |
|                      Principal payments on line of                credit                                                                                                                                                                                                    |   |   | —    |   |                            | (500,000   | ) |   | (750,000 | ) |
|                      Principal payments on advance from                related party                                                                                                                                                                                        |   |   | —    |   |                            | —    |   |   | (2,191,285 | ) |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
|                                                                                                                                                                                                                                                                                       |
|                      Net cash provided by financing                activities                                                                                                                                                                                               |   |   | 12,139,452 |   |                            | 3,921,500  |   |   | 25,570,012 |   |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
|                      Net increase in cash and cash                equivalents                                                                                                                                                                                               |   |   | 9,137,106  |   |                            | 722,159    |   |   | 9,872,839 |   |
|                                                                                                                                                                                                                                                                                       |
| Cash                and cash equivalents at inception,                     period ending December 31, 2003 and 2002                                                                                                                                                         |   |   | 735,733    |   |                            | 13,574     |   |   | — |   |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
|                                                                                                                                                                                                                                                                                       |
| Cash                and cash equivalents at December 31, 2004 and 2003                                                                                                                                                                                                                          |   | $      | 9,872,839  |   | $                               | 735,733    |   | $ | 9,872,839 |   |
|                                                                                                                                                                                                                                                                                            |   |        |       |        |                            |            |   |
|                                                                                                                                                                                                                                                                                            |   |   |       |   |                            |       |   |
| **Supplemental                Information and Noncash                Transactions**                                                                                                                                                                                                             |   |
| During                the year                ended December 31, 2004 and 2003 $302,786 and $26,489 were paid for                interest, respectively. $296,000 of the total interest paid for the                year                ended December 31, 2004 was paid via issuance of stock. |   |
|                                                                                                                                                                                                                                                                                            |   |
| During                the years                ended December 31, 2004 and 2003 there were no income taxes                paid.                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                                                                            |

F-9

----

SULPHCO,        INC.(A Company in the Development        Stage)NOTES TO FINANCIAL STATEMENTSDecember 31, 2004, and        2003

| **1.  ** | **Organization                and Significant Accounting                Policies**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|               | **Business**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|               | The                  Company is still considered a developmental stage company in                  2004, as defined by Statement of Financial Accounting Standards                  (SFAS) No.                  7 due to the Company’s primary focus of continuing to develop and market                  equipment and processes for the upgrading of crude oil by reducing                  its                  weight and the reduction of sulfur content.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|               | Sulphco,                  Inc. (the Company), formerly Film World, Inc., was                  originally organized under the laws of the State of Nevada on December                  23,                  1986 under the name Hair Life Inc. The Company became inactive                  during 1987                  and remained inactive until September 1994. In September 1994,                  through a                  reverse acquisition agreement, the Patterson Group became a wholly                  owned                  subsidiary of Hair Life, Inc. Operations were conducted via two                  subsidiaries until 1998, at which time all operations were discontinued                  and the Company remained dormant until January 1999 at which time                  it was                  restated from the recapitalization of GRD, Inc.                                                                                                                          |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|               | In                  July 1999 the Company acquired film rights and changed the                  corporate name to Film World, Inc. In December 2000 the Company                  discontinued its film operations and distributed all assets and                  liabilities related to that business to certain shareholders in                  exchange                  for their stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|               | In                  December 2000, the Company entered into an exchange agreement                  with GRD, Inc. (DBA Sulphco) and issued 1,200,000 shares in exchange                  for                  all of the outstanding shares of GRD, Inc. Since the shareholders                  of GRD,                  Inc. continue to control the Company, the merger was accounted                  for as a                  reverse acquisition of Film World, Inc., and the name was changed                  to                  SulphCo, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|               | **Use                  of Estimates in the Preparation of Financial                  Statements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|               | The                  preparation of financial statements in conformity with                  generally accepted accounting principles requires management to                  make                  estimates and assumptions that affect the reported amounts of assets                  and                  liabilities and disclosures of contingent assets and liabilities                  at the                  date of the financial statements and the reported amounts of revenues                  and                  expenses during the reporting period. Actual results could differ                  from                  those estimates. The markets for the Company’s products and services are                  characterized by competition, rapid technological development,                  regulatory                  changes, and new product introductions, all of which may impact                  the future                  value of the Company’s assets. |

F-10

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|   | **Cash                and Cash Equivalents**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | For                  the purpose of the statements of cash flows, all highly liquid                  investments with maturities of three months or less are considered                  to be                  cash equivalents. There were no cash equivalents as of December                  31, 2004.                  The Company maintains amounts on deposit with financial institutions                  which                  exceed federally insured limits. The Company has not experienced                  any                  significant losses in such accounts, nor does management believe                  it is                  exposed to any significant credit risk.                                                                                                                                                                     |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | **Accounts                  Receivable and Allowance for Doubtful                  Accounts**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The                  Company’s receivables are recorded when billed and represent                  claims against third parties that will be settled in cash. The                  carrying                  value of the Company’s receivables, net of the allowance for doubtful                  accounts, represents their estimated net realizable                  value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The                  Company evaluates the collectibility of accounts receivable on                  a case-by-case basis. The Company records a reserve for bad debts                  against                  amounts due to reduce the net recognized receivable to an amount                  the                  Company believes will be reasonably collected. The reserve is a                  discretionary amount determined from the analysis of aging.                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | **Fair                  Value of Financial                  Instruments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The                  carrying amount of financial instruments held by the Company,                  which include cash and cash equivalents, accounts receivable, accounts                  payable and accrued liabilities, approximate fair value due to                  their short                  duration. The carrying amount of the Company’s notes payable approximate                  their fair value based on incremental borrowing rates for similar                  types of                  borrowing arrangements.                                                                                                                                                                                                                                                                                                                        |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | **Property                  and Equipment**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Property                  and equipment are recorded at cost, less accumulated                  depreciation. In accordance with FASB 144, the Company reviews                  its                  long-lived assets for impairment. Whenever events or changes in                  circumstances indicate that the carrying amount of the assets might                  not be                  recovered through undiscounted future cash flows, such losses are                  recognized in the statement of operations.                                                                                                                                                                                                                                                                                                                                     |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The                  cost of property, plant, and equipment is depreciated over the                  remaining estimated useful lives of the assets ranging from 3 to                  7 years.                  Leasehold improvements are depreciated over the lesser of the terms                  of the                  lease or the estimated useful lives of the assets. Depreciation                  is                  computed using the straight line method for both financial reporting                  and                  income tax purposes. Expenditures for maintenance and repairs are                  expensed                  when incurred, while betterments are capitalized. Gains and losses                  on the                  sale of property and equipment are reflected in the statement of                  operations. |

F-11

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|   | **Patent&                Trademark Costs**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Patents                  and trademarks are amortized using the straight-line method                  over their estimated period of benefit, ranging from 1 to 20 years.                  The                  Company evaluates the recoverability of intangible assets periodically                  and                  takes into account events or circumstances that warrant revised                  estimates                  of useful lives or that indicate that impairment exists. No impairments                  of                  intangible assets have been identified during the periods                  presented.                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | **Research                  and Development**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                  Company expenses research and development as                  incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | **Income                  Taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                  Company provides for income taxes under the provisions of                  Statements of Financial Accounting Standards (“SFAS”) No. 109 “Accounting                  for Income Taxes”. SFAS No. 109 requires an asset and liability based                  approach in accounting for income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Deferred                  income tax assets and liabilities are recorded to reflect                  the tax consequences in future years of temporary differences between                  revenue and expense items for financial statement and income tax                  purposes.                  Valuation allowances are provided against assets that are not likely                  to be                  realized. Deferred tax assets and liabilities are measured using                  the                  enacted tax rates expected to apply to taxable income in the years                  in                  which those temporary differences are expected to be recovered                  or settled.                  The effect on deferred tax assets and liabilities of a change in                  tax rates                  is recognized in income in the period that includes the enactment                  date. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | **Loss                  Per Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                  computation of basic and diluted earnings per common share is                  based on the weighted average number of shares outstanding during                  the                  year, plus the common stock equivalents. Common stock equivalents                  are not                  included in the diluted loss per share calculation when their effect                  is                  antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | **Revenue                Recognition**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In                  2000 the Securities and Exchange Commission (SEC) issued Staff                  Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial                  Statements.” Pursuant to SAB No. 101 and the relevant generally accepted                  accounting principles, the Company will recognize revenue upon                  the passage                  of title, ownership and the risk of loss to the customer. During                  the                  period ended December 31, 2004, interest income accounted for all                  the                  Company’s revenue.                                                                                                                                                                                                                                                                                                    |

F-12

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|   | **Reclassifications**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Certain                  prior year amounts have been reclassified to conform to the                  current year presentation. These reclassifications did not have                  an impact                  on previously reported financial position, cash flows, or results                  of                  operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | **New                  Accounting                  Pronouncements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In                  April 2003 the Financial Accounting Standards Board (“FASB”)                  issued Statements of Financial Accounting Standards (“SFAS”) 149                  “Amendment of Statement 133 on Derivative Instruments and Hedging                  Activities.” This statement, which amends and clarifies existing                  accounting pronouncements, addresses financial accounting and reporting                  for derivative or other hybrid instruments. This Statement requires                  that                  contracts with comparable characteristics be accounted for similarly.                  It                  is effective for contracts entered into or modified after September                  30,                  2003. The Company does not expect the adoption of SFAS 149 to have                  any                  impact on the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In                  May 2003 the FASB issued SFAS 150, “Accounting for Certain                  Financial Instruments with Characteristics of both Liabilities                  and                  Equity,” which is effective at the beginning of the first interim period                  beginning after March 15, 2003. This statement establishes standards                  for                  the Company’s classification of liabilities in the financial statements                  that have characteristics of both liabilities and equity. The Company                  believes the adoption of SFAS 150 will have no effect on the Company’s                  financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In                  December 2003 the FASB issued SFAS 132R, “Employers’ Disclosures                  about Pensions and Other Postretirement Benefits—an amendment of SFAS 87,                  88, and 106”. This Statement revises employers’ disclosures about pension                  plans and other postretirement benefit plans. It does not change                  the                  measurement or recognition of those plans required by SFAS 87,“Employers’                  Accounting for Pensions”, SFAS 88, “Employers’ Accounting for Settlements                  and Curtailments of Defined Benefit Pension Plans and for Termination                  Benefits”, and SFAS 106, “Employers’ Accounting for Postretirement                  Benefits Other Than Pensions”. This Statement retains the disclosure                  requirements contained in SFAS 132, “Employers’ Disclosures about Pensions                  and Other Postretirement Benefits”, which it replaces. It requires                  additional disclosures to those in the original Statement 132 about                  the                  assets, obligations, cash flows, and net periodic benefit cost                  of defined                  benefit pension plans and other defined benefit postretirement                  plans. The                  required information is required to be provided separately for                  pension                  plans and for other postretirement benefit plans. The Company has                  no                  Pension or Other Postretirement                  Benefits. |

F-13

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|   | In                  November 2004, the FASB issued SFAS No. 151, “Inventory Costs,                  an amendment to Accounting Research Bulletin (“ARB”) No. 43, Chapter 4”.                  The amendments made by SFAS No. 151 clarify that abnormal amounts                  of idle                  facility expense, freight, handling costs and wasted materials                  (spoilage)                  should be recognized as current-period charges. In addition, SFAS                  No. 151                  requires that allocation of fixed production overhead to inventory                  be                  based on the normal capacity of the production facilities. SFAS                  No. 151 is                  effective for inventory costs incurred during fiscal years beginning                  after                  June 15, 2005. Earlier application of SFAS No. 151 is permitted                  for                  inventory costs incurred during fiscal years beginning after November                  23,                  2004. The Company does not expect the adoption of SFAS No. 151                  to have a                  material impact on the Company’s future financial position, cash flows or                  results of operations. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | In                  December 2004, the FASB issued SFAS No. 123 (revised 2004,                  or “R”), “Share-Based Payment — a revision of FASB Statement No. 123                  Accounting for Stock-Based Compensation”. SFAS No. 123 supersedes APB                  Opinion No. 25, “Accounting for Stock Issued to Employees”, and amends                  SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123(R) requires                  all share-based payments to employees, including grants of employee                  stock                  options, to be recognized in the income statement based on their                  fair                  values. Pro forma disclosure is no longer an alternative. The new                  standard                  will be effective for the Company’s first quarter ended April 1,                  2006.                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **2.** | **Property                  and Equipment**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | The                  following is a summary of property, plant, and equipment – at                  cost, less accumulated depreciation and the estimated useful                  lives:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

|                                          |   |      |   |   |
|-----------------------------------------------|--------|-----------|--------|--------|
||
|                                               |        |           |        |        |
| Equipment                                     | $      | 629,056   |   | $      | 585,984 |   |
| Computers                                     |   | 73,895    |   |   | 67,367 |   |
| Office                furniture               |   | 44,669    |   |   | 44,669 |   |
| Desulfurization                unit           |   | 431,417   |   |   | 427,630 |   |
| Leasehold                improvements         |   | 55,457    |   |   | 50,337 |   |
|                                               |        |           |        |        |
|                                          |   | 1,234,494 |   |   | 1,175,987 |   |
|                                          |   |      |   |   |   |   |
| Less:                Accumulated depreciation |   | (630,084  | )      |   | (525,842 | ) |
|                                               |        |           |        |        |
| Total                                         | $      | 604,410   |   | $      | 650,145 |   |
|                                               |        |           |        |        |
|                                               |        |           |

F-14

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

| **3.**       | **Collaboration                and Joint Venture                Agreements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |                 The                  Company has                  an uncommissioned desulfurization unit. This unit consists of a                  trailer                  containing equipment to be used to remove sulfur from crude oil                  that was                  sent to ChevronTexaco’s El Segundo refinery for testing during 2003 as                  part of the Company’s collaboration agreement with Energy Technology                  Company (“ETC”), a division of ChevronTexaco. The Company spent $3,787 and                  $65,871 for the years ended December 31, 2004 and 2003, respectively,                  upgrading the equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         | During                  the year ended December 31, 2004 the equipment was returned                  to the Company’s Sparks, Nevada location. At December 31, 2004 and 2003                  the value of the desulfurization unit (“unit”) was $431,417 and $427,630,                  respectively (See Note 2). No depreciation expense related to the                  unit was                  recognized in 2004 or 2003 as it is considered work in                  process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         | The                  Company owns 49% of a joint venture to market and deploy the                  Company’s technology in Kuwait. There was no activity in the entity for                  the year ended December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **4. ** | **Patents                  and Trademarks**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         | At                  December 31, 2004 the Company capitalized $172,628 in costs that                  were incurred in connection with filing and maintaining patents                  and                  trademarks related to its internally developed technology in accordance                  with Accounting Principles Board (“APB”) Opinion No. 17 –*Intangible                  Assets*. The Company does not believe there is any residual value                  related to its patents and trademarks. Further, management has                  reviewed,                  including but not limited to, the timing of the capitalized expenditures,                  the amounts expended, the laws of the foreign countries involved,                  and the                  ability to maintain exclusive rights to the technology, in estimating                  the                  useful lives of patents and trademarks both in the United States                  and                  abroad. The following table illustrates management’s estimate for                  amortization expense, using the straight-line method, for the next                  five                  years based on a weighted-average estimated useful life of 16 years                  : |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

|   | Year      |   | Estimated                AmortizationExpense |   |
|--------|-----------|--------|----------------------------------------------|--------|
|        |           |   |                                              |        |
|   | 2005      |   | 10,789                                       |   |
|   | 2006      |   | 10,789                                       |   |
|   | 2007      |   | 10,789                                       |   |
|   | 2008      |   | 10,789                                       |   |
|   | 2009      |   | 10,789                                       |   |
|        |      |        |                                              |
|   | **Total** |   | **53,945**                                   |   |
|        |      |        |                                              |

F-15

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|         | Due                  to the majority of the capitalized costs being incurred near                  the year ended December 31, 2004 no amortization expense was recognized,                  and therefore, accumulated amortization at December 31, 2004 was                  $0.                  Management expects to continue to capitalize appropriate patent                  and                  trademark expenditures during the next several years. Failure to                  obtain                  pending patents may have an adverse effect on our future financial                  position, results from operations, and cash flows.                                                                                                                                                                                                                                                                                                                                      |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **5. ** | **Investment                  in Subsidiary **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         | OnNovember                  1, 2001,                  the Company formed a joint                  venture to implement its desulfurization process throughout Europe.                  To                  initiate the program, the company granted an Exclusive Technology                  License                  to Innovative Clean Technologies S.A. (“ICT”), a Luxembourg corporation                  and wholly owned subsidiary of Eliop International. Eliop International                  is                  a Luxembourg corporation that was owned 50.5% by the Company. These corporations                  are                  managed by Mr. Luigi Profumo, who controls Eliop, a major petroleum                  refinery in Genoa, Italy. This investment was valued in 2001 based                  on the                  net book value of equipment provided to the refinery in Italy under                  the                  licensing agreement. |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         | The                  joint venture agreement was cancelled as of August 5, 2002 for ICT’s failure to                  comply with the terms of the contract. At the time of cancellation,                  ICT                  had no authority to represent the                  Company and was demanded to immediately return the Company’s equipment                  valued at                  $221,771. The Company believed the assets would be returned sometime                  during 2003. After numerous failed attempts to obtain the assets                  during                  the year ended December 31, 2003, it was determined that the Company                  would                  not receive the equipment. During the year ended December 31, 2003,                  the                  Company abandoned the investment valued at $221,711.                                                                                                   |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **6.**       | **Notes                  Payable – Related                  Party**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         | The                  Company’s notes payable consist of the following as of December                  31, 2004:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         | On                  December 30, 2003, the Company issued a $500,000 note to the                  Chairman and CEO and a $500,000 note to a related party. From each                  of                  these notes, $250,000 was obtained before year end. The balance                  of                  $250,000 for each note was issued during 2004. The notes were originally                  issued on December 30, 2003 at an interest rate of 29.6%, which                  was paid                  via the issuance of 1,000,000 shares of restricted stock on January                  5,                  2004 for total consideration of $296,000 or $0.296 per share. On                  December                  30, 2004 the notes were renewed at 8% per annum with the interest                  and                  principal due at December 30, 2005.                                                                                                            |

F-16

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|   | 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 variable at the rate of the 1-month                  London                  Inter-Bank Offering Rate (“LIBOR”) plus 0.5% per annum, with interest only                  payments due on December 31, 2005 and 2006 and the remaining accrued                  interest and principal due on December 31, 2007 when the note matures.                  The                  interest rate on the note as of December 31, 2004 was                  2.90%. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The                annual obligations related to these notes based on the current                2004 interest rates are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

| Year       |   | Principal |          | Interest |   | Total       |   |
|------------|--------|-----------|---------------|----------|--------|-------------|--------|
|            |   |           |               |          |        |             |        |
| 2005       |   | $         | 1,000,000     |     | $      | 283,000     |   | $ | 1,283,000 |   |
| 2006       |   |      | 0             |     |   | 203,000     |   |   | 203,000 |   |
| 2007       |   |      | 7,000,000     |     |   | 203,000     |   |   | 7,203,000 |   |
| Thereafter |   |      | 0             |     |   | 0           |   |   | 0 |   |
|            |   |           |               |          |        |             |        |
| **Total**  |   | **$**     | **8,000,000** |     | **$**  | **689,000** |   | **$** | **8,689,000** |   |
|            |   |           |               |          |        |             |        |

|   | As                of December 31, 2004, accrued interest of $786 related to the                above notes is classified as accrued expenses for balance sheet                purposes.                                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                     |
|   | Interest                expense of $302,786 and $26,489 were paid for December 31,                2004 and December 31, 2003, respectively.                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                     |
| **7.** | **Operating                Lease**                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                     |
|   | The                  Company leases office and warehouse space in Sparks, Nevada. In                  February 2004 the Company extended its lease term for one additional                  year                  to March 3, 2005 and in February of 2005, the lease was again extended                  for                  two years to March 3, 2007. (See Note 15) |
|   |                                                                                                                                                                                                                                                                                                                                                                     |
|   | Following                is a schedule of payments required under the rental lease                agreement:                                                                                                                                                                                                                                                             |

|   |                                        |   |   |    |   |   |
|--------|---------------------------------------------|--------|--------|---------|--------|--------|
|   | 2005                                        |   |   | 458,061 |   |   |
|   | 2006                                        |   |   | 461,060 |   |   |
|   | 2007                                        |   |   | 76,843  |   |   |
|   | 2008                                        |   |   | -0-     |   |   |
|   | After                2008                   |   |   | -0-     |   |   |
|        |                                             |   |        |         |        |
|   | Total                minimum lease payments |   | $      | 995,964 |   |   |
|        |                                             |   |   |         |        |        |
|        |                                             |   |   |    |        |        |

F-17

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|   | The                Company paid $443,007 and $427,138 for rent expense in 2004 and                2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **8.** | **Contingencies**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The                  Company is currently the subject of an SEC investigation. The                  SEC alleges violations of Sections 5(a), 5(c) and 17(a) of the                  Securities                  Act of 1934 and Section 10(b) of the Securities Act of 1934 and                  Rule                  10b-5. The Company has retained counsel and responded to the inquiry.                  As                  of the report date, the SEC has not responded and, therefore, the                  outcome                  of the action is not determinable at this time. Any such action                  could have                  a material adverse effect on the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **9.** | **Related                Party Transactions**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | In                  February 2003 the Company agreed to issue 50,000 shares of                  common stock to a director at $0.42 per share for director services                  of                  $21,000. These shares were issued in March 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | The                  CEO was paid consulting fees of $370,000 in 2004. The                  consulting agreement is set to terminate on July 1,                  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | As                  of December 31, 2004 the Company had a receivable due from the                  Chairman and CEO related to personal expenses incurred while performing                  Company functions in the amount of $60,050. The Company received                  payment                  related to the receivable in early January 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | As                  of December 31, 2004 the Company had a $25,000 payable due to a                  related party for the day to day operations of the business. The                  amount is                  classified as accounts payable for balance sheet purposes and was                  relieved                  in January 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | As                  of December 31, 2004 the Company had a $257,750 receivable due                  from a former employee for payroll tax liabilities related to the                  exercise                  of Company stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | In February 2003 we entered into                  an Executive                  Employment Agreement with our then president, Kirk S. Schumacher,                  who                  served as our President and Secretary from February 2004 through                  December                  2004. The agreement provided for his employment by us through February                  17,                  2008, and provided for an initial signing bonus of $100,000, which                  was                  paid February 2003, an annual base salary of $300,000, and incentive                  compensation commencing in 2004. The agreement included a grant                  of stock                  options for 1,000,000 shares of our common stock at an exercise                  price of                  $.55 per share, expiring February 14, 2006. Effective December 28, 2004, Mr.                  Schumacher                  resigned as President and Secretary. In connection with Mr. Schumacher's                  resignation SulphCo and Mr. Schumacher entered into a Separation                  Agreement                  and General Release, dated and effective December 28, 2004, which                  provided                  for Mr. Schumacher to retain 500,000 of the 1,000,000 million options                  previously granted to him under his Executive Employment Agreement,                  and to                  receive a separation payment of $165,000 upon resignation in lieu                  of the                  $600,000 severance payment provided for under the Executive Employment                  Agreement. The remaining 500,000 options previously granted under                  the                  Executive Employment Agreement were cancelled pursuant to the Separation                  Agreement. In addition, on December 28, 2004,                  Rudolf                  Gunnerman personally granted to Mr. Schumacher an option to acquire                  100,000 shares of SulphCo, Inc. Common Stock owned by Mr. Gunnerman                  at an                  exercise price of $0.55. This option expires in February 2006.                  As Dr.                  Gunnerman is the Chairman, CEO and controlling shareholder of the                  Company,                  in accordance with SFAS 123 "Share Based Payment" the Company recognized                  an expense of $555,000, the difference between the exercise price                  of the                  option granted to Mr. Schumacher by Dr. Gunnerman, and the market                  price on                  the date of grant, December 28, 2004, in the period ended December                  31,                  2004. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        | See                  Note 6 for related party notes payable as of December 31,                  2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

F-18

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

| **10.** | **Common                  Stock**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | The                  Company had the following transactions related to its common                  stock during the year ended December 31, 2004:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  February 2003 the Company agreed to issue 50,000 shares of                  common stock to a director at $0.42 per share for director services                  of                  $21,000. These shares were issued in March 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  December 2003 one million restricted common shares were                  subscribed for and subsequently issued restricted shares at $0.296                  per                  share in January 2004 for interest of $296,000 on related party                  notes (see                  Note 6).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  January 2004, the Company issued 100,000 shares of common stock                  at $0.85 per share for the services of a consultant valued at                  $85,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  June 2004 the Company entered into two private placements. The                  first private placement was to sell 2,978,342 shares of common                  stock at                  $0.90 per share, warrants exercisable at $1.125 per share for 1,073,690                  shares of common stock, and additional investment rights entitling                  the                  purchaser to purchase up to 6,135,357 shares of common stock at                  a purchase                  price of $0.90 and a warrant to purchase up to 2,147,379 shares                  at $1.125                  per share. The investment rights are exercisable by investors for                  180 days                  following the effective date of the registration statement. The                  warrants                  are exercisable for up to 30 months after the date of their issuance.                  Of                  the 2,978,342 shares issued during the year ended December 31,                  2004,                  related to the first placement, 1,489,170, 22,500, and 1,466,672                  shares                  were issued in June, August, and October respectively. As of December                  31,                  2004 all the shares were issued related to the first placement                  for net                  cash proceeds totaling $2,342,985. |

F-19

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|    | The                  second private placement was to sell 2,030,960 shares of common                  stock at $1.25 per share, warrants exercisable at $1.5625 per share                  for                  732,161 shares of common stock, and additional investment rights                  entitling                  the purchaser to purchase up to 2,091,889 shares of common stock                  at $1.25                  per share and a warrant to purchase up to 1,464,322 shares at $1.5625                  per                  share. The investment rights are exercisable by investors for 180                  days                  following the effective date of the registration statement. The                  warrants                  are exercisable for up to 30 months after the date of their issuance.                  Of                  the 2,030,960 shares issued during the year ended December 31,                  2004,                  related to the second placement, 1,015,480, 15,000, and 1,000,480                  shares                  were issued in June, August, and October respectively. As of December                  31,                  2004 all shares were issued related to the second placement for                  net cash                  proceeds of $2,236,466. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  June 2004, the Company issued 200,000 shares of common stock at                  $0.55 per share in connection with the exercise of stock options                  granted                  in 2003 for cash in the amount of $110,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  June 2004, the Company issued 100,000 shares of common stock at                  $0.35 per share in connection with the exercise of stock options                  granted                  in 2003 for cash in the amount of $35,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  July 2004, the Company issued 45,000 shares at $2.86 per share                  for the services of a consultant valued at $128,700.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  September 2004 45,000 subscribed shares at $1.50 per share were                  returned to the Company to cancel part of a subscription receivable                  of                  $67,500.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In                  December 2004 the Company issued 300,000 shares of common stock                  at $0.55 per share in connection with the exercise of stock options                  granted in 2003 for cash in the amount of $165,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **11.** | **Stock                  Options**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | The                  Company has adopted the disclosure provision for stock-based                  compensation of SFAS No. 123, “Accounting for Stock-Based Compensation”,                  and SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and                  Disclosure”, which was released in December 2002 as an amendment of SFAS                  No. 123, but continues to account for such items using the intrinsic                  value                  method as outlined under Accounting Principles Board (“APB”) Opinion No.                  25, “Accounting for Stock Issued to Employees”. Under APB 25, if the                  exercise price of the Company’s employee stock options equals or exceeds                  the fair market value of the underlying stock on the date of grant                  no                  compensation expense is recognized.                                                                                                                                                                                                                                                                                                                                                                           |

F-20

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|   | The                  Black-Scholes option valuation model was developed for use in                  estimating the fair value of traded options, which have no vesting                  restrictions and are fully transferable. In addition, option valuation                  models require the input of highly subjective assumptions including                  the                  expected stock price volatility. Because the Company’s employee stock                  options have characteristics significantly different from those                  of traded                  options, and because changes in the subjective input assumptions                  can                  materially affect the fair value estimate, in management’s opinion, the                  existing models do not necessarily provide a reliable single measure                  of                  the fair value of the Company’s employee stock options. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | For                  purposes of pro forma disclosures, the estimated fair value of                  the options is amortized to expense over the vesting period of                  the                  options. The following table illustrates the effect on net loss                  per share                  if the fair value-based method had been applied to all                  awards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|                                              | **2004** |       | **2003** |   |
|---------------------------------------------------|----------|------------|----------|--------|
|                                              |          |       |          |   |
| Net                loss – as reported       | $        | (4,146,453 | )        | $      | (3,170,959 | ) |
|                                              |          |            |          |        |
| Net                loss – pro forma         | $        | (4,146,453 | )        | $      | (3,188,982 | ) |
|                                              |          |            |          |        |
| Loss                per share – as reported | $        | (0.08      | )        | $      | (0.07 | ) |
|                                                   |          |            |          |        |
| Loss                per share – pro forma   | $        | (0.08      | )        | $      | (0.07 | ) |
|                                                   |          |            |          |        |
|                                                   |     |            |     |        |

|   | The                  fair value of each option granted is estimated at the date of                  grant using the Black-Scholes option-pricing model with the following                  assumptions. The options granted during the year ended December                  31, 2004                  are included in the current year net loss. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                             |

|                                                  | 2004                 |   | 2003                   |   |
|-------------------------------------------------------|----------------------|--------|------------------------|--------|
|                                                  |                      |   |                        |   |
| Expected                Dividend yield                | $                -0- |   | $                -0-   |   |
| Expected                stock price volatility        | n/a                  |   | 272                    |   |
| Risk                free                interest rate | n/a                  |   | 4.00-4.65%             |   |
| Expected                life of options               | —              |   | 3                years |   |
|                                                  |                 |   |                   |   |

|   | The                following table summarizes information about stock options                outstanding at December 31, 2004 and                2003: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

F-21

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|                                  | 2004   |      |   | 2003   |   |
|---------------------------------------|--------|-----------|--------|--------|--------|
||
||
||
| Outstanding,                beginning |   | 1,100,000 |   | $      | 0.53   |   |   | — |   | $ | — |   |
| Options                exercised      |   | (600,000  | )      |   | 0.52   |   |   | — |   |   | — |   |
| Options                forfeited      |   | (500,000  | )      |   | 0.55   |   |   | — |   |   | — |   |
| Option                granted         |   | 100,000   |   |   | 0.55   |   |   | 1,100,000 |   |   | 0.53 |   |
|                                       |        |           |        |        |   |  |  |  |  |
| Outstanding,                ending    |   | 100,000   |   | $      | 0.55   |   |   | 1,100,000 |   | $ | 0.53 |   |
|                                       |        |           |        |   |   |  |  |  |  |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | The                  Company has a Non-Officer Limited Stock Appreciation Rights                  Plan. In August 2003 ten employees were granted awards for 2,500                  limited                  stock appreciation rights, each with a multiplier of eighteen,                  at a base                  price of $0.24. The limited stock appreciation rights are exercisable                  only                  upon the following two conditions being met; first, the closing                  price of                  the Company’s common stock must have exceeded $10 for at least three                  consecutive trading days; second, the Company must have engaged                  in an                  acquisition after the first condition is met. |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **12.**      | **Stock                Subscriptions**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         | As                  of December 31, 2004 the Company had stock subscriptions                  receivable of $744,500. In January 2004 the Company filed suit                  for the                  remittance of $737,000 of the receivable that, as of the report                  date, is                  being disputed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **13.**      | **Income                Taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |  The                significant                components of the Company’s deferred tax assets are as                follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

|                                                              | 2004   |       | 2003   |   |
|-------------------------------------------------------------------|--------|------------|--------|--------|
|                                                              |
| Deferred                tax assets:                               |   |       |   |   |   |   |
|    Net                operating loss carryforwards | $      | 7,584,189  |   | $      | 6,176,204 |   |
| Valuation                allowance                                |   | (7,584,189 | )      |   | (6,176,204 | ) |
|                                                                   |
| Net                deferred tax assets                            | $      | —    |   | $      | — |   |
|                                                                   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | For                  the year ended December 31, 2004, the valuation allowance was                  increased by $1,407,985 due to the uncertainties surrounding the                  realization of the deferred tax assets, resulting from the Company’s net                  loss of $4,146,453 in fiscal 2004 and an accumulated deficit of                  $22,311,758 at December 31, 2004. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The                  provision (benefit) for income taxes differs from the provision                  (benefit) amount computed by applying the statutory federal tax                  rate (34%)                  to the loss before taxes due to the                  following:                                                                                                                       |

F-22

----

SULPHCO,        INC.(A Company in the Development Stage)NOTES TO        FINANCIAL STATEMENTSDecember 31, 2004, and 2003

|                                                | 2004   |       | 2003   |   |
|-----------------------------------------------------|--------|------------|--------|--------|
||
|                                                |   |       |
| Computed                expected benefit            | $      | (1,409,794 | )      | $      | (1,078,126 | ) |
| Nondeductible                expenses               |   | 1,809      |   |   | — |   |
| Increase                in valuation allowance      |   | 1,407,985  |   |   | 1,078,126 |   |
|                                                     |
| Provision                (benefit) for income taxes | $      | —    |   | $      | — |   |
|                                                     |
|                                                     |   |            |

|          | As                of December 31, 2004, the Company had a net operating loss                carryforward for federal income tax purposes of $22,306,438. This                net                operating loss carryforward will begin to expire in 2019. The valuation                allowance has been estimated in an amount equal to the projected                future                benefit of the loss carryforward due to the current assumption the                Company                will not generate sufficient income to utilize the future tax benefit. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **14. ** | **Quarterly                Financial Information                (Unaudited)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|          | Summarized                unaudited quarterly financial information for the years                ended December 31, 2004 and 2003 are noted below (in thousands, except                for                per share amounts):                                                                                                                                                                                                                                                                                                                                                |

|                                                          |   |    |
|---------------------------------------------------------------|--------|---------|
||
||
||
||
|                                                          |   |    |
| Net                revenues                                   | $      | — |   | $ | — |   | $ | — |   | $ | — |   |
| Gross                profit                                   | $      | — |   | $ | — |   | $ | — |   | $ | — |   |
| Net                (loss)                                     | $      | (1,692  | ) | $ | (915 | ) | $ | (736 | ) | $ | (803 | ) |
| Net                (loss) per share – basic and diluted | $      | (0.02   | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.02 | ) |

|                                                        |   |    |
|-------------------------------------------------------------|--------|---------|
||
||
||
|                                                        |
| Net                revenues                                 | $      | — |   | $ | — |   | $ | — |   | $ | — |   |
| Gross                profit                                 | $      | — |   | $ | — |   | $ | — |   | $ | — |   |
| Net                loss                                     | $      | (1,534  | ) | $ | (477 | ) | $ | (556 | ) | $ | (604 | ) |
| Net                loss per share – basic and diluted | $      | (0.04   | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) |

F-23

----

SULPHCO,        INC.(A        Company in the Development Stage)NOTES TO FINANCIAL        STATEMENTSDecember 31, 2004, and 2003

|     |
|---------------|
| **15. ** | **Subsequent                Events** |
|          |   |
|          | In                January 2005, the Company issued 50,000 common shares at $5.47                per share for the services of a director valued at $273,500. |
|               |   |
|          | In                January 2005, the Company hired a new Chief Financial Officer                and issued the officer 50,000 common shares at $4.08 per share valued                at                $204,000. |
|               |   |
|          | In                March 2005, the operating lease agreement was extended for two                years, expiring March 3, 2007. The additional obligations have been                included in the schedule at Note 7. |
|               |   |
|          | On                February 6, 2005, the Company and ChevronTexaco agreed to extend                Phase 1 of the collaboration agreement, as noted in the 8-K filed                with the                SEC on February 10, 2005. |
|               |   |
|          | On                February 22, 2005, the Company entered into an agreement with                OIL-SC to provide for the sale of a Sonocracking TM pilot plant for $1                million, as noted in the 8-K filed with the SEC on February 25,                2005. |

F-24

----

EXHIBIT      INDEX

|   | 3.1* | Restated                  Articles of Incorporation, as filed on December 30, 2003, with                  the Nevada                  Secretary of State. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3.2                ** | Amended                  and Restated Bylaws. |
|--|-----------------------|-----------------------------------------------|

|  | 4.1+ | Form                    of Additional Investment Rights initially issued on June 3,                    2004. |
|--|------|--------------------------------------------------------------------------------------------------------------|

|  | 4.2++ | Form                      of Additional Investment Rights initially issued on June 15,                      2004. |
|--|-------|-------------------------------------------------------------------------------------------------------------------|

|  | 4.3+ | Form                      of Warrant initially issued on June 3,                      2004. |
|--|------|---------------------------------------------------------------------------------------------|

|  | 4.4++  | Form                          of Warrant initially issued on June 15,                          2004. |
|--|-------------|------------------------------------------------------------------------------------------------------|

|  | 4.5# | Form                          of Warrant dated November 11, 2004, issued to Rubenstein                          Public Relations,                          Inc. |
|--|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5.1# | Opinion                  re Legality of Securities. |
|--------|------|-----------------------------------------------------|

|   | 10.1** | Executive                  Employment Agreement dated as of February 17, 2003, by and between                  SulphCo, Inc. and Kirk S.                  Schumacher. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.2* | 2003                  Non-Officer Limited Stock Appreciation Rights                  Plan. |
|--------|-------|--------------------------------------------------------------------------------------------|

|   | 10.3+ | Securities                  Purchase Agreement dated as of June 1, 2004, by and between SulphCo,                  Inc.                  and the Purchasers parties thereto. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.4++ | Securities                  Purchase Agreement dated as of June 14, 2004, by and between SulphCo,                  Inc.                  and the Purchasers parties thereto. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.5# | Engagement                  Agreement dated July 1, 2002, by and between SulphCo, Inc. and                  RWG,                  Inc. |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.6# | Engagement                  Agreement dated July 1, 2004, by and between SulphCo, Inc. and                  RWG,                  Inc. |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.7# | Stock                  Subscription Agreement dated as of January 13, 2003, by and between                  SulphCo, Inc. and Kirk S.                  Schumacher. |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.8# | Promissory                  Note dated February 28, 2003, from SulphCo, Inc. to Rudolf W. Gunnerman. |
|--------|-------|------------------------------------------------------------------------------------------------------|

|   | 10.9# | Stock                  Option Agreement dated as of May 8, 2003, between SulphCo, Inc.                  and                  Patrick E. Lacy. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.10# | Engagement                  Agreement dated July 1, 2003, by and between SulphCo, Inc. and                  RWG,                  Inc. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.11# | Stock                  Subscription Agreement dated as of October 28, 2003, by and between                  SulphCo, Inc. and Rudolf W.                  Gunnerman. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.12# | Promissory                  Note dated December 30, 2003, from SulphCo, Inc. to Rudolf W. Gunnerman                  and Doris Gunnerman. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 10.13# | Promissory                  Note dated December 30, 2003, from SulphCo, Inc. to Erika                  Herrmann. |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | 10.14# | Stock                  Issuance Agreement dated as of December 30, 2003, by and between                  SulphCo,                  Inc. and Erika Herrmann. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.15# | Stock                  Issuance Agreement dated as of December 30, 2003, by and between                  SulphCo,                  Inc. and Rudolf W. Gunnerman. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.16# | Stock                  Issuance Agreement dated as of January 21, 2004, by and between                  SulphCo,                  Inc. and Fuad A M A Alghareeb. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.17# | Letter                  dated April 28, 2004, from Rudolf W. Gunnerman to SulphCo,                  Inc. |
|--------|--------|----------------------------------------------------------------------------------------------------------|

|   | 10.18# | Promissory                  Note dated April 28, 2004, from SulphCo, Inc. to Rudolf W.                  Gunnerman. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

|   | 10.19# | Finder’s                  Fee Agreement made as of May 11, 2004 between SulphCo, Inc. and                  Vantage                  Investments Group, Inc. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.20# | Letter                  Agreement dated May 28, 2004 between SulphCo, Inc. and Olympus                  Securities,                  LLC. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.21# | Engagement                  Agreement dated July 1, 2004, by and between SulphCo, Inc. and                  RWG,                  Inc. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.22# | Consulting                  Agreement dated July 15, 2004, by and between SulphCo, Inc. and                  InteSec                  Group LLC. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.23# | Collaboration                  Agreement dated August 6, 2004, by and between SulphCo, Inc. and                  ChevronTexaco Energy Technology                  Company. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.24# | Contract                  for Establishment of a Limited Liability Company (SulphCo Oil Technologies                  Kuwait). |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------|

|  | 10.25# | Laboratory                  Test Agreement dated November 2002 by and between SulphCo, Inc.                  and                  ChevronTexaco Energy Research and Technology                  Company. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.26# | Refinery                  Test Agreement dated May 2003 by and between SulphCo, Inc. and                  Chevron                  U.S.A., Inc. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.27# | Loan                  Extension Agreement, dated for reference the 12th                  day of December, 2004, between Rudolf W. Gunnerman and SulphCo,                  Inc. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.28# | Loan                  Extension Agreement, dated for reference the 12th                  day of December, 2004, between Erika Herrmann and SulphCo,                  Inc. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.29(1) | Separation                        Agreement and General Release dated as of December 28, 2004,                        by and                        between SulphCo, Inc. and Kirk S. Schumacher. |
|--------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.30(2) | Letter                  Agreement dated as of January 6, 2005, by and between SulphCo,                  Inc. and                  Alan L. Austin, Jr. |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.31(3) | Promissory                  Note from SulphCo, Inc. to Rudolf W. Gunnerman dated December 31,                  2004. |
|--------|----------|----------------------------------------------------------------------------------------------------------------------|

----

|   | 10.32# | Letter                  Agreement dated February 4, 2005, by and between SulphCo, Inc.                  and                  ChevronTexaco Energy Technology                  Company. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.33(4) | Agreement                  dated February 22, 2005, by and between SulphCo, Inc. and OIL-SC,                  Ltd. |
|--------|----------|--------------------------------------------------------------------------------------------------------------------|

|   | 14* | Code                  of Ethics adopted by the Board of Directors on March 12,                  2004. |
|--------|-----|-------------------------------------------------------------------------------------------------------|

|  | 16.1+++ | Letter                  from Forbush and Associates to the SEC dated May 14,                  2004. |
|--|---------|-----------------------------------------------------------------------------------------------------|

|   | 23.1 | Consent                  of Mark Bailey & Company, Ltd. |
|--------|------|-------------------------------------------------------------|

|  | 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. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----