**UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C.20549**
**FORM 10-KSB/A**
**______________**
Amendment No. 3

[X] 

ANNUAL  REPORT  UNDER  SECTION  13 OR  15(d)  OF THE  SECURITIES EXCHANGE ACT OF1934
  
[  ]

TRANSITION  REPORT  UNDER  SECTION 13 OR 15 (d) OF THE  SECURITIES  ACT1934
 

For the fiscal year ended December 31, 2003
Commission file number 0-27599
SULPHCO, INC._____________________________________(Name of SmallBusiness Issuer in its Charter)
      Nevada      
      88-0224817       
(State or other jurisdiction of incorporation ororganization)
(I.R.S. Employer Identification No.)  
      850 Spice Islands Drive, Sparks,NV      
      89431       
(Address of principal executive offices)
(Zip Code)  
Issuer’s Telephone number:    (775) 829-1310 
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 PerShare----------------------------------------(Title of Class)

     Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filings requirements for thepast 90 days.  Yes  [X]  No  [  ]
 
     Check if there is no disclosure of delinquentfilers in response to Item 405 of Regulation S-B is not contained in this form,and no disclosure will be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-KSB or any amendment to the Form10-KSB.  [X]
 
     State issuer’s revenues for its most recentfiscal year:  The Company had no revenue for the year ending December 31,2003.
 
     State the aggregate market value of the voting andnon-voting common equity held by non-affiliates computed by reference to theprice at which the common equity was sold, or the average bid and asked price ofsuch common equity, as of a specified date within the past 60 days: On October29, 2004, the aggregate market value of the voting and non-voting common equityheld by non-affiliates, based on the closing price of the common equity on thatdate, equals $36,388,355.

****   
EXPLANATORY NOTE
       SulphCo, Inc. (the "Company") isfiling this Form 10-KSB/A ("Amendment No. 3") to amend its Annual Report on Form10-KSB for the fiscal year ended December 31, 2003 (the "Original Filing") filedon March 29, 2004 with the Securities and Exchange Commission ("SEC"), asamended by Amendment No. 1 filed with the SEC on June 14, 2004 ("Amendment No.1") and further amended by Amendment No. 2 filed with the SEC on July 1, 2004("Amendment No. 2") in order to (i) refile in its entirety "Part I - Item 7.Financial Statements" to include restated audited financial statements for theyears ended December 31, 2003 and December 31, 2002 and the report thereonprepared by the Company’s new independent auditors, Mark Bailey &Company, Ltd. dated June 17, 2004, and (ii) to refile in its entirety "Part III- Item 13. Exhibits and Reports on Form 8-K" to reflect the updatedcertifications of our Chief Executive Officer and Principal Accounting Officerincluded with this Amendment.  
       The Company is restating the financialstatements for the year ended December 31, 2003, in order to reflect a decreasein director fees that have been reclassified as consulting fees. Therestatement did not result in a change in Net Loss for the year ended December31, 2003 from the Net Loss previously reported in Amendment No. 2.  There wereno other material changes from the financial statements filed with the OriginalFiling as amended by Amendment No. 1 and Amendment No. 2.
       This Amendment No. 3 does not amendany other information previously filed in the Original Filing as amended byAmendment No. 1 and Amendment No. 2.  The Original Filing as amended byAmendment No. 1 and Amendment No. 2 is hereby superseded and amended withrespect to the section set forth in this Amendment.****   

--------------------------------------------------------------------------------
ITEM 7.  FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
**SULPHCO, INC.**
**(A DEVELOPMENT STAGE COMPANY)**
**FINANCIAL STATEMENTS**
**FOR THE YEARS ENDED**
**DECEMBER 31, 2003**
**AND**
**DECEMBER 31, 2002**
**WITH**
**AUDIT REPORT OF**
**INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS******   

**TABLE OF CONTENTS**

Independent Auditors’ Report

2 
Predecessor Independent Auditor’s Report 

3 
Balance Sheet

4 
Statements of Operations

5 
Statement of Changes in Shareholders’ Deficit

6 
Statements of Cash Flows

9 
Notes to Financial Statements

10 ****   

MARK BAILEY & CO. LTD.
Certified Public AccountantsManagementConsultants
*Office Address:*1495 RidgeviewDrive, Ste. 200Reno, Nevada89509-6634
Phone: 775/332.4200Fax:775/332.4210
*Mailing Address:*P.O. Box6060Reno, Nevada 89513

**Independent Auditors’ Report**
June 17, 2004
Board of DirectorsSulphco, Inc.
We have audited the accompanying balance sheet of Sulphco, Inc., (a company inthe development stage) as of December 31, 2003, and the related statements ofoperations, shareholders’ deficit and cash flows for the years endedDecember 31, 2003 and 2002. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits. The financial statements ofSulphCo, Inc. from inception to December 31, 2001 were audited by other auditorswhose reported dated May 13, 2002, expressed an unqualified opinion, includingan explanatory paragraph regarding a going concern on those statements.
We conducted our audits in accordance with auditing standards of the PublicCompany Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion. The statements of operations,changes in shareholders’ deficit, and statements of cash flows of theCompany from inception to December 31, 2001 were audited by other independentaccountants whose report dated May 13, 2002 expressed an unqualified opinion onthose statements.
In our opinion, the financial statements referred to above present fairly, inall material respects, the financial position of Sulphco, Inc., (a company inthe development stage), as of December 31, 2003, and the results of itsoperations and its cash flows from inception and for the years ended December31, 2003 and 2002, in conformity with accounting principles generally acceptedin the United States.
Mark Bailey & Company, Ltd.Reno, Nevada**-2-**   

**Daniel J. Forbush**Certified PublicAccountant**INDEPENDENT AUDITOR’S REPORT**
To the Board of Directors   And Shareholders of  SulphCo, Inc.
I have audited the balance sheet of SulphCo, Inc. (A Development Stage Company)as of December 31, 2001 and the related statements of operations,stockholders’ equity, and cash flows for the year then ended. For thecomparative statements I relied upon the predecessor auditor’s reportissued June 13, 2001 for the year ended December 31, 2000 and the period frominception to December 31, 1999, on which an unqualified opinion was given. Somereclassifications of prior year items were entered to facilitate comparisons.These financial statements are the responsibility of the Company’smanagement. My responsibility is to express an opinion on the financialstatements based on my audit.
I have conducted my audit in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that I planand perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. I believe that my auditprovides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of SulphCo, Inc. (A Development StageCompany) as of December 31, 2001 and the related statements of operations,stockholders’ equity, and cash flows for the year then ended in conformitywith generally accepted accounting principles.
The accompanying financial statements have been presented assuming that theCompany will continue as a going concern. As discussed in Note 6 to thefinancial statements, the Company has suffered losses from operations and hasyet to make a sale of the process, which raises doubt about its ability tocontinue as a going concern. The financial statements do not include anyadjustments that might result from the outcome of thisuncertainty.Reno, NevadaMay 13, 2002**-3-**   

SULPHCO, INC.(A Company in the Development Stage)BALANCESHEETDecember 31, 2003
**ASSETS**  
2003

**Current Assets**
  
  Cash

$
735,733 
  Accounts receivable
 
231 
  Spare parts inventory
 
101,606 
  Prepaid expenses
 
10,973 
   
     Total current assets
 
848,543 
   
**Fixed Assets**
  
  Property and equipment (net of accumulated depreciation of$525,842)
 
222,515 
  Desulphurization unit
 
427,630 
   
     Total fixed assets
 
650,145 
   
**Other Assets**
  
  Deferred tax asset (net of valuation allowance of $6,130,948)
 
- 
  Deposits
 
36,822 
   
     Total other assets
 
36,822 
   
        Total assets

$
1,535,510 
   
**LIABILITIES AND STOCKHOLDERS’ EQUITY**     
**Current Liabilities**
  
  Accounts payable 

$
49,638 
  Accrued expenses
 
80,376 
  Settlement liability
 
13,636 
  Related party notes payable
 
750,000 
   
     Total current liabilities
 
893,650 
   
**Commitments and Contingencies**
     
**Stockholders’ Equity**
  
  Common stock, $.001 par value, 100,000,000 shares authorized
  
   49,670,083 shares issued and outstanding
 
49,670 
  Additional paid-in-capital
 
19,432,489 
  Stock issued for prepaid expense
 
(296,000)
  Stock subscriptions receivable
 
(812,000)
  Common stock subscribed
 
1,050 
  Deficit accumulated during the development stage
 
 (17,733,349)
   
     Total stockholders’ equity
 
641,860 
   
        Total liabilities andstockholders’ equity

$
1,535,510 
   
The Accompanying Notes are an Integral Part of the FinancialStatements**-4-**   
SULPHCO, INC.(A Company in the Development Stage)STATEMENTS OFOPERATIONSFrom Inception and for the Years Ended December 31, 2003 and2002     
**For the Years Ended**  
**Inception**   
**December 31,**  
**December 31,**  
**to date**
   
**2003**
   
**2002**
            
**Revenue**
          
  Sales

$      42,967    
$                 -    
$         42,967  
  Interest income

39,309 
   
- 
   
5,213 
            
     Total revenue

82,276    
-    
48,180             
**Expenses**
                     
  Salary and wage expense

(7,490,408)   
(781,023)   
(642,448) 
  Director fees

(195,500)   
(39,500)   
(13,500) 
  General and administrative expenses 

(8,064,855)   
(1,290,777)   
(5,133,875) 
  Research and development expenses

(1,231,493)   
(518,810)   
(324,192) 
  Loss on disposal of investment

(221,711)   
(221,711)   
-  
  Depreciation expense

(565,647)
   
 (191,043)
   
 (160,530)
 
       
          
     Total expenses

(17,769,614)   
(3,042,864)   
(6,274,545)            
     Loss from operations

 (17,687,338)
   
 (3,042,864)
   
 (6,226,365)
            
Interest expense 

(46,011)
   
 (26,489)
   
 (16,912)
            
     Loss before income taxes 

(17,733,349)   
(3,069,353)   
(6,243,277)            
Provision for income taxes 

- 
   
- 
   
- 
            
     Net loss 

$ (17,733,349)
   
$ (3,069,353)
   
(6,243,277)
            
Loss per share - basic and dilutited

$            (0.57)
   
$          (0.06)
   
(0.15)
            
Weighted average shares outstanding - basic and diluted

31,321,421 
   
47,635,663 
   
43,775,337 
            
The Accompanying Notes are an Integral Part of the FinancialStatements**-5-**   

SULPHCO, INC.A Company in the Development State)STATEMENTS OF CHANGESIN STOCK HOLDERS’ EQUITYFrom Inception and For the Years EndedDecember 31, 2003 and 2002   
**Additional** 
**Stock issued**
**Common**
**Stock**  
**Common Stock**
**Paid-in**
**Accumulated**
**for prepaid**
**Stock**
**Subscriptions**
**Total** 
**Shares**

**Amount**

**Capital**

**Deficit**

**interest**

**Subscribed**

**Receivable**

**Equity**

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 pershare

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 February2001

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 April2001

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 June2001

9,556,000 
9,556 
4,768,444    
 (4,778,000)
-          
Stock issued in exchange for notes payable
        
     at $1.50 per share in June2001

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)
-          
Stock issued to a related party for cash at
       
     $0.50 per share in June2001

350,000 
350 
174,650     
175,000 
The Accompanying Notes are an Integral Part of the FinancialStatements**-6-**   
SULPHCO, INC.A Company in the Development State)STATEMENTS OF CHANGESIN STOCK HOLDERS’ EQUITYFrom Inception and For the Years EndedDecember 31, 2003 and 2002
         
Cash received for subscription
        
     in July 2001
      
282,000 
282,000          
Cash received for subscriptions
        
     in August 2001
      
340,000 
340,000          
Shares issued for subscription receivable
       
     of $2,000,000 in September2001

2,758,620 
2,759 
1,997,241    
 (2,000,000)
-          
Shares issued to a related party for 
        
     consulting fees at $0.85 pershare
        
     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          
Shares returned in December 2001

 (100,000)
 (100)
 (59,900)   
50,000 
 (10,000)         
Stock options issued at a weighted 
        
     average issue price of $0.75 pershare
        
     in October 2001
  
89,020     
89,020          
Net loss

    

    

    

 (6,927,524)

    

    

    

 (6,927,524)
         
Balance at December 31, 2001

39,927,170 
39,927 
15,636,632 
 (8,420,719)
- 
- 
 (6,249,500)
1,006,340          
Stock issued for related party services
        
     at $0.50 per share in March2002

10,000,000 
10,000 
4,990,000     
5,000,000          
Shares returned in May 2002

 (1,000,000)
 (1,000)
 (599,000)   
500,000 
 (100,000)         
Shares returned in June 2002

 (100,000)
 (100)
 (81,900)   
72,000 
 (10,000)         
Shares returned in July 2002

 (25,000)
 (25)
 (44,725)   
37,500 
 (7,250)         
Payment on stock subscription received 
       
     in July 2002
      
515,500 
515,500          
Shares returned in July 2002

 (1,000,000)
 (1,000)
 (599,000)   
500,000 
 (100,000)         
Stock issued for services at $0.10 per 
        
     share in September 2002

50,000 
50 
4,950     
5,000          
Shares returned in September 2002

 (431,000)
 (431)
 (535,919)   
- 
 (536,350)         
Shares issued for services at $0.27 per
        
     share in October 2002

50,000 
50

13,450     
13,500          
Stock Options issued in November 2002
       
     for $0.10 per share
  
31,500     
31,500          
Shares issued to a related party for cash at
       
     $0.10 per share in November2002

100,000 
100 
9,900     
10,000          
Shares issued to a related party for cash at
       
     $0.10 per share in December2002

50,000 
50 
4,950     
5,000          
Net loss

   

   

   

 (6,243,277)

   

   

   

 (6,243,277)
         
Balance at December 31, 2002

47,621,170 
47,621 
18,830,838 
 (14,663,996) 
- 
 (4,624,500)
 (410,037)
The Accompanying Notes are an Integral Part of the FinancialStatements**-7-**   
SULPHCO, INC.A Company in the Development State)STATEMENTS OF CHANGESIN STOCK HOLDERS’ EQUITYFrom Inception and For the Years EndedDecember 31, 2003 and 2002

Stock subscribed for services at $0.42 per 
        
     share in February 2003
  
20,950   
50
 
21,000          
Payment on stock subscription
        
     received in February2003
      
3,575,000 
3,575,000          
Shares issued to a related party for cash at
       
     $0.33 per share in March2003

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          
Shares returned in August 2003

 (196,870)
 (197)
 (196,678)   
196,875 
-          
Shares returned in September 2003

 (3,130)
 (3)
 (3,322)   
3,325 
-          
Shares issued to a related party for cash at
       
     $0.23 per share in November2003

2,173,913 
2,174 
497,826      
500,000          
Shares returned in December 2003

 (25,000)
 (25)
 (44,525)   
37,300 
 (7,250)         
Stock subscribed for prepaid interest
        
     at $0.296 per share in December2003
  
295,000  
 (296,000)
1,000  
-          
Net loss

   

   

   

 (3,069,353)

   

    

   

 (3,069,353)
         
Balance at December 31, 2003

49,670,083 

 $      49,670 

 $  19,432,489 

 $  (17,733,349)

 $  (296,000)

 $     1,050 

 $    (812,000)

$    641,860 
         

The Accompanying Notes are an Integral Part of the FinancialStatements**-8-**   

SULPHCO, INC.(A Company in theDevelopment Stage)STATEMENTS OF CASHFLOWSFrom Inception and for the Years EndedDecember 31, 2003 and 2002
  
**Inception**      
**to Date**
 
**2003**
 
**2002**

**Cash Flows from Operating Activities**
      
  Net loss
 
 $  (17,733,349) 
 $ (3,069,353) 
 $ (6,243,277)       
Adjustments to reconcile net loss to net cash 
      
used in operating activities:
      
  Depreciation expense
 
565,647  
191,043  
160,530 
  Shares issued for services
 
5,309,818  
16,000  
4,714,650 
  Shares subscribed for services
 
21,000  
21,000  
- 
  Loss on disposal of subsidiary
 
220,086  
-  
220,086 
  Increase in accounts receivable
 
 (231) 
 (231) 
- 
  Increase in spare parts inventory
 
 (101,606) 
 (101,606) 
- 
  Decrease in related party receivable
 
1,359,185  
-  
1,360,685 
  Increase in work in progress
 
 (583,470) 
-  
 (583,470)
  (Increase) decrease in prepaid expenses
 
 (9,472) 
211  
40,947 
  Increase (decrease) in accounts payable
 
26,254  
 (103,800) 
63,513 
  Increase in accrued liabilities
 
103,758  
4,644  
53,149 
  Increase (decrease) in legal settlement
 
13,636 
 
 (86,364)
 
100,000 
       
  Net cash used in operating activities
 
 (10,808,744)
 
 (3,128,456)
 
 (113,187)
       
**Cash Flows from Investing Activities**
      
  Purchase of capital assets
 
 (254,147) 
 (55,143) 
 (40,591)
  Investment in subsidiary
 
 (220,086) 
-  
- 
  Payment of deposits
 
 (36,822) 
 (15,742) 
 (21,080)
  Development of intangible assets
 
 (15,843)
 
- 
 
- 
       
  Net cash used in investing activities 
 
 (526,898)
 
 (70,885)
 
 (61,671)
       
**Cash Flows from Financing Activities**
      
  Proceeds from issuance of stock
 
6,890,200  
516,500  
20,000 
  Proceeds from (return of) stocksubscriptions
 
4,240,887  
1,655,000  
 (484,500)
  Proceeds from issuance of related party notespayable

3,500,000  
2,250,000  
420,000 
  Proceeds from issuance of line of credit
 
750,000  
-  
750,000 
  Return of capital
 
 (118,427) 
-  
 (440,500)
  Payments on contracts payable
 
 (250,000) 
-  
- 
  Principal payments on line of credit
 
 (750,000) 
 (500,000) 
 (250,000)
  Principal payments on advance from relatedparty
 
 (2,191,285)
 
- 
 
- 
       
  Net cash provided by financing activities
 
12,071,375 
 
3,921,500 
 
15,000 
       
  Net increase (decrease) in cash and cashequivalents

735,733  
722,159  
 (159,858)       
Cash and cash equivalents at inception, 
      
  December 31, 2002 and 2001
 
- 
 
13,574 
 
173,432 
       
Cash and cash equivalents at December 31, 2003 and2002

$         735,733 
 
 $     735,733 
 
$       13,574 

**Supplemental Information and NoncashTransactions**

During the years ended December 31, 2003, and 2002, $27,950 and$16,869 were paid for interest, respectively, and no amounts were  paid forincome taxes
         
In December 2003 one million common shares were subscribed at$0.296 per share for prepaid interest of $296,000.
         
In February 2003 a stock subscription of $3,575,000 was paid with$1,655,000 in cash and the relief of notes payable of $1,920,000.
         
In 2002 notes payable of $1,000,000 were relieved with thedecrease of $1,000,000 in subscriptions payable.

The Accompanying Notes are an Integral Part of the FinancialStatements**-9-**   

**SULPHCO, INC.**(A Company in the Development Stage)NOTES TOFINANCIAL STATEMENTSDecember 31, 2003, and 2002
**1.        Organization andSignificant Accounting Policies**

Sulphco, Inc. (the Company), formerly Film World,Inc., was originally organized under the laws of the State of Nevada on December23, 1986 under the name Hair Life Inc. The Company became inactive during 1987and remained inactive until September 1994.  In September 1994, through areverse acquisition agreement, the Patterson Group became a wholly ownedsubsidiary of Hair Life, Inc. Operations were conducted via two subsidiariesuntil 1998, at which time all operations were discontinued and the Companyremained dormant until July 1999.

In July 1999 the Company acquired film rights andchanged the corporate name to Film World, Inc.  In December 2000 the Companydiscontinued its film operations and distributed all assets and liabilitiesrelated to that business to certain shareholders in exchange for their stock.

In December 2000, the Company entered into an exchangeagreement with GRD, Inc. (DBA Sulphco) and issued 1,200,000 shares in exchangefor 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 reverseacquisition of Film World, Inc., and the name was changed to SulphCo,Inc.

**          Business**

The Company is still considered a developmental stagecompany in 2003, as defined by Statement of Financial Accounting Standards(SFAS) No. 7.  The Company is engaged in the business of developing andmarketing equipment and a process for removing sulfur from petroleum.

**          Use ofEstimates in the Preparation of Financial Statements**

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosures of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actual results could differ from those estimates.The markets for the Company’s products and services are characterized bycompetition, rapid technological development, regulatory changes, and newproduct introductions, all of which may impact the future value of theCompany’s assets.

**          Cash and CashEquivalents**

For the purpose of the statements of cash flows, allhighly liquid investments with maturities of three months or less are consideredto be cash equivalents.  There were no cash equivalents as of December 31, 2003and 2002.

**          Deposit**

The Company paid a deposit for its leased premises.The deposit is refundable at the end of the lease.

**          Property andEquipment**

Property and equipment are recorded at cost, lessaccumulated depreciation.  In accordance with FASB 144, the Company reviews itslong-lived assets for impairment. Whenever events or changes in circumstancesindicate that the carrying amount of the assets might not be recovered throughundiscounted future cash flows, such loss is recognized in the statement ofoperations. During the year ended December 31, 2003, the Company abandoned aninvestment with a cost of $221,711 (See Note 2).
**-10-**   
**SULPHCO, INC.**(A Company in the Development Stage)NOTES TOFINANCIAL STATEMENTSDecember 31, 2003, and 2002

The cost of property, plant, and equipment isdepreciated over the remaining estimated useful lives of the assets.  Leaseholdimprovements are depreciated over the lesser of the terms of the lease or theestimated useful lives of the assets.  Depreciation is computed on the straightline method for both financial reporting and income tax purposes. Expendituresfor maintenance and repairs are expensed when incurred and betterments arecapitalized.  Gains and losses on the sale of property and equipment arereflected in the statement of operations.

The following is a summary of property, plant, andequipment - at cost, less accumulated depreciation and the estimated usefullives:
 
2003
 
Estimated lives
Equipment

$585,984  
3 years
Computers

67,367  
3 years
Office furniture

44,669  
5 to 7 years
Leasehold improvements

50,337 
 
3 years 
748,357   
Less: Accumulated depreciation

(525,842)
  
Total

$222,515 
  
The Company has an uncommissioned desulphurizationunit.  This unit consists of a trailer containing equipment to be used to removesulfur from crude oil.  The Company incurred $65,872 in costs during the yearended December 31, 2003 and  $321,167 in costs and accrued $40,591 in salestaxes on this unit during the year ended December 31, 2002 for a total cost of$427,630. The unit was classified as property, plant and equipment because theCompany intended to own the unit and receive a rental payment for it.  In 2003management determined that the unit may be sold, so $427,630 was reclassified tofixed assets from construction-in-progress as of December 31, 2003 and the salestax accrual was removed from the accounts of the Company. As parts to the unitare upgraded or replaced, the Company adjusts the cost accordingly.

**          Research andDevelopment**

The Company expenses research and development asincurred.

**          IncomeTaxes**

The Company provides for income taxes under theprovisions of SFAS No. 109 "Accounting for Income Taxes". SFAS No. 109 requiresan asset and liability based approach in accounting for income taxes.

Deferred income tax assets and liabilities arerecorded to reflect the tax consequences in future years of temporarydifferences between revenue and expense items for financial statement and incometax purposes. Valuation allowances are provided against assets that are notlikely to be realized.  Deferred tax assets and liabilities are measured usingthe enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled.  The effecton deferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date.  

**          Loss PerShare**

The computation of basic and diluted earnings percommon share is based on the weighted average number of shares outstandingduring the year, plus the common stock equivalents.  Common stock equivalentsare not included in the diluted loss per share calculation when their effect isantidilutive.
**-11-**   
SULPHCO, INC.(A Company in the Development Stage)NOTES TO FINANCIALSTATEMENTSDecember 31, 2003, and 2002
**          RevenueRecognition**

In 2000 the Securities and Exchange Commission (SEC)issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition inFinancial Statements." Pursuant to SAB No. 101 and the relevant generallyaccepted accounting principles, the Company will recognize revenue upon thepassage of title, ownership and the risk of loss to the customer. During theperiod ended December 31, 2003, there was no revenue. In 2002 the Company wasawarded a contract from the U. S. navy for research relating to thedesulphurization  process. Revenue was recognized on the contract at itscompletion.  plans to collectroyalties from licensing and the deployment of their desulphurization units.

**          New AccountingPronouncements**

In April 2003 the Financial Accounting Standards Board(FASB) issued SFAS 149 "Amendment of Statement 133 on Derivative Instruments andHedging Activities." This statement, which amends and clarifies existingaccounting pronouncements, addresses financial accounting and reporting forderivative or other hybrid instruments. This Statement requires that contractswith comparable characteristics be accounted for similarly. It is effective forcontracts entered into or modified after September 30, 2003. The Company doesnot expect the adoption of SFAS 149 to have any impact on the financialstatements. 

In May 2003 the FASB issued SFAS 150, "Accounting forCertain Financial Instruments with Characteristics of both Liabilities andEquity," which is effective at the beginning of the first interim periodbeginning after March 15, 2003. This statement establishes standards for theCompany’s classification of liabilities in the financial statements thathave characteristics of both liabilities and equity. The Company believes theadoption of SFAS 150 will have no effect on the Company’s financialposition or results of operations.

In December 2003 the FASB issued SFAS 132R,"Employers’ Disclosures about Pensions and Other PostretirementBenefits-an amendment of SFAS 87, 88, and 106". This Statement revisesemployers’ disclosures about pension plans and other postretirementbenefit plans. It does not change the measurement or recognition of those plansrequired by SFAS 87, "Employers’ Accounting for Pensions", SFAS 88,"Employers’ Accounting for Settlements and Curtailments of Defined BenefitPension Plans and for Termination Benefits", and SFAS 106, "Employers’Accounting for Postretirement Benefits Other Than Pensions". This Statementretains the disclosure requirements contained in SFAS 132, "Employers’Disclosures about Pensions and Other Postretirement Benefits", which itreplaces. It requires additional disclosures to those in the original Statement132 about the assets, obligations, cash flows, and net periodic benefit cost ofdefined benefit pension plans and other defined benefit postretirement plans.The required information is required to be provided separately for pension plansand for other postretirement benefit plans. The Company has no Pension or OtherPostretirement Benefits.

**2.        Investment inSubsidiary**

On ,  formed a joint venture to implementits desulphurization process throughout Europe. To initiate the program, thecompany granted an Exclusive Technology License to Innovative Clean TechnologiesS.A., a Luxembourg corporation and wholly owned subsidiary of EliopInternational. Eliop International is a Luxembourg corporation that was owned50.5% by . Thesecorporations are managed by Mr. Luigi Profumo, who controls Eliop Sr.1., a majorpetroleum refinery in Genoa, Italy. This investment was valued in 2001 based onthe net book value of equipment provided to the refinery in Italy under thelicensing agreement with Innovative Clean Technologies S.A. (ICT). ICT has notfulfilled the requirements of its license in that it has not submitted themonthly reports along with the royalty payments envisioned in the agreement.
**-12-**   
SULPHCO, INC.(A Company in the Development Stage)NOTES TO FINANCIALSTATEMENTSDecember 31, 2003, and 2002

The joint venture agreement was cancelled as of . As ofthis date, ICT had no authority to represent  and was demanded to immediatelyreturn ‘s equipmentvalued at $221,771 contributed to this venture. The Company believed that itwould obtain the return of the assets. As of the report date, after numerousattempts to obtain the assets during the year ended December 31, 2003, it hasbeen determined that the Company will not receive their equipment back from ICT. Company has written off the investment.

**3.        Line ofCredit**

In 2002 the Company negotiated a $500,000 revolvingline of credit with Nevada State Bank at an interest rate of prime (4.25percent), with the Chairman and CEO of the Company as the guarantor.  The fundsassisted the Company in meeting short-term cash flow requirements.  The line ofcredit expired on May 24, 2003.  

At December 31, 2003 and 2002, the Company owed $-0-and $500,000, respectively, to Nevada State Bank under the line of creditagreement.   
 	
**4.        NotesPayable**

The Company’s notes payable consist of thefollowing as of December 31, 2003:The $250,000 note due to a related partyhas an interest rate of 9.6 percent, and requires monthly interest payments of$2,000.  This note matures on March 1, 2004.  Any unpaid accrued interest willbe due with the principal when the note matures.  In 2003 the Company paid$24,000 of interest on the note. The principal amount of $250,000 was stilloutstanding at December 31, 2003. (See Note 7).

On December 30, 2003, under the Board’sapproval, 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 wasobtained before year end. The balance of $250,000 for each note will be obtainedwhen the Company needs it. Each note required 500,000 shares of theCompany’s common stock, in lieu of interest payment, to be delivered tothe note holder by January 15, 2004.  The notes are due on demand. In January2004 the Company issued 500,000 shares to the Chairman and CEO and 500,000shares to the related party. (See Note 7)

**5.        OperatingLease**

In March 2003 the Company entered into a leaseagreement on its new location in Sparks, Nevada. In February 2004 the Companyextended its lease term for one additional year to March 3, 2005. (See Note13)

Following is a schedule of payments required under therental lease agreement with Dermody Industrial Group:

2004
$ 443,068
2005
73,845
2006
-0-
2007
-0-
2008
-0-
After 2008
-0-

Total minimum lease payments
$ 516,913

In 2003 the Company was also obligated for the leaseof another property from the Chairman and CEO under a non-cancelable leaseagreement.  The lease required that the Company make lease payments until eitherthe lease term expired in February 2004 or the property was sold.  The propertysold in November 2003.

The Company paid $427,138 and $78,315 for rent expensein 2003 and 2002, respectively.

**-13-**   
SULPHCO, INC.(A Company in the Development Stage)NOTES TO FINANCIALSTATEMENTSDecember 31, 2003, and 2002
**6.        ContingentLiabilities**

The Company is currently the subject of an SECinvestigation. The SEC alleges violations of Sections 5(a), 5(c) and 17(a) ofthe Securities Act of 1934 and Section 10(b) of the Securities Act of 1934 andRule 10b-5 thereunder . The Company has retained council and has responded tothe inquiry and is awaiting response from the SEC. The outcome of the action isnot determinable at this time. Any such action could have a material adverseeffect on the Company. 

In November 2001 a former employee brought a complaintagainst the Company, claiming that an employment agreement between the Companyand the former employee had been breached. A settlement was reached in February2003.  The former employee received the 2 million shares that were previouslycancelled when his employment ended with the Company.  The Company was alsorequired to pay $100,000 to the former employee on an installment basis. As ofDecember 31, 2003, the Company owes $13,636.

Financial instruments which potentially subject theCompany to concentrations of credit risk consist mainly of cash equivalents. TheCompany maintains amounts on deposit with financial institutions which exceedfederally insured limits. The Company has not experienced any significant lossesin such accounts, nor does management believe it is exposed to any significantcredit risk.

**7.        Related PartyTransactions**

In December 2001 the Chairman and CEO of the Companyborrowed $1,360,685 from the Company. The notes were payable upon demand andcarried interest at the prime rate on the date of each note.  At December 31,2000, the Company had advances from the Chairman payable on demand with nointerest in the amount of $100,000.  The Chairman used the advances to offsetthe receivable and repaid the remaining receivable during 2002.

In May 2002 the Company borrowed $500,000 under a lineof credit at 4.23% from Nevada State Bank naming the Chairman as the guarantorof the loan.  The line of credit matured in May 2003.  (See Note 3).

In August 2002 the Company issued a note to a relatedparty at an interest rate of 9.6%. The note is due in March 2004. For the yearended 2003 the Company paid a total of $24,000 in interest and the balance ofthe note was $250,000 at December 31, 2003. (See Note 4).

In 2003 the Company leased property from the Chairmanand CEO under a non-cancelable lease agreement.  The rent paid to the Chairmanin 2003 and 2002 was $71,500 and 78,315, respectively.

In December 2003 the Company borrowed $250,000 fromthe CEO and Chairman. (See Note 4). 

In November 2003 the Company issued 2,173,913 sharesof the Company stock at $0.23 per share to the Chairman and CEO for $500,000.(See Note 8).

In June 2003 the Company issued 50,000 shares at $0.32per share for the services of a Director valued at $16,000. (See Note 8).

In March 2003 the Company issued 50,000 shares at$0.33 per share to a director for cash of $16,500. (See Note8).
**-14-**   
SULPHCO, INC.(A Company in the Development Stage)NOTES TO FINANCIALSTATEMENTSDecember 31, 2003, and 2002

In February 2003 the Company subscribed 50,000 sharesof common stock to a director at $0.42 per share for director services of$21,000. These shares were issued in March 2004. (See Note 13).

The CEO was paid consulting fees of $300,000 and$250,000 in 2003 and 2002, respectively, under an employment contract.  Theagreement is set to terminate on July 1, 2004.

In December 2003 the Company issued a $500,000 note toa related party. Upon signing the note, $250,000 of the principal was obtained,with the balance of $250,000 to be obtained upon demand by the Company.  (SeeNote 4). In January 2004 the Company issued 500,000 shares to the related partyin lieu of interest on this note. (See Note 13)

**8.        Common Stock**

Holders of common stock are entitled to one vote pershare on all matters submitted to a vote of holders of common stock. The holdersof common stock do not have cumulative voting rights. The election of directorsis determined by a plurality of votes cast, and, except as otherwise required bylaw, the  or ,all other matters are determined by a majority of the votes cast. The commonstock has no preemptive rights and is not convertible, redeemable or assessable.The holders of common stock are entitled to receive ratably such dividends, ifany, as may be declared by the board out of legally available funds, subject toany preferential dividend rights of outstanding preferred stock. Upon anyliquidation, dissolution or winding up of  Company,after payment of all debts and liabilities, and after payment of any liquidationpreferences of then outstanding preferred stock, the holders of common stockwill be entitled to receive a portion of all remaining assets that are legallyavailable for distribution. The rights, preferences and privileges of holders ofcommon stock are subject to, and may be adversely affected by, the rights ofholders of shares of any series of preferred stock which may be designated andissued in the future.

The Company has the authority, subject to certainlimitations prescribed by law, to issue from time to time up to an aggregate of10,000,000 shares of preferred stock in one or more classes or series and todetermine the designation and the number of shares of any class or series aswell as the voting rights, preferences, limitations and special rights, if any,of the shares of any class or series, including dividend rights, dividend rates,conversion rights and terms, redemption rights and terms, and liquidationpreferences. The issuance of preferred stock may have the effect of delaying,deferring or preventing a change of control. There are no shares of preferredstock outstanding, and the Company currently have no plans to issue any sharesof preferred stock. 

In December 2003 one million common shares weresubscribed for prepaid interest of $296,000 on related party notes.  Also inDecember 25,000 shares of common stock were returned to the Company to cancel asubscription receivable of $37,300.

In November 2003 the Company issued 2,173,913 sharesof the Company stock at $0.23 per share to the Chairman and CEO for$500,000.

In August 2003 196,870 shares were returned to theCompany to cancel part of a subscription receivable of $200,000. In September2003 3,130 shares were returned to the Company to cancel the balance of thesubscription receivable.

In June 2003 the Company issued 50,000 shares at $0.32per share for the services of a Director valued at $16,000.

In March 2003 the Company issued 50,000 shares at$0.33 per share for cash of $16,500.
**-15-**   
SULPHCO, INC.(A Company in the Development Stage)NOTES TO FINANCIALSTATEMENTSDecember 31, 2003, and 2002

In February 2003 the Company subscribed 50,000 sharesof common stock to a director at $0.42 per share for director services of$21,000. These shares were issued in March 2004. Also, in February 2003, asubscription of $3,575,000 was relieved when a loan of $1,920,000 was forgiven,and cash of $1,655,000 was received.     

**9.        StockOptions**

The Company has adopted the disclosure-only provisionsof SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly, nocompensation cost has been recognized for employees in the financial statements.On , , President of ,was granted stock options to purchase 1,000,000 shares of ‘s stock at an exercise priceof $.55 per share, expiring . On , Pat Lacy, Controller of ,was granted stock options to purchase      100,000 shares of ‘s common stock at an exercise price of $.35 per share,expiring . Hadcompensation cost for the Company’s stock options been determined based onthe fair value at the grant date for awards in 2003 and 2002, consistent withthe provisions of SFAS No. 123, the Company’s net earnings and earningsper share would have been reduced to the pro forma amounts indicatedbelow:
 
2003

Net loss - as reported

$  (3,069,353)
  
Net loss - pro forma

$  (3,087,376)
  
Loss per share - as reported

$           (0.06)
  
Loss per share - pro forma

$           (0.06)
 	
The fair value of each option granted isestimated at the date of grant using the Black-Scholes option-pricing model withthe followingassumptions:
 	  
2003

Expected Dividend yield
 
$      -0-
Expected stock price volatility
 
272%
Risk free interest rate
 
4.00-4.65%
Expected life of options
 
3 years 	
The following table summarizes informationabout stock options outstanding at December 31,2003:
 	   
Weighted Average 
Shares
 
Exercise Price

Options outstanding, beginning of year

-0-  
$-0-