##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 000-24455
 TORVEC, INC.
  New York
    
    16-1509512(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1169 Pittsford Victor Road, Suite 125 Pittsford, New York 14534  (Address of principal executive offices and Zip Code)
 (585) 248-0740   Not Applicable
 þ o
  o o þ
 o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS:
  Number of Shares Outstanding atClass
    
    August 1,2006Common Stock, $.01 par value
    
    30,410,865
 Options Outstanding & Not Exercised
    
    Shares to cover the options will
not be issued until they are
exercised.1,823,895




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##### 



INDEX
 PAGEPART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsTorvec, Inc. and Subsidiaries Condensed Consolidated Balance Sheets  June 30, 2006
(Unaudited) and December 31, 2005 (Derived from Audited Financial Statements)
    
    
    3Torvec, Inc. and Subsidiaries Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2006 and 2005 (Unaudited) and September 25, 1996
(Inception) through June 30, 2006
    
    
    4Torvec, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows  Three
and Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6 - 25Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    36Item 1A.
    
    Risk Factors
    
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3.
    
    Defaults Upon Senior Securities
    
    
    37Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37Item 5.
    
    Other Information
    
    
    37Item 6.
    
    Exhibits
    
    
    38 - 43SIGNATURES PAGE
    
    
    44EXHIBIT INDEX
    
    
    45EX-31.1EX-32




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
  
 
  June 30, 2006
    
    
    December 31, 2005(Unaudited)
    
    
    (Derived fromAudited FinancialStatements)ASSETSCurrent assets:Cash
    
    $
    45,000
    
    
    $
    51,000Prepaid expenses and other receivable
    
    
    80,000
    
    
    
    67,000Total current assets
    
    
    125,000
    
    
    
    118,000Property and Equipment:Office equipment
    
    
    42,000
    
    
    
    42,000Shop equipment
    
    
    126,000
    
    
    
    126,000Leasehold improvements
    
    
    3,000
    
    
    
    3,000Transportation equipment
    
    
    99,000
    
    
    
    99,000270,000
    
    
    
    270,000Less accumulated depreciation and amortization
    
    
    102,000
    
    
    
    82,000Net property and equipment
    
    
    168,000
    
    
    
    188,000Other Assets:License, less accumulated amortization of $1,976,000 and $1,548,000, respectively
    
    
    1,284,000
    
    
    
    1,712,000Deposits
    
    
    252,000
    
    
    
    2,000Total Other Assets
    
    
    1,536,000
    
    
    
    1,714,000$
    1,829,000
    
    
    $
    2,020,000LIABILITIESCurrent liabilities:Notes payable, current portion
    
    $
    5,000
    
    
    $
    5,000Accounts payable
    
    
    138,000
    
    
    
    148,000Accrued liabilities
    
    
    1,541,000
    
    
    
    1,541,000Total current liabilities
    
    
    1,684,000
    
    
    
    1,694,000Deferred revenue
    
    
    150,000
    
    
    
    150,000Notes payable, net of current portion
    
    
    17,000
    
    
    
    19,000Advance from shareholder
    
    
    250,000
    
    
    
    Total liabilities
    
    
    2,101,000
    
    
    
    1,863,000Minority interest
    
    
    
    
    
    
    8,000Commitments and other mattersSTOCKHOLDERS
EQUITY (DEFICIENCY)Preferred stock, $.01 par value, 100,000,000 shares authorized3,300,000 designated as Class A, Non-voting, cumulative dividend $.40 per
share, per annum, convertible preferred, 542,493 shares issued and outstanding
(liquidation preference $2,367,887)
    
    
    5,000
    
    
    
    5,000300,000 designated as Class B, Non-voting, cumulative dividend $.50 per share,
per annum, convertible preferred, 42,500 shares issued and outstanding
(liquidation preference $245,605)
    
    
    
    
    
    
    Common stock, $.01 par value, 40,000,000 shares authorized, 30,410,865 and
30,052,630 issued and outstanding, at June 30, 2006 and December 31, 2005,
respectively
    
    
    304,000
    
    
    
    300,000Additional paid-in capital
    
    
    39,446,000
    
    
    
    37,267,000Shares issued for future consulting services
    
    
    (114,000
    )
    
    
    (103,000
    )Deficit accumulated during the development stage
    
    
    (39,913,000
    )
    
    
    (37,320,000
    )(272,000
    )
    
    
    149,000$
    1,829,000
    
    
    $
    2,020,000
 See notes to condensed consolidated financial statements




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September 25,1996(Inception)Three Months Ended
    
    
    Six Months Ended
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006Revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cost and expenses:Research and development
    
    
    521,000
    
    
    
    983,000
    
    
    
    918,000
    
    
    
    1,484,000
    
    
    
    13,720,000General and administrative
    
    
    1,211,000
    
    
    
    978,000
    
    
    
    1,667,000
    
    
    
    1,974,000
    
    
    
    27,465,000Loss before minority interest
    
    
    (1,732,000
    )
    
    
    (1,961,000
    )
    
    
    (2,585,000
    )
    
    
    (3,458,000
    )
    
    
    (41,185,000
    )Minority interest in loss of consolidated subsidiary
    
    
    
    
    
    
    68,000
    
    
    
    8,000
    
    
    
    137,000
    
    
    
    1,272,000Net loss
    
    
    (1,732,000
    )
    
    
    (1,893,000
    )
    
    
    (2,593,000
    )
    
    
    (3,321,000
    )
    
    
    39,913,000Preferred stock beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,000
    
    
    
    715,000Preferred stock dividend
    
    
    57,000
    
    
    
    38,000
    
    
    
    112,000
    
    
    
    70,000
    
    
    
    387,000Net loss attributable to common stockholders
    
    $
    (1,789,000
    )
    
    $
    (1,931,000
    )
    
    $
    (2,705,000
    )
    
    $
    (3,550,000
    )
    
    $
    (41,015,000
    )Basic and diluted net loss attributable to common
stockholders per share
    
    $
    (0.06
    )
    
    $
    (0.07
    )
    
    $
    (0.09
    )
    
    $
    (0.12
    )Weighted average number of shares of common
stock  basic and diluted
    
    
    30,305,000
    
    
    
    29,414,000
    
    
    
    30,217,000
    
    
    
    29,276,000
 See notes to condensed consolidated financial statements




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##### Table of Contents



September 25,1996(Inception)Six Months Ended
    
    
    ThroughJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (2,593,000
    )
    
    $
    (3,321,000
    )
    
    $
    (39,913,000
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    448,000
    
    
    
    441,000
    
    
    
    2,102,000Gain on sale of fixed assets
    
    
    
    
    
    
    (10,000
    )
    
    
    (10,000
    )Minority interest in loss of consolidated subsidiary
    
    
    (8,000
    )
    
    
    (137,000
    )
    
    
    (1,272,000
    )Compensation expense attributable to common stock in
Subsidiary
    
    
    
    
    
    
    
    
    
    
    619,000Common stock issued for services
    
    
    589,000
    
    
    
    1,155,000
    
    
    
    9,970,000Shares issued for future consulting services
    
    
    (11,000
    )
    
    
    
    
    
    
    (11,000
    )Contribution of services
    
    
    150,000
    
    
    
    150,000
    
    
    
    1,959,000Compensatory common stock, options and warrants
    
    
    1,106,000
    
    
    
    930,000
    
    
    
    14,094,000Changes in:Prepaid expenses
    
    
    (13,000
    )
    
    
    118,000
    
    
    
    81,000Deposits
    
    
    (250,000
    )
    
    
    
    
    
    
    (252,000
    )Accounts payable and accrued expenses
    
    
    (10,000
    )
    
    
    40,000
    
    
    
    3,587,000Deferred revenue
    
    
    
    
    
    
    
    
    
    
    150,000Net cash used in operating activities
    
    
    (592,000
    )
    
    
    (634,000
    )
    
    
    (8,896,000
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    
    
    
    
    (45,000
    )
    
    
    (270,000
    )Cost of acquisition
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Proceeds from sale of fixed asset
    
    
    
    
    
    
    10,000
    
    
    
    10,000Net cash provided by (used in) investing activities
    
    
    
    
    
    
    35,000
    
    
    
    (276,000
    )Cash flows from financing activities:Net proceeds from sales of common stock and upon exercise of options
and warrants
    
    
    2,000
    
    
    
    
    
    
    
    6,492,000Net proceeds from sales of preferred stock
    
    
    334,000
    
    
    
    310,000
    
    
    
    2,503,000Net proceeds from sale of subsidiary stock
    
    
    
    
    
    
    
    
    
    
    234,000Net proceeds from sale of warrants
    
    
    2,000
    
    
    
    
    
    
    
    2,000Proceeds from long  term borrowings
    
    
    250,000
    
    
    
    
    
    
    
    279,000Repayments of long-term debt
    
    
    (2,000
    )
    
    
    
    
    
    
    (31,000
    )Proceeds from (repayment of) stockholders loans-net
    
    
    
    
    
    
    
    
    
    
    103,000Distributions
    
    
    
    
    
    
    
    
    
    
    (365,000
    )Net cash provided by (used in) financing activities
    
    
    586,000
    
    
    
    310,000
    
    
    
    9,217,000Net increase (decrease) in cash
    
    
    (6,000
    )
    
    
    (359,000
    )
    
    
    45,000Cash at beginning of period
    
    
    51,000
    
    
    
    574,000
    
    
    
    Cash at end of period
    
    $
    45,000
    
    
    $
    215,000
    
    
    $
    45,000Supplemental disclosure of non-cash investing and financing activities:Shares issued for future consulting services
    
    $
    192,000
    
    
    
    
 See notes to condensed consolidated financial statements




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##### Table of Contents



Note A  The Company and Basis of Presentation
    Note B  Summary of Significant Accounting Policies
 [1]
    
    Consolidation:The financial statements include the accounts of the company, its majority-owned subsidiary,
Ice (69.26% owned at June 30, 2006), and its wholly owned subsidiary Iso-Torque Corporation.
All material intercompany transactions and account balances have been eliminated in
consolidation.[2]
    
    Property and Equipment:Equipment, including a prototype vehicle, is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated useful lives of the
assets which range from three to seven years. Leasehold improvements are being amortized over
shorter of lease term or useful life.[3]
    
    Research and development and patents:Research and development costs and patent expenses are charged to operations as incurred.




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##### Table of Contents



Note B  Summary of Significant Accounting Policies (continued)
 [4] License:
   Period EndingJune 30,
    

    Amount2007
    

    $
    642,0002008
    

    
    642,000$
    1,284,000
 [5] Use of estimates:
  [6] Loss per common share:
  [7] Fair value of financial instruments:




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##### Table of Contents



Note
B  Summary of Significant Accounting Policies (continued)
 [8]
    
    Stock-based compensation:In December 1997, the Board of Directors of the company approved a Stock Option Plan (the
Plan) which provides for the granting of up to 2,000,000 shares of common stock, pursuant to
which officers, directors, key employees and key consultants/advisors are eligible to receive
incentive, nonstatutory or reload stock options. Options granted under the Plan are exercisable
for a period of up to 10 years from date of grant at an exercise price which is not less than
the fair value on date of grant, except that the exercise period of options granted to a
stockholder owning more than 10% of the outstanding capital stock may not exceed five years and
their exercise price may not be less than 110% of the fair value of the common stock at date of
grant. Options may vest over five years.Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No.
123R, Share Based Payment. We elected to use the modified prospective transition method;
therefore, prior period results were not restated. Prior to the adoption of SFAS 123R,
stock-based compensation expense related to stock options was not recognized in the results of
operations if the exercise price was at least equal to the market value of the common stock on
the grant date, in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.SFAS 123R requires all share-based payments to employees, including grants of employee stock
options, to be recognized as compensation expense over the service period (generally the vesting
period) in the consolidated financial statements based on their fair values. Under the modified
prospective method, awards that were granted, modified, or settled on or after January 1, 2006
are measured and accounted for in accordance with SFAS 123R. Unvested equity-classified awards
that were granted prior to January 1, 2006 will continue to be accounted for in accordance with
SFAS 123, except that all awards are recognized in the results of operations over the remaining
vesting periods. The impact of forfeitures that may occur prior to vesting is also estimated and
considered in the amount recognized. In addition, the realization of tax benefits in excess of
amounts recognized for financial reporting purposes will be recognized as a financing activity
in accordance with SFAS 123R.No tax benefits were attributed to the stock-based compensation expense because a valuation
allowance was maintained for substantially all net deferred tax assets. We elected to adopt the
alternative method of calculating the historical pool of windfall tax benefits as permitted by
FASB Staff Position (FSP) No. SFAS 123R-c, Transition Election Related to Accounting for the
Tax Effects of Share-Based Payment Awards. This is a simplified method to determine the pool of
windfall tax benefits that is used in determining the tax effects of stock compensation in the
results of operations and cash flow reporting for awards that were outstanding as of the
adoption of SFAS 123R.




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##### Table of Contents



Note
B  Summary of Significant Accounting Policies (continued)
 [8]
    
    Stock-based compensation:(continued)As of June 30, 2006, the company did not have any unrecognized stock compensation related to
unvested awards.The following table illustrates the effect on net loss and earnings per share if the fair value
based method had been applied to the prior period.
 Six Months EndedJune 30, 2005Reported net loss attributable to common stockholders
    
    $
    (3,550,000
    )Add: Stock-based compensation expense under APB No. 25 included in net
loss, net of related tax effects
    
    
    Stock-based employee compensation determined under the fair value based
method prior to adoption of SFAS 123R, net of related tax effects
    
    
    Pro Forma net loss attributable to common stockholders
    
    $
    (3,550,000
    )Loss per share:Basic and diluted attributable to common stockholders  as reported
    
    $
    (0.12
    )Basic and diluted attributable to common stockholders  pro forma
    
    $
    (0.12
    )
   WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Term
    
    ValueNumber of shares under option plan:Outstanding at January 1, 2006
    
    
    1,823,895
    
    
    $
    4.85GrantedExercisedCanceled or expiredOutstanding at June 30, 2006
    
    
    1,823,895
    
    
    $
    4.85
    
    
    
    3.50
    
    
    $
    0Exercisable at June 30, 2006
    
    
    1,823,895
    
    
    $
    4.85
    
    
    
    3.50
    
    
    $
    0




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##### Table of Contents



10 
 
 Note B  Summary of Significant Accounting Policies (continued)
 [9]
    
    Revenue recognition:Revenue in connection with the granting of a license to Variable Gear LLC is to be recognized
when all conditions for earning such fee is complete. Revenue will be recognized when the
related products are shipped, title has passed, collections are reasonably assured and the
company has no further obligation. An allowance for discounts and returns will be taken as a
reduction of sales within the same period the revenue is recognized. Such allowances will be
based on facts and circumstances.[10]
    
    Impairment of long-lived assets:The company follows Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Accordingly, whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable, management assesses the
recoverability of the assets.[11]
    
    Recent accounting standards:In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements, and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS 154 requires
retrospective application to prior periods financial statements of a voluntary change in
accounting principle unless it is impractical to determine period specific changes. This
statement is effective for fiscal periods beginning after December 15, 2005 and is not expected
to have a significant impact on the Companys financial statements.In June 2006, the Financial Accounting Standards Board (FASB) has issued interpretation No.
48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109
(FIN 48), regarding accounting for, and disclosure of, uncertain tax positions. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an enterprises
financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating the impact FIN 48 will
have on its results of operations and financial position.




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##### Table of Contents



11 
 
 
 NOTE C  LICENSES FROM THE TRUSTEES OF DARTMOUTH COLLEGE
 On November 28, 2000, Ice entered into a 20-year exclusive license with the Trustees of
Dartmouth College (Dartmouth) for land-based applications to a novel Ice adhesion modification
system developed by Dr. Victor Petrenko at Dartmouths Thayer School of Engineering. The
license agreement provided for a single payment of $140,000 (paid in 2000) for sponsored
research and a royalty of 3.5% based on the value of net sales of licensed product with minimum
annual payments of $10,000 for the first two years, $15,000 for the third year and $25,000 per
year thereafter. In addition, the agreement provides for the payment of 50% of sub-license fee
income.Expense for the above agreements totaled $5,750 and $11,500 for the three and six months ended
June 30, 2006 and 2005, respectively.NOTE D  RELATED PARTY TRANSACTIONS[1]
    
    Commencing January 1, 2004, the Gleasmans entered into an arrangement with the company to
provide consulting services and assign new patents, existing patent improvements and all
know-how in connection with all their inventions to the company on a noncompensated basis. In
addition, Keith E. Gleasman will continue to serve as President and as a director and James Y.
Gleasman will serve as Chief Executive Officer, Interim Chief Financial Officer and as a
director, again on a noncompensated basis. In accordance with this arrangement, for the three
and six month periods ended June 30, 2006, the company did not pay the Gleasmans any
consulting fees for their services. The company recorded approximately $150,000 for the
estimated value of these services as a contribution to capital based upon approved time and
hours spent and recorded $100,000 to research and development and $50,000 to general and
administrative.[2]
    
    During the three and six month periods ended June 30, 2006 and 2005 the company paid a
member of the Gleasman family for administrative, investor and engineering services rendered.
The individual is paid as a consultant for services. This individual was paid $9,225 and
$14,175 for the three and six month period ended June 30, 2005. This individual was paid
$6,750 and $17,790 for the three and six month period ended June 30, 2006. Management
believes the rate of compensation is reasonable.[3]
    
    During the three month and six month periods ended June 30, 2005, the company issued to a
stockholder 30,000 and 40,000 common shares as rent for the companys use of a facility valued
at approximately $100,500 and $142,500 respectively, based upon the fair market value of the
common stock on the date of issuance. This arrangement terminated effective February 28,
2006. No common shares were issued to the stockholder during the three and six month periods
ended June 30, 2006 and no further amounts are due under the arrangement.[4]
    
    During the three and six month periods ended June 30, 2005 the company incurred approximately
$151,000 and $298,000 for consulting services provided to the company by outside counsel
exclusive of legal services. There were no charges in 2006.




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##### Table of Contents



12 
 
 
 NOTE E  NOTE PAYABLE
 Notes Payable  Financial Institution
 During the year ended December 31, 2005, the company financed a vehicle as a prototype
and pledged the vehicle is collateral for a loan. The loan in the amount of $24,000 is paid in monthly
installments of $479 consisting of principal and interest at 6.59% per annum through December
2010.The following represents the required minimum payments:
 Period EndingJune 30,2007
    
    
    
    
    
    $
    6,0002008
    
    
    
    
    
    
    6,0002009
    
    
    
    
    
    
    6,0002010
    
    
    
    
    
    
    6,0002011
    
    
    
    
    
    
    2,000Total Minimum payments
    
    
    
    
    
    
    26,000Less-amount representing interest
    
    
    
    
    
    
    4,00022,000Less-Current Maturities
    
    
    
    
    
    
    5,000Long Term Portion
    
    
    
    
    
    $
    17,000
 Advance from Shareholder
 On June 19, 2006, a shareholder deposited $250,000 with the Monroe County, New York
Treasurer representing the undertaking required to stay execution of a May 8, 2006 court order
with respect to 40,000 common shares, 245,000 common stock warrants and 511,200 unexercised
previous issued stock warrants pending the appellate courts disposition of the companys appeal
of the courts May 8, 2006 order. See Note I.On July 25, 2006, the shareholder confirmed in writing his agreement to be repaid by the company
the full amount of the advance, plus interest at 8.75% per annum, either by the issuance of the
companys Class A Preferred at $4.00 per share, associated warrants, cash and/or a combination
thereof, with both the method of repayment as well as the timing of repayment totally within the
companys discretion.For the six months ended June 30, 2006, the Company did not accrue any interest expense.




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##### Table of Contents



13 
 
 
 Note F  Stockholders Equity (Deficiency)
 [1]
    
    Class A Preferred stock:In January 2002, the company authorized the sale of up to 2,000,000 shares of its Class A
Non-Voting Cumulative Convertible Preferred Stock (Class A Preferred). During 2002, the
company sold 38,500 shares at $4.00 per share of its Class A Preferred in a private placement
offering for approximately $142,000 in net proceeds. Each share of Class A Preferred is
convertible into one share of voting common stock and entitles the holder to dividends, at
$.40 per share per annum. The holder has the right to convert after one year subject to Board
approval. At June 30, 2006 and 2005, dividends in arrears amounted to approximately $355,000
and $172,000, respectively.In connection with this offering the company granted the placement agent 5,000 Class A
Warrants, exercisable for five years at an exercise price of $1.52 per share into common
stock. The company also granted to these investors 2,500 Class A Warrants, exercisable for
five years at an exercise price of $0.01 per share. Such warrants were treated as a cost of
the offering. Also, the placement agent was granted 10,000 warrants for providing certain
financial analysis for the company. The warrants are immediately exercisable at $.30 per
share for five years. The warrant contains a cashless exercise feature. The company valued
the warrant at $8,000 using the Black-Scholes option-pricing model and charged operations. On
July 8, August 14 and September 11, 2003, the company issued 2,500, 7,480 and 1,200 common
shares respectively to the placement agent upon the exercise of warrants issued in connection
with this offering.Liquidation Rights
 (i)
    
    In the event of any liquidation, dissolution or winding
up of the company, whether voluntary or involuntary,
the holders of Class A Preferred Shares then
outstanding are entitled to be paid out of the assets
of the Company available for distribution to its
shareholders, whether such assets are capital, surplus
or earnings, before any payment or declaration and
setting apart for payment of any amount in respect of
any shares of any Junior Stock with respect to the
payment of dividends or distribution of assets on
liquidation, dissolution or winding up of the Company,
all accumulated and unpaid dividends (including a
prorated dividend from the last Dividend Accrual Date)
in respect of any liquidation, dissolution or winding
up consummated except that, notwithstanding the
provisions of Section B(ii), all of such accumulated
and unpaid dividends will be paid in Class A Preferred
Shares at a rate of 1 Class A Preferred Share for each
$4.00 of dividends. No fractions of Class A Preferred
Shares shall issue. The company shall pay cash in lieu
of paying fractions of Class A Preferred Shares on a
pro rata basis.(ii)
    
    The Class A Preferred Shares will be entitled to
participate on a pro rata basis in any distribution of
assets as may be made or paid on Junior Stock upon the
liquidation, dissolution or winding up of the company.(iii)
    
    A consolidation or merger of the company with or into
any other corporation or corporations or any other
legal entity will not be deemed to constitute a
liquidation, dissolution or winding up of the company
as those terms are used in this Section C.




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14 
 
 
 Note
F  Stockholders
Equity (Deficiency) (continued)
 [1]
    
    Class A Preferred stock:
(continued)During 2005, the company sold 200,000 Class A Preferred for $800,000 and issued 62,500
common stock warrants with an exercise price of $.01 per share. Such warrants are convertible
immediately and are exercisable for ten years.During the three and six month periods ended June 30, 2006, the company sold 83,250 Class A
Preferred to investors for proceeds of $334,000. One investor also purchased 20,500 common
stock warrants for a purchase price of $2,000 in the first quarter of 2006. 25,000 additional
common stock warrants were issued in the second quarter, 2006 in connection with the purchase
of Class A Preferred. All such warrants are exercisable at $.01 per common share.[2]
    
    Class B Preferred stock:On October 21, 2004, the company authorized the sale of up to 300,000 shares of its Class B
Non-Voting Cumulative Convertible Preferred Stock (Class B Preferred). During 2004, the
company sold 42,500 shares at $5.00 per share of its Class B Preferred for $212,500. Each
share of Class B Preferred is cumulative convertible into either one share of voting common
stock of the company or one share of common stock of Iso-Torque Corporation under certain
circumstances and entitles the holder to dividends, at $.50 per share per annum. The holder
has the right to convert after one year subject to Board approval. At June 30, 2006 and 2005,
dividends in arrears amounted to approximately $33,000 and $17,000, respectively.(1) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Class B
Preferred Shares then outstanding are entitled to be paid out of the assets of
the Corporation available for distribution to its shareholders, whether such
assets are capital, surplus or earnings, before any payment or declaration and
setting apart for payment of any amount in respect of any shares of any Junior
stock with respect to the payment of dividends or distribution of assets on
liquidation, dissolution or winding up of the Corporation, all accumulated and
unpaid dividends (including a prorated dividend from the last Dividend Accrual
Date) in respect of any liquidation, dissolution or winding up consummated
except that, notwithstanding the provisions of Section B(2), all of such
accumulated and unpaid dividends will be paid in Class B Preferred Shares at a
rate of 1 Class B Preferred Share for each $5.00 of dividends. No fractions of
Class B Preferred Shares shall be issued. The Corporation shall pay cash in
lieu of paying fractions of Class B Preferred Shares on a pro rata basis.(2) The Class B Preferred Shares will be entitled to participate on a
pro rata basis in any distribution of assets as may be made or paid on Junior
Stock upon the liquidation, dissolution or winding up of the Corporation.




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15 
 
 
 Note F  Stockholders Equity (continued)
 [3]
    
    Business consultants stock plan:For the three and six month periods ended June 30, 2005, the company issued 359,000 and
569,000 shares to business consultants under the Business Consultants Stock Plan. For the
three and six month periods ended June 30, 2006, the company issued 197,000 and 331,000
shares to business consultants under the Business Consultants Stock
Plan. The shares were valued at the market value of the shares on the
date immediately prior to the date of issuance and approximated
$355,000 and $592,000, respectively. As of June 30
2006, 719,125 shares are available for future issuances under the Business Consultants Stock
Plan.[4]
    
    Nonmanagement Directors Plan:On October 1, 2004, the Board of Directors approved a Nonmanagement Directors Plan pursuant
to which each nonmanagement director is entitled to receive, if certain conditions are met,
on an annual basis for services rendered as a director, warrants to purchase 12,000 shares
of the companys common stock at $.01 per share. In addition, the chairman of the audit
committee is entitled to receive, on an annual basis for services rendered as chairman,
additional warrants for 5,000 shares of the companys common stock at $.01 per share.At December 31, 2005, 83,750 warrants were issued and fully vested . The company issued
44,000 warrants and recorded a charge of $113,000 to general and administrative expenses
representing the excess of the fair market value and $.01 per share of such warrants in
2005. During 2005, two directors exercised 24,000 warrants granted to them under the
Nonmanagement Directors Plan.For the three and six periods ended June 30, 2006, the company granted 13,250 and 26,500
warrants, respectively, under the Nonmanagement Directors Plan and
recorded a charge of approximately $23,000 and $48,000, respectively
to general and administrative expenses. During the three and six
month periods ended June 30, 2006, -0- and 15,000 warrants were exercised, respectively.[5]
    
    Shares issued for services and rent:During 1998, the company granted 1,000 shares of common stock, valued at $3.00 per share, for
services provided. During 1997, the company granted 12,000 and 2,000 shares of common stock
for services provided. The company valued the shares at their fair value of $1.50 and $3.00
per share, respectively. During 2003 and 2002, 15,640 and 134,964 restricted shares were
issued for services aggregating approximately $18,000 and $198,000 respectively. During 2005
and 2004, 100,000 and 35,000 restricted shares were issued for services and rent aggregating
approximately $259,500 and $194,000. During the six months ended
June 30, 2006, no
restricted shares were issued.




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16 
 
 
 Note
F  Stockholders Equity (Deficiency) (continued)
 [6]
    
    Warrants:As of June 30, 2006, outstanding warrants to acquire shares of the companys common stock
are as follows:
 Number ofExercise
    
    
    
    SharesPrice
    
    Expiration
    
    Exercisable$1.52
    
    September 18, 2007
    
    5,000
    
    
    (Note F [2])(a)
    
    (a)
    
    125,000$.75
    
    None
    
    500,000
    
    
    (b
    )$.01
    
    None
    
    756,200
    
    
    (c
    )$.01
    
    None
    
    84,500
    
    
    (d
    )$.01
    
    None
    
    72,000
    
    
    (e
    )$.01
    
    None
    
    9,000
    
    
    (f
    )$5.00
    
    Ten Years
    
    210,000
    
    
    (g
    )$.01
    
    None
    
    6,000
    
    
    (h
    )$1.00; $.01
    
    None
    
    12,500
    
    
    (j
    )$.01
    
    None
    
    7,500
    
    
    (k
    )$1.00
    
    None
    
    20,500
    
    
    (l
    )$.01
    
    None
    
    6,250
    
    
    (n
    )$.01
    
    None
    
    25,000
    
    
    (o
    )$.01
    
    Ten Years
    
    360,000
    
    
    (p
    )
 (a)
    
    Exercisable at IPO price and exercisable five years from IPO.(b)
    
    On April 15, 2002, the company issued 1,000,000 warrants to purchase common stock at
prices ranging from $.30 to $.75 to its then chairman of the board of directors and chief
executive officer. Of the total warrants, 250,000 were exercisable at $.30, and 250,000
were exercisable at $.50 on the date the then board elected the executive to the board and
named the chief executive officer. During the year ended December 31, 2002, 250,000
warrants were exercised for $.30 per share, resulting in proceeds of $75,000. During the
year ended December 31, 2003, 250,000 warrants were exercised for $.50 per share, resulting
in proceeds of $125,000. The remaining 500,000 warrants are exercisable upon the execution
of the company of a binding agreement for the sale, transfer, license or assignment for
value of any and/or all of its companys technology at $.75 per share. The company will
record a charge representing the fair value of the warrants when the warrants become
exercisable.




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17 
 
 
 Note
F  Stockholders Equity (Deficiency) (continued)
 [6]
    
    Warrants: (continued)
 (c)
    
    The company has issued 1,325,000 warrants, exercisable at $.01 per share, to a
management consulting firm in accordance with purported agreements between the company
and the management firm. 568,800 warrants were exercised for proceeds of aggregate $5,484
in accordance with the purported agreements with the management consulting firm. In
accordance with the courts order rendered on May 8, 2006 in connection with the
litigation described in Note I, the company was required to honor immediately the
exercise of 40,000 common stock warrants at $.01 per common share, to issue 245,000
common stock warrants, exercisable at $.01 per common share and to honor, if and when
presented for exercise, 511,200 previously issued unexercised warrants (all included in
above total). The 40,000 common shares and 245,000 common stock warrants were deposited
with the Monroe County, New York Treasurer and may not be accessed by the firm pending
the appellate courts disposition of the companys appeal of the May 8, 2006 court order.
In addition, the exercise by the firm of the 511,200 unexercised warrants is also stayed
pending the company appeal. (See Notes H and I)(d)
    
    During the six months ended June 30, 2006, the company issued 24,000 warrants to
each of four nonmanagement directors and 2,500 warrants to its audit committee chairman
for services rendered to the Board and to the committee, all pursuant to the companys
Nonmanagement Directors Stock Plan. The warrants were issued with respect to the first
two quarters of 2006. The exercise price is $.01 per share with a 10 year term. (See Note
F [5]). 15,000 warrants were exercised during the six months ended June 30, 2006.(e)
    
    During 2005, the company issued 120,000 warrants to a consultant, exercisable at
..01 per share. 48,000 warrants were exercised in 2005. None of the remaining warrants
have been exercised through the quarter ended June 30, 2006.(f)
    
    In June 2005, the company issued 12,000 warrants to a consultant, exercisable at
..01 per share, 3,000 of these warrants have been exercised through June 30, 2006.(g)
    
    During 2005, the company issued 210,000 warrants to consultants, exercisable at
$5.00 per share. The warrants carry a ten year term. None of these warrants have been
exercised through June 30, 2006.(h)
    
    During 2005, the company issued 6,000 warrants to a consultant, exercisable at .01
per share. None of these warrants have been exercised through June 30, 2006.(i)
    
    During 2005, the company issued 25,000 warrants exercisable to each of two
investors along with the purchase of 50,000 shares of Preferred Class A stock, at .01 per
share. All 50,000 warrants were exercised in 2005.(j)
    
    During 2005, the company issued 12,500 common stock warrants to an investor in
connection with his purchase of 12,500 Class A Preferred. During the quarter ended March
31, 2006, the company issued 39,250 common stock warrants to investors along with their
purchase of 38,250 shares of Class A Preferred. None of these warrants have been
exercised through June 30, 2006.




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18 
 
 
 Note
F  Stockholders Equity (Deficiency) (continued)
 [6]
    
    Warrants: (continued)
 (k)
    
    During the quarter ended March 31, 2006, the company issued 7,500 common stock
warrants, exercisable at $.01 per share for financial advice rendered by a consultant.
None of these warrants have been exercised through June 30, 2006.(l)
    
    During the quarter ended March 31, 2006, one investor purchased 20,500 common stock
warrants exercisable at $1.00 per share for a purchase price at $2,000. None of these
warrants have been exercised through June 30, 2006.(m)
    
    During the quarter ended June 30, 2006, the company issued 12,500 common stock
warrants to an investor in connection with his purchase of 12,500 Class A Preferred. All
of these warrants were exercised in the quarter ended June 30, 2006.(n)
    
    During the quarter ended March 31, 2006, the company issued 6,250 common stock
warrants to an investor in connection with his purchase of 6,250 Class A Preferred. None
of these warrants have been exercised through June 30, 2006.(o)
    
    During the quarter ended June 30, 2006, the company issued 25,000 common stock
warrants to an investor in connection with his purchase of 25,000 Class A Preferred. None
of these warrants have been exercised through June 30, 2006.(p)
    
    During the quarter ended June 30, 2006, the company issued 360,000 common stock
warrants to a director for specific services rendered by such director as chairman of the
companys executive committee.
 [7]
    
    Issuance of Stock and Warrants by Subsidiary:The following is a summary of warrants outstanding for the Ice Subsidiary:
 Three and Six Months EndedJune 30,2006
    
    2005Outstanding at the beginning of the year
    
    
    103,984
    
    
    
    103,948Granted
    
    
    
    
    
    
    Outstanding at the end of the period
    
    
    103,948
    
    
    
    103,948




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19 
 
 Note F  Stockholders Equity (continued)
 [8]
    
    Shares Issued for Future Consulting ServicesOn September 17, 2005, certain consultants created a trust to enable them to sell business
consultants shares issued to them by the company under their consultant agreements. The
company issued 50,000 business consultant shares valued at $102,000 to such consultants on
September 27, 2005, contingent on their performance of future services under such consultant
agreements. The Company has fair valued the shares issued to the
trust using the closing market price on the date immediately prior to
the date of issuance. Amounts in excess of the consulting invoices
are classified as shares issued for future consulting services in
Stockholders Equity (Deficiency). Such services were rendered and the trustee distributed to the consultants the
proceeds of sales of such shares directly to the consultants. During the quarter ended March
31, 2006, the trustee sold 39,470 shares for $55,000 and distributed the proceeds from the
trust to satisfy obligations to consultants. On April 18, 2006, the company issued another
50,000 business consultant shares valued at $82,500 to such consultants, contingent on their
future performance of services under such consultant agreements. During the second quarter
ended June 30, 2006, the trustee sold 61,300 shares for $110,696 and distributed the proceeds
to satisfy obligations to consultants. On June 29, 2006, the company issued another 50,000
business consultant shares valued at $107,500 to such consultants, contingent on their future
performance of services under their consultant agreements. The companys payment obligations
with respect to the consultant agreements are met once it has issued shares to the trust in
accordance with directives received from the consultants and the consultants, not the company,
bear the risk of loss in the event the proceeds of stock sales by the trustee are less than
the value of the stock contributed to the trust by the company on the date of contribution.Note G  Commitments and Other Matters[1]
    
    Consulting AgreementsOn June 30, 2005, the company entered into a non-exclusive two year consulting agreement for
engineering design services. Under the terms of the consulting agreement, the company was
required to issue annually 12,000 fully and immediately vested $.01 warrants exercisable into
common stock of the company, payable on a quarterly basis. In addition, the company granted
100,000 stock options under its 1998 Stock Option Plan to acquire shares of its common stock
to its engineering design consultant during the three months ended June 30, 2005. The option
vested immediately and has a term of ten years. The exercise price for the option is $5.00
per share. The company valued the options at $247,000 using the Black-Scholes option/pricing
model and charged operations. This agreement was terminated in the third quarter of 2005.During 2005, the company entered into non-exclusive two year consulting agreements with
various consultants. Under the terms of the consulting agreements, the company will issue
payment to be made in cash, business consultants stock or a combination hereof, in the
companys sole discretion. The consultants were issued common stock warrants exercisable at
$5.00 per common share. The number of warrants aggregated 210,000. Such warrants are fully
vested, exercisable immediately and have a ten year term. The company valued the warrants at
$377,000 using the Black-Scholes option/pricing model and charged operations.




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20 
 
 
 Note G  Commitments and Other Matters (continued)
 [2]
    
    Variable Gear, LLCOn January 1, 2008, the company is required to purchase the 51% membership interest it does
not own in Variable Gear LLC at the then fair market value as defined. The company does not
share in any profit or losses in this entity. At June 30, 2006 such fair market value cannot
yet be reasonably estimated.[3]
    
    Leases:The company has leased premises for use as its executive offices. The lease is for a period
of 3 years, commencing July 1, 2004 expiring on June 30, 2007 with monthly rental payments of
approximately $2,200. The company is also responsible for its share of real estate taxes,
certain maintenance and repair costs, and increases in utility costs associated with the
premises.On August 1, 2004, the company sublet, as a tenant, a portion of a facility for a term of six
months at a rental rate of $600 per month. On December 31, 2004, the company purchased from
the previous owner certain assets for approximately $68,000 and assumed the lease of the
underlying tenant for the entire premises. The lease term expires on February 28, 2007 with a
monthly rental payment of $2,100.On March 1, 2005, the company entered into a one year lease with a shareholder pursuant to
which the company rents an office, conference room, shop and manufacturing facility. The
company is also furnished with the services of three engineers and two machine operators at
the facility. The company is obligated to pay 10,000 shares of its common stock on a monthly
basis for the facility and services. This lease was not renewed.Rent expense for the year ended December 31, 2005 was approximately $311,000. Rent expense
for the three and six month periods ended June 30, 2005 was $168,000 and $223,000,
respectively. Rent expense for the three and six month periods ended June 30, 2006 was
$14,000 and $29,000, respectively.




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Note H  Management Agreement
 th




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22 
 
 Note H  Management Agreement (continued)




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23 
 
 Note I  Litigation




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24 
 
 Note I  Litigation (continued)
    Note J  Advance From Shareholder




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25 
 
 Note K  Subsequent Event




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26 
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
 PLAN OF OPERATION
 Overall Business Strategy
  o
    
    to license or sell any one or all of its
technologies (i.e. the infinitely variable
transmissions, the hydraulic pump/motor
system, the Iso-Torque differential, the
spherical gearing constant velocity joint
mechanism, the ice technology) in order to
provide the capital management believes is
necessary to successfully implement its
stated goal to manufacture and market its
FTV worldwide, especially in the Asian,
African, South and Central American, and
Eastern European markets.
  o
    
    to continue the ongoing real world testing of
our modular, hydromechanical infinitely
variable transmission in both our GM Tahoe
and a diesel-powered vehicle and to showcase
the performance of such transmission to the
worldwide automotive industry, local,
regional and national governments and to
private sector vehicle end-users, such as the
U.S. military, companies with large truck
fleets and school bus companies;o
    
    to continue demonstrating the Iso-Torque
differential both in the Nissan 350-Z as well
in as other, strategically-targeted vehicles
to the worldwide auto industry, local,
regional and national governments and to
private sector end-users, such as the U.S.
military, companies with large truck fleets
and school bus companies;o
    
    to continue demonstrating the Full Terrain
Vehicle (FTV) to the worldwide auto industry,
local, regional and national governments and
to private sector end users, such as the U.S.
military;o
    
    to continue ongoing discussions with such
governments and private sector end-users as
well as with automotive manufacturers and
1st-Tier suppliers worldwide in
order to consummate one or more joint venture
or other business combinations that would
lead to the commercialization of the
companys products;o
    
    to continue ongoing discussions with glass
manufacturers regarding the joint development
and commercialization of the ice technology
with a view to the license or sale of such
technology;o
    
    to continue to improve the companys
inventions and, where appropriate, to obtain
patent protection on such new improvements.




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##### Table of Contents



27 
 www.torvec.com
   Current Status of Product Development
  o
    
    the FTVä, including the steering drive and suspension for
tracked vehicles;o
    
    the Iso-Torque differential;o
    
    our infinitely variable transmissions;o
    
    the hydraulic pump and motor;o
    
    spherical gearing constant velocity mechanism;
  o
    
    The FTV  during May, 2006, Chinese executives visited the
companys facilities and saw
demonstrations of the companys FTV operating at high speed on
flat roads as well as traversing swampy terrain and hilly grades
that no 4X4 could manage. The Chinese confirmed from their own
experience that the FTV is the only vehicle capable of ending the
rural isolation of half the worlds population, enabling millions
of tons of food to be transported to the cities rather than
rotting in the field.Aside from the Chinese, the company will be demonstrating the FTV
to two Japanese companies and one major U.S. automotive
manufacturer during the third quarter.o
    
    Sales of our technology to a foreign Company will be potentially subject to U.S. Federal Regulatory authorities which may
require the Company to obtain an export license.o
    
    The Iso-Torqueä differential  patent protection for this
invention was issued July 8, 2004. Through our wholly-owned
subsidiary, Iso-Torque Corporation, we built a prototype
Iso-Torque differential and have been demonstrating these
differentials to government and private sector visitors at our
development facility and under real-world driving conditions. The
successful testing and showcasing of the Iso-Torque differential
has lead management to focus upon the strategy the company is
employing to market and commercialize the Iso-Torque differential.
A significant aspect of this strategy is highway safety.All differentials manufactured by the companys competitors are
plagued by a fundamental flaw in the physics governing
differentials - a flaw which creates an imbalance of traction
when one drive wheel is on dry pavement and the other is on loose
gravel, grass, snow, ice or other slippery surface. Similarly, an
imbalance of traction occurs when a vehicle is going around a
sharp corner with less traction on the outside wheels.




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28 Management believes that the Iso-Torque differential dramatically
solves the imbalance of traction problem characteristic of all
other differentials. The Iso-Torque differential maintains
proportionately balanced torque going to the drive wheels, at all
times and under any and all conditions. The company is seeking to
inform the auto insurance industry, the American Automobile
Association, the National Safety Council and similar organizations
with respect to the extraordinary safety implications of the
Iso-Torque differential.As previously announced, the company has been engaged by Nissans
product planning division and its top racing team to install the
Iso-Torque differential in a number of its racing cars during the
2006 racing season. Nissan recently shipped the 4 rear-axle
housings to be used in the race cars and the company is preparing
them for the installation of the Iso-Torque differentials.The full terrain vehicle (FTV) requires at least two Iso-Torque
differentials and the company plans to incorporate the sale of
Iso-Torque differentials in any strategic alliance or other
business relationship involving the sale or other transaction
incorporating our FTV technology.o
    
    The infinitely variable transmission   the company has developed
three infinitely variable transmissions for diesel and gasoline
engines, namely, the hydromechanical configured for the Dodge Ram
diesel (2003), the all hydraulic for gasoline engines (2004) and
the modular, hydromechanical for both gasoline as well as diesel
engines.Essentially, we believe we have created transmissions for very
different market applications.The all-hydraulic transmission has approximately 170 total parts,
of which 25 are separately manufactured parts (excluding nuts,
bolts, screws and the like). This contrasts with an average of
over 700 parts for an automatic transmission, the majority of
which have to be separately manufactured. We believe our
all-hydraulic transmission has solved the major problems of
weight, size, noise, heat and lack of start-up ability at low
revolutions per minute (rpm), all of which have heretofore
prevented the development of a hydraulic transmission for
automotive use.We believe that our all-hydraulic transmission, functioning as a
stand alone transmission, is ideal for use in subcompact, compact
and mid-sized cares where, according to the May 9, 2005 issue of
Business Week, Why GMs Plan Wont Work, the auto companies
profit margin is most narrow. We believe the market for the
all-hydraulic transmission may very well be the rapidly emerging,
but highly competitive Third World markets like China where cost
reduction is essential, roads are difficult to traverse, city
driving is generally congested and vehicle speeds are reduced.While the companys unique pumps and motors can function as a
stand alone transmission, they also form the core of the companys
infinitely variable, hydromechanical transmission. Our
hydromechanical transmission operates both on our unique pumps and
motors and on gears. The addition of a gear pack to the hydraulic
transmission enables our transmission to operate under the greater
torque (power) requirements demanded by SUVs, Hummers, trucks and
buses, and is the ideal transmission for these types of vehicles.The combination of our hydraulic and hydromechanical transmissions
constitutes the companys modular, hydromechanical transmission
for which the company has recently filed for patent protection.




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29 The company believes that all its transmissions  all hydraulic,
hydromechanical and modular perform better than an automatic
transmission for a number of reasons, including:
 
    
    No vehicle creep  we have all experienced sitting at a
red light and our foot comes off the brake. The vehicle creeps
forward or rolls backward which, if unanticipated, can be
extremely dangerous. We are confident that our transmissions
eliminate vehicle creep, whether forward or backward;
    
    Increased vehicle control  our transmissions enable a
driver to dramatically control vehicle speed, reducing speeds to
less than one-half mph ( i.e. approximately 16 ft. per minute ),
thus providing greater safety in inclement weather, less fuel
usage in traffic jams, greater control and flexibility to maneuver
through parking lots and narrow streets (e.g. those in Eastern
Europe and Asia), as well as greater maneuverability on rough
terrain and poor road conditions;
    
    Greater mpg during rapid acceleration  a considerable
portion of typical city and suburban driving involves rapid
acceleration, that is, acceleration from zero to 30 mph at a rate
exceeding 6 mph per second. In side-by-side testing of the
hydraulic transmission against a Tahoes automatic transmission in
the zero to 30 mph acceleration range, our test results indicated
that the automatic transmission used 100% more fuel than our
transmission;
    
    Increased fuel economy  in response to inquiries made by
several auto companies, we have compared our transmission in
side-by-side tests under simulated city driving scenarios as well
as side-by-side comparisons utilizing the EPA-sanctioned New York
City cycle test. Over the course of all of these tests, our
transmission consistently achieved an average of 4.33% improvement
in fuel efficiency over the Tahoe automatic.
    
    Greater operating efficiencies/durability  durability and
efficiency are directly related (i.e. the more efficient a device
is, the more durable it will also be under test conditions). Heat
generated is an extremely accurate measure of efficiency. Our all
hydraulic transmission operates in a temperature range of 90 to
160 degrees ( the higher temperature reflects high loads and more
difficult driving conditions), with a general operating
temperature of approximately 140 degrees. There is no oil cooler
(radiator) required, and the entire system utilizes only 6 quarts
of oil. In its operating range, our pump is 92% efficient and the
motor is 92% efficient, reflecting an overall operating efficiency
of 85% (92%x92%). These efficiencies are validated by our
operating temperatures. A further confirmation of our
transmissions efficiency is greater fuel mileage during
acceleration as previously described.




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##### Table of Contents



30 
    
   Avg. Eng RPM
    
    Avg. MPH
    
    Avg. Fuel Usage
    
    
    IVT % improvement
    
    MPGIVT
    
    437 RPM
    
    15 MPH
    
    44.5 ccm
    
    
    28.26
    %
    
    21.26 mpg4-speed
    
    1089 RPM
    
    15 MPH
    
    62.03 ccm
    
    
    
    
    
    15.25 mpgIVT
    
    718 RPM
    
    30 MPH
    
    82.32 ccm
    
    
    26.4
    %
    
    22.98 mpg4-speed
    
    1175 RPM
    
    29.55 MPH
    
    111.85 ccm
    
    
    
    
    
    16.66 mpgIVT
    
    1178 RPM
    
    49 MPH
    
    166.3 ccm
    
    
    9.20
    %
    
    18.58 mpg4-speed
    
    1504.9 RPM
    
    50.1 MPH
    
    183.17 ccm
    
    
    
    
    
    17.25 mpg




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##### Table of Contents



31 o
    
    As previously announced, on May 5, 2006, the company presented a detailed proposal on how its
technologies can benefit New York State, specifically with respect to school buses, to various New
York State governmental as well as to representatives of the Greater Rochester Enterprise, a
privately-funded organization devoted to encouraging entrepreneurship in upstate New York. Numerous
additional meetings have taken place with local, state and national representatives and in June
2006, the company was visited by a major U.S. bus manufacturer which expressed a serious interest
in forming a joint venture relationship to pursue the companys school bus project.In order to implement our school bus program, we have successfully installed our modular,
infinitely variable transmission in our 2004, diesel-fueled Dodge Ram 4-X-4. We have begun testing
designed to compare the fuel efficiently and pollution reduction capabilities of our IVT versus the
fuel consumption and pollution generated by New Yorks and our nations school buses, the majority
which use the same or comparable diesel-fueled engine as our Dodge Ram 4-X-4. The comparisons are
being made based upon actual school bus routes furnished to us by local school districts that are
actively collaborating with us on the project. We also installed our modular, infinitely variable
transmission in our diesel-fueled Dodge Ram 4-X-4, because most of the automotive markets for our
products worldwide, make use of and are committed to diesel-fueled engines. In addition, at long
last the United States automotive industry is awaking to the benefits of diesel.
    Company Expenses




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##### Table of Contents



32 Liquidity And Capital Resources




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##### Table of Contents



33 Critical Accounting Policies
        Impact of Inflation
  Quarterly Fluctuations




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##### Table of Contents



34 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Forward-Looking Statements
   a.
    
    the companys ability to raise significant capital to fund its plan of operation;b.
    
    the companys ability to sell and/or commercialize one or more of its
technologies, and/or to enter into collaborative joint working arrangements,
formal joint venture arrangements with domestic and/or foreign governments,
automotive industry manufacturers and suppliers to manufacture and promote the
companys inventions;c.
    
    industry and consumer acceptance of the companys inventions;d.
    
    the level of competition and resistance to the companys inventions in the
automotive and related industries;e.
    
    general economic and competitive conditions in the markets and countries in
which the company will operate, and the risks inherent in any future
international operations;f.
    
    the strength of the U.S. dollar against currencies of other countries where the
company may operate, as well as cross-currencies between the companys future
operations outside of the U.S. and other countries with whom it transacts
business.g.
    
    changes in business, political and economic conditions and the threat of future
terrorist activity in the U.S. and other parts of the world and related military
action.




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##### Table of Contents



35 
 
 Item 4. CONTROLS AND PROCEDURES .
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting




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##### Table of Contents



36 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings




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##### Table of Contents



37     
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information
  
 Exhibits




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##### Table of Contents



38  (2)
    
    Plan of acquisition, reorganization, arrangement, liquidation, or succession
 2.1
    
    Agreement and Plan of Merger,
dated November 29, 2000 by and
among Torvec Subsidiary
Corporation, Torvec, Inc., UTEK
Corporation and ICE Surface
Development, Inc. incorporated
by reference to Form 8-K filed
November 30, 2000 and Form 8K/A
filed February 12, 2001.
 (3)
    
    Articles of Incorporation, By-laws
 3.1
    
    Certificate of Incorporation,
incorporated by reference to
Form 10-SB/A , Registration
Statement, registering
Companys $.01 par value common
stock under section 12(g) of
the Securities Exchange Act of
1934;3.2
    
    Certificate of Amendment to the
Certificate of Incorporation
dated August 30, 2000,
incorporated by reference to
Form SB-2 filed October 19,
2000;3.3
    
    Certificate of Correction dated
March 22, 2002, incorporated by
reference to Form 10-KSB filed
for fiscal year ended December
31, 2002;3.4
    
    By-laws, as amended by
shareholders on January 24,
2002, incorporated by reference
to Form 10-KSB filed for fiscal
year ended December 31, 2002;3.5
    
    Certification of Amendment to
the Certificate of
Incorporation dated October 21,
2004 setting forth terms and
conditions of Class B
Preferred, incorporated by
reference to Form 10-QSB filed
for fiscal quarter ended
September 30, 2004.
 (4)
    
    Instruments defining the rights of holders including indenturesNone(9)
    
    Voting Trust AgreementNone(10)
    
    Material Contracts
 10.1
    
    Certain Employment Agreements, Consulting Agreements, certain assignments
of patents, patent properties, technology and know-how to the Company,
Neri Service and Space Agreement and Ford Motor Company Agreement and
Extension of Term, all incorporated by reference to Form 10-SB/A,
Registration Statement, registering Companys $.01 par value common stock
under section 12(g) of the Securities Exchange Act of 1934;




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##### Table of Contents



39 10.2
    
    The Companys 1998 Stock Option Plan and related Stock
Options Agreements, incorporated by reference to Form S-8, Registration
Statement, registering 2,000,000 shares of the Companys $.01 par value
common stock reserved for issuance thereunder, effective December 17,
1998;10.3
    
    The Companys Business
Consultants Stock Plan,
incorporated by reference to
Form S-8, Registration
Statement, registering 200,000
shares of the Companys $.01
par value common stock reserved
for issuance thereunder,
effective June 11, 1999, as
amended by reference to Form
S-8 Registration Statements
registering an additional
200,000, 200,000, 100,000,
800,000, 250,000, 250,000,
350,000, 250,000, and 2,500,000
shares of the Companys $.01
par value common stock reserved
for issuance thereunder,
effective October 5, 2000,
November 7, 2001, December 21,
2001, February 1, 2002,
November 12, 2002, January 22,
2003, May 23, 2003, November 26, 2003, and April 20, 2004
respectively;10.4
    
    Termination of Neri Service and Space Agreement dated August 31, 1999,
incorporated by reference to Form 10-QSB filed for the quarter ended
September 30, 1999;10.5
    
    Operating Agreement of Variable Gear, LLC dated June 28, 2000,
incorporated by reference to Form 10-QSB filed for the quarter ended June
30, 2000;10.6
    
    License Agreement between Torvec, Inc. and Variable Gear, LLC dated June
28, 2000, incorporated by reference to Form SB-2 filed October 19, 2000;10.7
    
    Investment Agreement with Swartz Private Equity, LLC dated September 5,
2000, together with attachments thereto, incorporated by reference to
Form 8-K filed October 2, 2000;10.8
    
    Extension of and Amendment to Consulting Agreement with James A.
Gleasman, incorporated by reference to Form 10-KSB filed for the fiscal
year ended December 31, 2000;10.9
    
    Extension of and Amendment to Consulting Agreement with Keith E.
Gleasman, incorporated by reference to Form 10-KSB filed for the fiscal
year ended December 31, 2000;10.10
    
    Extension of and Amendment to Consulting Agreement with Vernon E.
Gleasman, incorporated by reference to Form 10-KSB filed for the fiscal
year ended December 31, 2000;10.11
    
    Option and Consulting Agreement with Marquis Capital, LLC dated February
10, 1999, incorporated by reference to Form 10-QSB filed for quarter
ended March 31, 2001;10.12
    
    Option and Consulting Agreement with PMC Direct Corp., dated February 10,
1999, incorporated by reference to Form 10-QSB filed for quarter ended
March 31, 2001;




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##### Table of Contents



40 10.13
    
    Investment Banking Services Agreement with Swartz
Institutional Finance (Dunwoody Brokerage Services, Inc.) dated December 8, 2000, incorporated
by reference to Form 10-QSB filed for quarter ended March 31, 2001;10.14
    
    Employment Agreement with Michael Martindale, Chief Executive Officer,
dated August 1, 2001, incorporated by reference to Form 10-QSB filed
for fiscal quarter ended September 30, 2001;10.15
    
    Employment Agreement with Jacob H. Brooks, Chief Operating Officer,
dated August 1, 2001, incorporated by reference to Form 10-QSB filed
for fiscal quarter ended September 30, 2001;10.16
    
    Employment Agreement with David K. Marshall, Vice-President of
Manufacturing, dated September 1, 2001, incorporated by reference to
Form 10-QSB filed for fiscal quarter ended September 30, 2001;10.17
    
    Investment Banking Services Agreement with Swartz
Institutional Finance (Dunwoody Brokerage Services, Inc.),
as amended, dated October 23, 2001, incorporated by reference to
Form 10-QSB filed for fiscal quarter ended September 30, 2001;10.18
    
    Stock Option Agreement with Samuel Bronsky, Chief Financial and
Accounting Officer, dated August 28, 2001, incorporated by reference to
Form 10-QSB filed for fiscal quarter ended September 30, 2001;10.19
    
    Pittsford Capital Group, LLC Agreement dated January 30, 2002,
incorporated by reference to Form 10-KSB filed for fiscal year ended
December 31, 2001;10.20
    
    Gleasman-Steenburgh Indemnification Agreement dated April 9, 2002,
incorporated by reference to Form 10-KSB filed for fiscal year ended
December 31, 2001;10.21
    
    Series B Warrant dated April 10, 2002, incorporated by reference to Form
10-KSB filed for fiscal year ended December 31, 2001;10.22
    
    Billow Butler & Company, LLC investment banking engagement letter dated
October 1, 2003, incorporated by reference to Form 10-QSB filed for
fiscal quarter ended September 30, 2003;10.23
    
    Letter of Acknowledgement and Agreement with U.S. Environmental
Protection Agency dated February 4, 2004, incorporated by reference to
Form 10-KSB filed for fiscal year ended December 31, 2003;10.24
    
    Letter Agreement with CXO on the GO, L.L.C. dated February 20, 2004,
incorporated by reference to Form 10-KSB filed for fiscal year ended
December 31, 2003;




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##### Table of Contents



41 10.25
    
    Letter Amendment with CXO on the GO, L.L.C. dated
February 23, 2004, incorporated by reference to Form 10-KSB filed for fiscal year ended
December 31, 2003;10.26
    
    Lease Agreement for premises at Powder Mills Office Park, 1169
Pittsford-Victor Road, Suite 125, Pittsford, New York 14534, dated July
16, 2004; incorporated by reference to Form 10-QSB filed for fiscal
quarter ended June 30, 2004;10.27
    
    Lease Agreement for testing facility and Mustang dynamometer, dated July
21, 2004; incorporated by reference to Form 10-QSB filed for fiscal
quarter ended June 30, 2004;10.28
    
    Advisory Agreement with PNB Consulting, LLC, 970 Peachtree Industrial
Blvd., Suite 303, Suwanee, Georgia 30024; incorporated by reference to
Form 10-QSB filed for fiscal quarter ended June 30, 2004;10.29
    
    Agreement between Torvec and ZT Technologies, Inc. dated July 21, 2004,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2004;10.30
    
    Assignment and Assumption of Lease between William J. Green and Ronald J.
Green and Torvec, Inc. effective as of December 31, 2004, incorporated by
reference to Form 10-KSB filed for fiscal year ended December 31,2004;10.31
    
    Bill of Sale between Dynamx, Inc. and Torvec, Inc. for equipment and
machinery, incorporated by reference to Form 10-KSB filed for fiscal year
ended December 31, 2004;10.32
    
    Lease and Services Agreement between Robert C. Horton as Landlord and
Torvec, Inc. as Tenant dated March 18, 2005, incorporated by reference to
Form 10-KSB filed for fiscal year ended December 31, 2004;10.33
    
    Settlement Agreement and Mutual Release between Torvec, Inc. and ZT
Technologies, Inc. dated March 29, 2005, incorporated by reference to
Form 10-QSB filed for fiscal quarter ended March 31, 2005;10.34
    
    Advisory Agreement between Robert C. Horton and Torvec, Inc. dated
February 15, 2005, incorporated by reference to Form 10-QSB filed for
fiscal quarter ended March 31, 2005;10.35
    
    Lease and Services Agreement between Dennis J. Trask as Landlord and
Torvec, Inc. as Tenant dated April 18, 2005, incorporated by reference to
Form 10-QSB filed for fiscal quarter ended March 31, 2005;10.36
    
    Consulting Agreement with Matthew R. Wrona, dated June 30, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended
June 30, 2005;10.37
    
    Option Agreement between Matthew R. Wrona and Torvec, Inc. dated June 30,
2005, incorporated by reference to Form 10-QSB filed for fiscal quarter
ended June 30, 2005;




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##### Table of Contents



42 10.38
    
    Trust Agreement between Matthew R. Wrona, Donald Gabel, Lawrence Clark,
Steven Urbanik, Floyd G. Cady,Jr., and Michael Pomponi as Grantors and
Richard B. Sullivan as Trustee, dated September 22, 2005, incorporated by
reference to Form 10-QSB filed for fiscal quarter ended September 30,
2005;
 10.39
    
    Consultant Agreement with Floyd G. Cady, Jr., dated October 1, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2005;10.40
    
    Consultant Agreement with Lawrence W. Clark, dated October 1, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2005;10.41
    
    Consultant Agreement with Donald W. Gabel, dated
October 1, 2005, incorporated by reference to Form 10-QSB filed for
fiscal quarter ended September 30, 2005;10.42
    
    Consultant Agreement with Michael A. Pomponi, dated October 1, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2005;10.43
    
    Consultant Agreement with Steven Urbanik, dated October 1, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2005;10.44
    
    Consultant Agreement with Kiwee Johnson, dated September 30, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2005;10.45
    
    Confidentiality Agreement with Joseph B. Rizzo, dated October
24,2005,incorporated by reference to Form 10-QSB filed for fiscal quarter
ended September 30, 2005.10.46
    
    Minutes of meeting Board of Directors Torvec, Inc., held October 19,
2004, creating the non-management directors plan, incorporated by
reference to Form 10-KSB filed for the fiscal year ended December 31,
2006.
 (11)
    
    Statement re computation of per share earnings (loss)Not applicable(14)
    
    Code of Ethics(16)
    
    Letter on change in certifying accountantNone(18)
    
    Letter re change in accounting principlesNone




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##### Table of Contents



43 (20)
    
    Other documents or statements to security holdersNone(21)
    
    Subsidiaries of the registrantIce Surface Development, Inc. (New York)
Iso-Torque Corporation (New York)
IVT Diesel Corp. (New York)
Variable Gear, LLC (New York)(22)
    
    Published report regarding matters submitted to vote of security holdersNone(23.1)
    
    Consents of experts and counselEisner LLP Consent(24)
    
    Power of attorneyNone(31)
    
    Rule 13(a)-14(a)/15(d)-14(a) Certifications(32)
    
    Section 1350 Certifications(99)
    
    Additional exhibitsNone




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##### Table of Contents



44 
 
   TORVEC, INC.Date: August 11, 2006
    
    By: /s/ James Y. GleasmanJames Y. Gleasman, Chief Executive Officer
  Dated: August 11, 2006
    
    By: /s/ James Y. GleasmanJames Y. Gleasman, Chief Executive Officer and Interim Chief
Financial Officer




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT
    
    PAGE(2)
    
    Plan of acquisition, reorganization, arrangement, liquidation, or succession2.1
    
    Agreement  and  Plan  of  Merger,  dated  November  29,  2000 by and  among  TorvecSubsidiary   Corporation,   Torvec,   Inc.,   UTEK   Corporation  and  ICE  SurfaceDevelopment,  Inc.  incorporated  by reference to Form 8-K filed  November 30, 2000and Form 8K/A filed February 12, 2001.
    
    N/A(3)
    
    Articles of Incorporation, By-laws3.1
    
    Certificate  of   Incorporation,   incorporated   by  reference  to  Form  10-SB/A,Registration  Statement,  registering  Company's  $.01 par value common stock undersection 12(g) of the Securities Exchange Act of 1934;
    
    N/A3.2
    
    Certificate of Amendment to the Certificate of Incorporation datedAugust 30, 2000, incorporated by reference to Form SB-2 filedOctober 19, 2000;
    
    N/A3.3
    
    Certificate of Correction  dated March 22, 2002,  incorporated by reference to Form10-KSB filed for fiscal year ended December 31, 2002;
    
    N/A3.4
    
    By-laws, as amended by shareholders on January 24, 2002,  incorporated by referenceto Form 10-KSB filed for fiscal year ended December 31, 2002;
    
    N/A3.5
    
    Certification  of Amendment to the Certificate of  Incorporation  dated October 21,2004  setting  forth terms and  conditions  of Class B Preferred,  incorporated  byreference to Form 10-QSB filed for fiscal quarter ended September 30, 2004.
    
    N/A(4)
    
    Instruments defining the rights of holders including indenturesNone
    
    N/A(9)
    
    Voting Trust AgreementNone
    
    N/A(10)
    
    Material Contracts10.1
    
    Certain Employment Agreements, Consulting Agreements, certainassignments of patents, patent properties, technology and know-howto the Company, Neri Service and Space Agreement and Ford MotorCompany Agreement and Extension of Term, all incorporated byreference to Form 10-SB/A, Registration Statement, registeringCompany's $.01 par value common stock under section 12(g) of theSecurities Exchange Act of 1934;
    
    N/A




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##### Table of Contents



46 EXHIBIT
    
    PAGE10.2
    
    The Company's 1998 Stock Option Plan and related Stock OptionsAgreements, incorporated by reference to Form S-8, RegistrationStatement, registering 2,000,000 shares of the Company's $.01 parvalue common stock reserved for issuance thereunder, effectiveDecember 17, 1998;
    
    N/A10.3
    
    The Company's Business Consultants Stock Plan, incorporated byreference to Form S-8, Registration Statement, registering 200,000shares of the Company's $.01 par value common stock reserved forissuance thereunder, effective June 11, 1999 as amended by referenceto  Form  S-8  Registration  Statement  registering  an  additional  200,000,200,000,  100,000,  800,000, 250,000, 250,000, 350,000, 250,000 and 2,500,000shares of the  Company's  $.01 par value common  stock  reserved for issuancethereunder,  effective October 5, 2000,  November 7, 2001, December 21, 2001,February  1, 2002,  November  12,  2002,  January  22,  2003,  May 23,  2003,November 26, 2003 and April 20, 2004 respectively;
    
    N/A10.4
    
    Termination of Neri Service and Space Agreement dated August 31,1999, incorporated by reference to Form 10-QSB filed for the quarterended September 30, 1999;
    
    N/A10.5
    
    Operating Agreement of Variable Gear, LLC dated June 28, 2000,incorporated by reference to Form 10-QSB filed for the quarter endedJune 30, 2000;
    
    N/A10.6
    
    License Agreement between Torvec, Inc. and Variable Gear, LLCdated June 28, 2000, incorporated by reference to Form SB-2 filedOctober 19, 2000;
    
    N/A10.7
    
    Investment  Agreement  with Swartz  Private  Equity,  LLC dated  September 5,2000,  together with attachments  thereto,  incorporated by reference to Form8-K filed October 2, 2000;
    
    N/A10.8
    
    Extension of and Amendment to Consulting  Agreement  with James A.  Gleasman,incorporated  by  reference  to Form  10-KSB  filed for the fiscal year endedDecember 31, 2000;
    
    N/A10.9
    
    Extension of and Amendment to Consulting  Agreement  with Keith E.  Gleasman,incorporated  by  reference  to Form  10-KSB  filed for the fiscal year endedDecember 31, 2000;
    
    N/A10.10
    
    Extension of and Amendment to Consulting  Agreement  with Vernon E. Gleasman,incorporated  by  reference  to Form  10-KSB  filed for the fiscal year endedDecember 31, 2000;
    
    N/A10.11
    
    Option and Consulting  Agreement with Marquis Capital, LLC dated February 10,1999,  incorporated by reference to Form 10-QSB filed for quarter ended March31, 2001;
    
    N/A




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##### Table of Contents



47 EXHIBIT
    
    PAGE10.12
    
    Option and  Consulting  Agreement with PMC Direct Corp.,  dated  February 10,1999,  incorporated by reference to Form 10-QSB filed for quarter ended March31, 2001;
    
    N/A10.13
    
    Investment  Banking  Services  Agreement  with Swartz  Institutional  Finance(Dunwoody Brokerage Services,  Inc.) dated December 8, 2000,  incorporated byreference to Form 10-QSB filed for quarter ended March 31, 2001;
    
    N/A10.14
    
    Employment Agreement with Michael Martindale, Chief Executive Officer,dated August 1, 2001, incorporated by reference to Form 10-QSB filedfor fiscal quarter ended September 30, 2001;
    
    N/A10.15
    
    Employment Agreement with Jacob H. Brooks, Chief Operating Officer,dated August 1, 2001, incorporated by reference to Form 10-QSB filedfor fiscal quarter ended September 30, 2001;
    
    N/A10.16
    
    Employment Agreement with David K. Marshall, Vice-President ofManufacturing, dated September 1, 2001, incorporated by reference toForm 10-QSB filed for fiscal quarter ended September 30, 2001;
    
    N/A10.17
    
    Investment Banking Services Agreement with SwartzInstitutional Finance (Dunwoody Brokerage Services, Inc.),as amended, dated October 23, 2001, incorporated by reference toForm 10-QSB filed for fiscal quarter ended September 30, 2001;
    
    N/A10.18
    
    Stock Option Agreement with Samuel Bronsky, Chief Financial andAccounting Officer, dated August 28, 2001, incorporated by reference toForm 10-QSB filed for fiscal quarter ended September 30, 2001;
    
    N/A10.19
    
    Pittsford  Capital Group, LLC Agreement dated January 30, 2002,  incorporatedby reference to Form 10-KSB filed for fiscal year ended December 31, 2001;
    
    N/A10.20
    
    Gleasman-Steenburgh   Indemnification   Agreement   dated   April  9,   2002,incorporated  by  reference  to Form  10-KSB  filed  for  fiscal  year  endedDecember 31, 2001;
    
    N/A10.21
    
    Series B Warrant  dated April 10,  2002,  incorporated  by  reference to Form10-KSB filed for fiscal year ended December 31, 2001;
    
    N/A10.22
    
    Billow  Butler & Company,  LLC  investment  banking  engagement  letter datedOctober 1, 2003,  incorporated  by  reference to Form 10-QSB filed for fiscalquarter ended September 30, 2003;
    
    N/A10.23
    
    Letter of Acknowledgement  and Agreement with U.S.  Environmental  ProtectionAgency  dated  February 4, 2004,  incorporated  by  reference  to Form 10-KSBfiled for fiscal year ended December 31, 2003;
    
    N/A




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##### Table of Contents



48 EXHIBIT
    
    PAGE10.24
    
    Letter  Agreement  with  CXO on the  GO,  L.L.C.  dated  February  20,  2004,incorporated  by  reference  to Form  10-KSB  filed  for  fiscal  year  endedDecember 31, 2003;
    
    N/A10.25
    
    Letter  Amendment  with  CXO on the  GO,  L.L.C.  dated  February  23,  2004,incorporated  by  reference  to Form  10-KSB  filed  for  fiscal  year  endedDecember 31, 2003;
    
    N/A10.26
    
    Lease   Agreement   for  premises  at  Powder   Mills   Office   Park,   1169Pittsford-Victor  Road, Suite 125, Pittsford,  New York 14534, dated July 16,2004,  incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarterended June 30, 2004;;
    
    N/A10.27
    
    Lease Agreement for testing facility and Mustang dynamometer,  dated July 21,2004;  incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarterended June 30, 2004;
    
    N/A10.28
    
    Advisory Agreement with PNB Consulting,  LLC, 970 Peachtree Industrial Blvd.,Suite 303, Suwanee,  Georgia 30024;  incorporated by reference to Form 10-QSBfiled for fiscal quarter ended June 30, 2004;
    
    N/A10.29
    
    Agreement  between  Torvec and ZT  Technologies,  Inc.  dated July 21,  2004,incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2004;
    
    N/A10.30
    
    Assignment  and  Assumption of Lease  between  William J. Green and Ronald J.Green and Torvec,  Inc.  effective as of December 31, 2004,  incorporated  byreference to Form 10-KSB filed for fiscal year ended December 31, 2004;
    
    N/A10.31
    
    Bill of Sale  between  Dynamx,  Inc.  and  Torvec,  Inc.  for  equipment  andmachinery,  incorporated  by  reference  to Form 10-KSB filed for fiscal yearended December 31, 2004;
    
    N/A10.32
    
    Lease and  Services  Agreement  between  Robert C.  Horton  as  Landlord  andTorvec,  Inc. as Tenant  dated March 18, 2005,  incorporated  by reference toForm 10-KSB filed for fiscal year ended December 31, 2004;
    
    N/A10.33
    
    Settlement   Agreement  and  Mutual  Release  between  Torvec,  Inc.  and  ZTTechnologies,  Inc. dated March 29, 2005,  incorporated  by reference to Form10-QSB filed for fiscal quarter ended March 31, 2005;
    
    N/A10.34
    
    Advisory  Agreement between Robert C. Horton and Torvec,  Inc. dated February15, 2005,  incorporated  by reference to Form 10-QSB filed for fiscal quarterended March 31, 2005;
    
    N/A10.35
    
    Lease and Services  Agreement between Dennis J. Trask as Landlord and Torvec,Inc. as Tenant  dated  April 18,  2005,  incorporated  by  reference  to Form10-QSB filed for fiscal quarter ended March 31, 2005;
    
    N/A




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##### Table of Contents



49 EXHIBIT
    
    PAGE10.36
    
    Consulting   Agreement   with   Matthew  R.  Wrona,   dated  June  30,  2005,incorporated  by reference to Form 10-QSB filed for fiscal quarter ended June30, 2005;
    
    N/A10.37
    
    Option  Agreement  between  Matthew R. Wrona and Torvec,  Inc. dated June 30,2005,  incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarterended June 30, 2005;
    
    N/A10.38
    
    Trust  Agreement  between  Matthew R. Wrona,  Donald Gabel,  Lawrence  Clark,Steve  Urbanik,  Floyd G. Cady,  Jr. and  Michael  Pomponi  as  Grantors  andRichard B. Sullivan as Trustee,  dated  September 22, 2005,  incorporated  byreference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
    
    N/A10.39
    
    Consultant  Agreement  with  Floyd G.  Cady,  Jr.,  dated  October  1,  2005,incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2005;
    
    N/A10.40
    
    Consultant   Agreement  with  Lawrence  W.  Clark,  dated  October  1,  2005,incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2005;
    
    N/A10.41
    
    Consultant   Agreement   with  Donald  W.  Gabel,   dated  October  1,  2005,incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2005;
    
    N/A10.42
    
    Consultant  Agreement  with  Michael  A.  Pomponi,  dated  October  1,  2005,incorporated  b y reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2005;
    
    N/A10.43
    
    Consultant   Agreement   with  Steven   Urbanik,   dated   October  1,  2005,incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2005;
    
    N/A10.44
    
    Consultant   Agreement  with  Kiwee  Johnson,   dated   September  30,  2005,incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2005;
    
    N/A10.45
    
    Confidentiality  Agreement  with Joseph B.  Rizzo,  dated  October 24,  2005,incorporated  by  reference  to Form 10-QSB  filed for fiscal  quarter  endedSeptember 30, 2005
    
    N/A10.46
    
    Minutes of meeting Board of Directors  Torvec,  Inc.,  held October 19, 2004,creating the  non-management  directors  plan,  incorporated  by reference toForm 10-KSB for fiscal year ended December 31, 2005
    
    N/A(11)
    
    Statement re computation of per share earnings (loss)
    
    N/ANot applicable




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##### Table of Contents



50 EXHIBIT
    
    PAGE(14)
    
    Code of Ethics
    
    N/A(16)
    
    Letter on change in certifying accountant
    
    N/ANone(18)
    
    Letter re change in accounting principles
    
    N/ANone(20)
    
    Other documents or statements to security holders
    
    N/ANone(21)
    
    Subsidiaries of the registrant
    
    N/AIce Surface Development, Inc. (New York)Iso-Torque Corporation (New York)IVT Diesel Corp. (New York)Variable Gear, LLC (New York)(22)
    
    Published report regarding matters submitted to vote of security holders
    
    N/ANone(23)
    
    Consents of experts and counsel
    
    N/A(24)
    
    Power of attorney
    
    N/ANone(31.1)
    
    Rule 13(a)-14(a)/15(d)-14(a) Certifications
    
    51(32)
    
    Section 1350 Certifications
    
    52(99)
    
    Additional exhibits
    
    N/ANone