##### 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 September 30, 2007
 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
(State or other jurisdiction of 
incorporation or organization)
    
    16-1509512
(I.R.S. Employer Identification No.)
 1999 Mt. Read Blvd. Building 3, Rochester, New York 14615
(Address of principal executive offices and Zip Code)
 (585) 254-1100
(Registrants telephone number, including area code)
 1169 Pittsford-Victor Road, Suite 125, Pittsford, New York 14534
(Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o þ
  o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS:
  Class
    
    Number of Shares Outstanding at
November 13, 2007Common Stock, $.01 par value
    
    31,624,767
 Options Outstanding
1,823,895




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##### 



INDEX
  
 PAGEPART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsTorvec, Inc. and Subsidiaries Condensed Consolidated Balance Sheets  September 30, 2007 (Unaudited) and December 31, 2006 (Derived from Audited Financial Statements)
    
    3Torvec, Inc. and Subsidiaries Condensed Consolidated Statements of Operations  Three and Nine Months Ended September 30, 2007 and 2006 (Unaudited) and September 25, 1996 (Inception) through September 30, 2007
    
    4Torvec, Inc. and Subsidiaries Condensed Consolidated Statement of Changes in Stockholderss Equity  Nine Months Ended September 30, 2007
    
    5Torvec, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows  Three and Nine Months Ended September 30, 2007 and 2006 (Unaudited) and September 25, 1996 (Inception) through September 30, 2007
    
    6Notes to Condensed Consolidated Financial Statements
    
    7-28Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    29Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    34Item 4.
    
    Controls and Procedures
    
    35PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    35Item 1A.
    
    Risk Factors
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    37Item 3.
    
    Defaults Upon Senior Securities
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    38Item 5.
    
    Other Information
    
    38Item 6.
    
    Exhibits
    
    38-42SIGNATURES PAGE
    
    43EXHIBIT INDEX
    
    44EX-31.1EX-32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 
 September30,2007
    
    
    December 31, 2006(Derived fromAudited Financial(Unaudited)
    
    
    Statements)ASSETSCurrent assets:Cash
    
    $
    483,000
    
    
    $
    720,000Accounts receivable
    
    
    98,000
    
    
    
    Prepaid expenses and other receivable
    
    
    63,000
    
    
    
    73,000Total current assets
    
    
    644,000
    
    
    
    793,000Property and
equipment, net
    
    
    124,000
    
    
    
    156,000Other Assets:Deposits
    
    
    2,000
    
    
    
    252,000Total Other Assets
    
    
    2,000
    
    
    
    252,000Total Assets
    
    $
    770,000
    
    
    $
    1,201,000LIABILITIESCurrent liabilities:Notes payable, current portion
    
    $
    14,000
    
    
    $
    14,000Accounts payable
    
    
    347,000
    
    
    
    145,000Accrued liabilities
    
    
    1,541,000
    
    
    
    1,541,000Advance from stockholder
    
    
    
    
    
    
    250,000Total current liabilities
    
    
    1,902,000
    
    
    
    1,950,000Deferred revenue
    
    
    500,000
    
    
    
    150,000Notes payable, net of current portion
    
    
    49,000
    
    
    
    59,000Total liabilities
    
    
    2,451,000
    
    
    
    2,159,000STOCKHOLDERS DEFICIENCYPreferred 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, 732,493
shares issued and outstanding (liquidation preference
$3,554,898)
    
    
    9,000
    
    
    
    9,000300,000 designated as Class B, Non-voting, cumulative
dividend $.50 per share, per annum, convertible, 97,500
shares issued and outstanding (liquidation preference
$287,511)
    
    
    
    
    
    
    Common stock, $.01 par value, 400,000,000 shares authorized,
31,495,595 and 31,307,792 issued and outstanding, at
September 30, 2007 and December 31, 2006, respectively
    
    
    315,000
    
    
    
    313,000Additional paid-in capital
    
    
    45,369,000
    
    
    
    43,767,000Deficit accumulated during the development stage
    
    
    (47,374,000
    )
    
    
    (45,047,000
    )Total Stockholders Deficit
    
    
    (1,681,000
    )
    
    
    (958,000
    )Total Liabilities and Stockholders Deficit
    
    $
    770,000
    
    
    $
    1,201,000
 See notes to condensed consolidated financial statements
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##### Table of Contents



September 25,1996(Inception)Three Months Ended
    
    
    Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007Revenue
    
    $
    98,000
    
    
    $
    
    
    
    $
    126,000
    
    
    $
    
    
    
    $
    126,000Cost of goods sold
    
    
    94,000
    
    
    
    
    
    
    
    120,000
    
    
    
    
    
    
    
    120,000Gross profit
    
    
    4,000
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    6,000Cost and expenses:Research and development
    
    
    152,000
    
    
    
    334,000
    
    
    
    541,000
    
    
    
    1,252,000
    
    
    
    14,632,000General and administrative
    
    
    434,000
    
    
    
    1,957,000
    
    
    
    1,935,000
    
    
    
    3,640,000
    
    
    
    33,092,000Asset impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,071,000Loss from operations
    
    
    (582,000
    )
    
    
    (2,291,000
    )
    
    
    (2,470,000
    )
    
    
    (4,892,000
    )
    
    
    (48,789,000
    )Other incomeOther income
    
    
    13,000
    
    
    
    
    
    
    
    143,000
    
    
    
    
    
    
    
    143,000Loss before minority interest
    
    
    (569,000
    )
    
    
    (2,291,000
    )
    
    
    (2,327,000
    )
    
    
    (4,892,000
    )
    
    
    (48,646,000
    )Minority interest in loss of consolidated
subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    1,272,000Net loss
    
    
    (569,000
    )
    
    
    (2,291,000
    )
    
    
    (2,327,000
    )
    
    
    (4,884,000
    )
    
    
    (47,374,000
    )Preferred stock beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    763,000Preferred stock dividend
    
    
    85,000
    
    
    
    65,000
    
    
    
    255,000
    
    
    
    177,000
    
    
    
    783,000Net loss attributable to common stockholders
    
    $
    (654,000
    )
    
    $
    (2,356,000
    )
    
    $
    (2,582,000
    )
    
    $
    (5,061,000
    )
    
    $
    (48,920,000
    )Basic and diluted net loss attributable to
common stockholders per share
    
    $
    (0.02
    )
    
    $
    (0.08
    )
    
    $
    (0.08
    )
    
    $
    (0.17
    )Basic and diluted weighted average number of
shares of common stock
    
    
    31,457,000
    
    
    
    30,640,000
    
    
    
    31,805,000
    
    
    
    30,472,000
 See notes to condensed consolidated financial statements
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##### Table of Contents



Class A Preferred Stock
    
    
    Class B Preferred Stock
    
    
    COMMON STOCK
    
    
    
    
    
    
    Deficit
    
    
    TotalAdditional
    
    
    Accumulated During the
    
    
    Stockholders' EquityShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Development Stage
    
    
    (Capital Deficit)Balance at January 1, 2007
    
    
    732,493
    
    
    $
    8,000
    
    
    
    97,500
    
    
    $
    1,000
    
    
    
    31,307,792
    
    
    
    313,000
    
    
    
    43,767,000
    
    
    
    (45,047,000
    )
    
    
    (958,000
    )Issuance of common stock for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,803
    
    
    
    2,000
    
    
    
    708,000
    
    
    
    
    
    
    
    710,000Contribution of services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    
    
    
    
    225,000Shares issued for purchase of Variable Gear
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    19,000
    
    
    
    
    
    
    
    19,000Exercise of consultants warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of warrants for consultanting services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    650,000
    
    
    
    
    
    
    
    650,000Return of shares from litigation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,000
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,327,000
    )
    
    
    (2,327,000
    )Balance at September 30, 2007
    
    
    732,493
    
    
    
    8,000
    
    
    
    97,500
    
    
    
    1,000
    
    
    
    31,495,595
    
    
    
    315,000
    
    
    
    45,369,000
    
    
    
    (47,374,000
    )
    
    
    (1,681,000
    )
 See notes to the condensed consolidated financial statements.
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##### Table of Contents



September 25,1996(Inception)Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (2,327,000
    )
    
    $
    (4,884,000
    )
    
    $
    (47,374,000
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    32,000
    
    
    
    672,000
    
    
    
    2,368,000Loss on impairment of license
    
    
    
    
    
    
    
    
    
    
    1,071,000Impairment of goodwill
    
    
    19,000
    
    
    
    
    
    
    
    19,000Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Minority interest in loss of consolidated subsidiary
    
    
    
    
    
    
    (8,000
    )
    
    
    (1,272,000
    )Compensation expense attributable to common stock in Subsidiary
    
    
    
    
    
    
    
    
    
    
    619,000Common stock issued for services
    
    
    710,000
    
    
    
    921,000
    
    
    
    11,316,000Shares issued for future consulting services
    
    
    
    
    
    
    (57,000
    )
    
    
    103,000Stockholder contribution of services
    
    
    225,000
    
    
    
    225,000
    
    
    
    2,334,000Compensatory common stock, options and warrants
    
    
    650,000
    
    
    
    2,498,000
    
    
    
    17,252,000Changes in:Accounts receivable
    
    
    (98,000
    )
    
    
    
    
    
    
    (98,000
    )Prepaid expenses
    
    
    10,000
    
    
    
    (5,000
    )
    
    
    98,000Deposits
    
    
    
    
    
    
    (250,000
    )
    
    
    (2,000
    )Accounts payable and accrued expenses
    
    
    202,000
    
    
    
    44,000
    
    
    
    3,796,000Deferred revenue
    
    
    350,000
    
    
    
    
    
    
    
    500,000Net cash used in operating activities
    
    
    (227,000
    )
    
    
    (844,000
    )
    
    
    (9,280,000
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    
    
    
    
    (10,000
    )
    
    
    (279,000
    )Cost of acquisition
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Proceeds
from sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    10,000Net cash used in investing activities
    
    
    
    
    
    
    (10,000
    )
    
    
    (285,000
    )Cash flows from financing activities:Net proceeds from sales of common stock and upon exercise of options and warrants
    
    
    
    
    
    
    11,000
    
    
    
    6,500,000Net proceeds from sales of preferred stock
    
    
    
    
    
    
    648,000
    
    
    
    3,537,000Net proceeds from sale of subsidiary stock
    
    
    
    
    
    
    
    
    
    
    234,000Net proceeds from sale of warrants
    
    
    
    
    
    
    2,000
    
    
    
    Proceeds from long  term borrowings
    
    
    
    
    
    
    306,000
    
    
    
    85,000Repayments of long  term debt
    
    
    (10,000
    )
    
    
    (4,000
    )
    
    
    (46,000
    )Proceeds from stockholders loans-net
    
    
    
    
    
    
    
    
    
    
    103,000Distributions
    
    
    
    
    
    
    
    
    
    
    (365,000
    )Net cash (used in) provided by financing activities
    
    
    (10,000
    )
    
    
    963,000
    
    
    
    10,048,000Net (decrease) increase in cash
    
    
    (237,000
    )
    
    
    (109,000
    )
    
    
    483,000Cash at beginning of period
    
    
    720,000
    
    
    
    51,000Cash at end of period
    
    $
    483,000
    
    
    $
    160,000
    
    
    $
    483,000Supplemental Disclosures:Interest paid
    
    $
    9,000Shares issued for future consulting services
    
    
    
    
    
    $
    192,000Net cash investing and financing activities:Shares issued for acquisition of Variable Gear, LLC
    
    
    19,000
    
    
    
    
 See notes to condensed consolidated financial statements
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##### Table of Contents



Note A  The Company and Basis of Presentation
 The interim information contained herein with respect to the three and nine month periods ended
September 30, 2007 and 2006 and the period from September 25, 1996 (inception) through
September 30, 2007 has not been audited but was prepared in conformity with generally accepted
accounting principles for interim financial information and
instructions for Form 10-Q and Item
310(b) of Regulation S-K. Accordingly, the condensed consolidated financial statements do not
include all information and footnotes required by generally accepted accounting principles for
financial statements. Included are ordinary adjustments which in the opinion of management are
necessary for a fair presentation of the financial information for the three and nine month
periods ended September 30, 2007 and 2006, and since inception. The results are not necessarily
indicative of results to be expected for the entire year.Torvec, Inc. (the company) was incorporated as a New York State business corporation on
September 25, 1996. The company, which is in the development stage, has developed
production-ready automotive technologies for use in automotive applications. The company has
developed and intends to commercialize its infinitely variable transmissions, its pump/motors,
its Iso-Torque differential, its constant velocity joint and the substructure and components of
its full terrain vehicle.On November 29, 2000, the company acquired Ice Surface Development, Inc. (Ice Surface) which
had been incorporated in May 2000 for 1,068,354 shares of common stock valued at approximately
$3,405,000. The acquisition was accounted for under the purchase method. On March 31, 2002, the
company granted to three former officers of the company 28% of Ice Surface in exchange for
previously granted fully vested options (See Note C). The exchange was valued at $618,000 and
the carrying portion of the companys investment deemed sold of $850,000 is reflected as a
reduction of additional paid-in capital in stockholders deficiency. The sole asset of Ice
Surface upon its acquisition by the company was a license granted by the Trustees of Dartmouth
College for land-based vehicle applications of a novel ice adhesion modification system
developed by Dr. Victor Petrenko of Dartmouths Thayer School of Engineering.Effective June 15, 2007, Ice Surface assigned the license to an unrelated company, Ice
Engineering, LLC, in exchange for Ice Engineerings agreement to pay the shareholders of Ice
Surface Development an annual royalty equal to 5% of the annual gross revenues generated by the
license and its agreement to assume the obligations to Dartmouth College under the license. See
Note B [5].The companys financial statements have been prepared assuming the company will continue as a
going concern. For the period from September 25, 1996 (inception) through September 30, 2007,
the company has accumulated a deficit of approximately $47,374,000 and at September 30, 2007 has a negative
working capital position of $1,258,000 and Stockholders
Deficiency of $1,681,000. The company
has been dependent upon equity financings, advances from stockholders and issuance of stocks
and warrants to meet its obligations and sustain operations. The companys efforts have been
principally devoted to the development of its technologies and commercializing its products.
Management believes that based upon the companys current cash
position, its ability to adhere to a budget for
business operations through September 30, 2008 and an outstanding commitment from a
director/officer to fund any deficiencies which may arise, the company will be able to continue
scaled operations for the next twelve months. The companys ability to continue as a going concern is
ultimately dependent upon achieving profitable business operations and generating sufficient
cash flows from operations to meet future obligations.On January 25, 2007, the companys shareholders approved an increase in common shares the
company is authorized to issue from 40,000,000 to 400,000,000.
 Note B  Summary of Significant Accounting Policies
 [1] Consolidation:
 The financial statements include the accounts of the company, its majority-owned subsidiary,
Ice Surface Development, Inc. (69.26% owned at September 30, 2007 and 2006), and its wholly
owned subsidiaries Iso-Torque Corporation, IVT Diesel Corp. and Variable Gear LLC. All material
intercompany transactions and account balances have been eliminated in consolidation.
 7




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[2] Accounts Receivable:
 Accounts receivable are stated at estimated net realizable value. The company expects to
evaluate its allowance for doubtful accounts based on a combination of historical experience,
aging analysis and information on specific accounts. Account balances are written off when
collection efforts have been exhausted and the potential for recovery is considered remote. The
company has not recorded an allowance against receivables based upon managements estimate.
 [3] 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.
 [4] Research and development and patents:
 Research and development costs and patent expenses are charged to operations as incurred.
 [5] License:
 In December, 2006,
the company concluded that there was an impairment of the ice technology license and has
written off the remaining balance of $1,071,000 in accordance with SFAS No. 144. Effective June
15, 2007, the company assigned the license to Ice Engineering, LLC. in exchange for Ice
Engineerings agreement to pay the shareholders of the companys majority owned subsidiary, Ice
Surface Development, Inc., an annual royalty equal to 5% of the annual gross revenues generated
by the license and its agreement to assume all of the obligations to Dartmouth College under
the license.
 [6] Use of estimates:
 The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Such estimates are used in valuing the useful lives of its intangible assets
and the future realizable value of such assets. These estimates are subject to a high degree of
judgment and potential change. Actual results could differ from those estimates.
 [7] Loss per common share:
 Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, requires
the presentation of basic earnings per share, which is based on common stock outstanding, and
dilutive earnings per share, which gives effect to options, warrants and convertible securities
in periods when they are dilutive. At September 30, 2007 and 2006, the company excluded
4,690,088 and 4,335,951 potential common shares, respectively, relating to convertible
preferred stock outstanding, options and warrants from its diluted per share net loss attributable to common stockholder
calculation because they are anti-dilutive.
 [8] Fair value of financial instruments:
 The carrying amount of cash, prepaid expenses, accounts payable, notes payable, advance from
stockholder and accrued expenses approximates their fair value due to the short maturity of
those instruments.
 8




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[9] 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.The Company follows Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based
Payment. 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. 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 follow the
alternative method of calculating the historical pool of windfall tax benefits as permitted by
FASB Staff Position (FSP) No. SFAS 123R, 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 outstanding awards.
 [10] Revenue recognition policy:
 The company recognizes revenue when the amounts become fixed and determinable. Revenue is
recognized when product is shipped, title has passed, collections are reasonably assured and
the company has no further obligation to its customers. All sales are final with no right of
return except for defective product.
 [11] Shipping and handling costs:
 Shipping and handling costs are classified in general and administrative expenses in the
consolidated statements of operations. Shipping and handling costs were approximately $300 and
$5,500 for the three and nine months ended September 30, 2007. There were no shipping and
handling cost recorded for the three and nine months ended September 30, 2006.
 [12] Income taxes:
 The Company adopted Financial Standards Board Interpretation No. 48 Accounting for Uncertainty
in Income Taxes (FIN 48) an interpretation of FASB Statement 109 (SFAS 109) on January 1,
2007. As a result of the implementation of FIN 48, we recognized no material adjustment to
unrecognized tax benefits. At the adoption date of January 1, 2007, we had $11,764,000 of
unrecognized tax benefits, all of which would affect our effective tax rate if recognized. At
September 30, 2007 we have $12,555,000 unrecognized tax benefits.We recognize interest and penalties related to uncertain tax positions in general and
administrative expense. As of September 30, 2007, we have not recorded any provisions for
accrued interest and penalties related to uncertain tax positions.Tax years 1999 through 2006 remain open to examination by the major taxing jurisdictions to
which we are subject.
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##### Table of Contents



[13] Recent accounting pronouncements:
 In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, to define fair
value, establish a framework for measuring fair value in accordance with generally accepted
accounting principles, and expand disclosures about fair value measurements. SFAS No. 157 will
be effective for fiscal years beginning after November 15, 2007. The company is assessing the
impact the adoption of SFAS No. 157 will have on the companys financial position and results
of operations.In February, 2007 the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial assets
and financial liabilities at fair value. Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings. SFAS no. 159 is effective for fiscal
years beginning after November 15, 2007. We are currently assessing the impact, if any, that the
adoption of SFAS No. 159 may have on our financial position and results of operations.
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##### Table of Contents



NOTE C  LICENSE FROM THE TRUSTEES OF DARTMOUTH COLLEGE
 On November 28, 2000, the companys majority owned subsidiary, Ice Surface Development, Inc.
(Ice Surface) 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 by the company 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 provided for the payment of 50% of sub-license fee income.Expense for the above agreements totaled $5,750 for the three month period ended
September 30, 2006 and totaled $17,250 for the nine month period ended
September 30, 2006. While in managements opinion, the carrying value of the license
had been impaired as of and for the year ended December 31, 2006, the companys obligations
under the license remained in effect.Effective June 15, 2007, Ice Surface assigned the license to an unrelated company, Ice
Engineering, LLC in exchange for Ice Engineerings agreement to pay the shareholders of Ice
Surface an annual royalty equal to 5% of the annual gross revenues generated by the license and
its agreement to assume the obligations to Dartmouth College under the license.Separately, Ice Engineering, LLC agreed to reimburse approximately $3,500,000 of acquisition
and maintenance costs expended by Torvec in connection with the ice technology. Pursuant to the
reimbursement agreement, Torvec received $500,000 on June 15, 2007. The $3,000,000 balance is
to be paid at the rate of $300,000 per quarter commencing March 1, 2008, less approximately
$91,000 in fees payable to Dartmouth College accrued through June 14, 2007 to be deducted from
the first quarterly reimbursement amount.The Company has accounted for the receipt of the proceeds as deferred revenue, such amounts
represents an initial payment and is subject to additional installments. In the circumstances, the
recovery of the full selling price is dependant upon Ice Engineering having the necessary resources
to make all payments under the agreement.
 NOTE D  RELATED PARTY TRANSACTIONS
 [1]
    
    Commencing January 1, 2004, James Y Gleasman and Keith E. Gleasman (the Gleasman) 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 nine month periods ended September 30,
2007 and 2006, the company did not pay the Gleasmans any consulting fees for their services.
The company recorded approximately $75,000 for the estimated value of these services for each
quarterly period as a contribution to capital based upon approved time and hours spent. For
each quarterly period through March 31, 2007, the company recorded $50,000 to research and
development and $25,000 to general and administrative. For the quarterly periods ended June
30, 2007 and September 30, 2007, the company recorded $25,000 to research and development and
$50,000 to general and administrative to reflect the companys operational shift from
development of its technologies to the promotion and marketing of its technologies.[2]
    
    Payments to a member of the Gleasman family for administrative, engineering and technological
services amounted to $23,400 and $12,600 for the three month periods ended September 30, 2007
and 2006 and $65,300 and $30,390 for the nine month periods ended September 30, 2007 and 2006.[3]
    
    On September 14, 2007, the company moved its executive offices from Pittsford, New York to Rochester, New York, which includes both a manufacturing and executive office facility. The
Rochester facility is
owned by a partnership, in which David M. Flaum, a company director, is a partner. The
company is still engaged with the landlord in discussions concerning the final terms and
conditions of the lease agreement with respect to the Rochester facility and anticipates that such discussions will be concluded
shortly. The Company anticipates its monthly rent payment to approximately $5,700 for the first 5 years and payments are to commence on June 1, 2008.
 
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##### Table of Contents



NOTE E  ACCOUNTS PAYABLE AND ACCRUED LIABILITY EXPENSES
  September 30,
    
    
    December 31,2007
    
    
    2006Professional fees
    
    $
    50,000
    
    
    $
    191,000Non-management Directors compensation
    
    
    58,000
    
    
    
    Other accrued expenses
    
    
    285,000
    
    
    
    Salaries to officer/shareholders of Ice (Note C)
    
    
    1,495,000
    
    
    
    1,495,000$
    1,888,000
    
    
    $
    1,686,000
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NOTE F- SHAREHOLDER, OFFICER AND OTHER NOTES PAYABLE
 [1] Notes Payable  Financial Institution:
 During the year ended December 31, 2005, the company financed a vehicle as a prototype and
pledged the vehicle as 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.During the year ended December 31, 2006, the company refinanced two vehicles and pledged the
vehicles as collateral for the loan. The loan in the amount of $56,174 is paid in monthly
installments of $1,201 consisting of principal and interest at 10.3% per annum through August
2011.The following represents the required minimum payments per annum as of September 30, 2007:
 For the years ending September 30,2008
    
    $
    20,0002009
    
    
    20,0002010
    
    
    20,0002011
    
    
    15,000Total minimum payments
    
    
    75,000Less-amount representing interest
    
    
    12,00063,000Less-Current Maturities
    
    
    14,000Long Term Portion
    
    $
    49,000
 Interest expense for the three and nine month periods ended September 30, 2007 was $1,445 and
$4,724, respectively.
 [2] 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.On March 16, 2007, the Appellate Division of the New York State Supreme Court reversed the
lower Courts May 8, 2006 order in its entirety. Pursuant to such reversal, on April 5, 2007,
the lower Court ordered the return of the $250,000 deposit (less administrative costs of
$4,032) to the company. The company repaid the entire $250,000 to the shareholder in April,
2007. Interest expense with respect to this loan for the three and nine month periods ended
September 30, 2007 and 2006 amounted to $-0- and $1,334 and $1,334 and $4,183, respectively.
 Note G  STOCKHOLDERS 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) at $4.00 per share.
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. Liquidation Rights
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##### Table of Contents



(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.
 The company has sold an aggregate 773,543 Class A Preferred for aggregate proceeds of
$3,062,046. Class A Preferred shareholders have converted 41,050 Class A Preferred for an equal
number of common shares.The company sold 78,750 Class A Preferred to investors for proceeds of $315,000 during the
three month period ended September 30, 2006 and 162,000 Class A Preferred for proceeds of
$648,000 during the nine month period ended September 30, 2006. The company issued 75,432
common stock warrants to investors in connection with the purchase of Class A Preferred for the
three month period ended September 30, 2006 and 119,182 common stock warrants for the nine
month period ended September 30, 2006. The company did not sell any Class A Preferred or issue
any warrants during the three and nine month periods ended September 30, 2007.All such warrants are exercisable at $.01 per common share. 35,000 and 47,500 warrants were
exercised during the three and nine month periods ended September 30, 2006.At September 30, 2007 and 2006, Class A Preferred dividends in arrears amounted to
approximately $698,000 and $409,000, respectively.
 [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) at $5.00 per share.
Each share of Class B Preferred pays cumulative dividends at $.50 per share per annum and is
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. The holder has the right to
convert after one year subject to Board approval.
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##### Table of Contents



The company has sold an aggregate 97,500 Class B Preferred for aggregate proceeds of $487,500.
Class B Preferred Shareholders have not converted any Class B Preferred.During the three and nine month periods ended September 30, 2007 and 2006, the company did not
sell any Class B Preferred.At September 30, 2007 and 2006, Class B Preferred dividends in arrears amounted to
approximately $86,000 and $43,000, respectively.
 [3] Business Consultants Stock Plan:
 For the three month periods ended September 30, 2007 and 2006, the company issued 94,180 and
560,929 common shares to business consultants under the Business Consultants Stock Plan and
charged $292,000 and $347,000 to operations in connection with these share issuances. For the
nine month periods ended September 30, 2007 and 2006, the company issued 174,803 and 891,663
common shares and charged $702,000 and $939,000 to operations. Share issuances are valued
generally on the date immediately prior to the date of issuance, except for shares issued to
pay invoices which are valued as of the invoice date and except for shares issued under the
Nonmanagement Directors Plan which are valued as of the end of each quarter effective October
13, 2006. As of September 30, 2007, 4,791,826 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.Due to changes made to the plan on October 13, 2006, described below, the company did not grant
any warrants under the Plan for the three month periods ended September 30, 2007 and 2006 and
for the nine month period ended September 30, 2007. Prior to the changes, for the nine month
period ended September 30, 2006, the company granted 26,500 warrants and the company recorded a
charge of approximately $48,000 to general and administrative expenses.No previously issued warrants were exercised during the three month period ended September 30,
2007. During the three month period ended September 30, 2006, 3,000 previously issued warrants
were exercised. During the nine month periods ended September 30, 2007 and 2006, 6,000 and
18,000 previously issued warrants were exercised.On October 13, 2006, the board modified the Plan to provide that, effective for periods
commencing on and after July 1, 2006, a stipulated sum per annum should be paid to each
nonmanagement director solely for his service as a director, with the amount of such payment
determined by the board from time to time, based upon such considerations as risk, number of
meetings, monitoring and reviewing company compliance with the Sarbanes-Oxley Act as well as
all other applicable local, state, national and international rules and regulations,
development and implementation of policies, including establishing and reviewing executive
compensation, longevity, 24-hour a day availability, as well as oversight of managements
pursuit of one or more commercializing events for the companys technologies. Until adjusted in
accordance with such factors, the board determined that each nonmanagement director shall be
paid $25,200 per annum exclusively for board and committee service, payable pro rata on a
quarterly basis, provided each such director shall have attended, either in person or via
telephonic conference, 75% of the meetings of the board and of the committee(s) of which he is
a member, such attendance measured on an annual basis. Such amount shall be paid either in
cash, Business Consultants stock or a combination of both and is payable to a newly elected
director on a prospective basis upon his election as a director.At the same meeting, the board also determined that a stipulated sum per annum should be paid
to those nonmanagement directors serving as chairman of the board, chairman of the executive
committee, chairman of the audit committee, chairman of the nominating committee and chairman
of the compensation and governance committee, exclusively for service rendered in such
capacities. Until further adjusted, the board determined that the chairman of the board shall
be paid $7,500 per annum, the chairman of the executive committee shall be paid $12,000 per
annum, the chairman of the audit committee shall be paid $12,000 per annum, the chairman of the
nominating committee shall be paid $5,100 per annum and the chairman of the compensation and
governance committee shall be paid $5,100 per annum. Such amounts are to be paid pro rata on a
quarterly
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##### Table of Contents



basis with payments made in cash, Business Consultants stock or a combination of both and is
payable to a newly elected chairman on a prospective basis upon his election as chairman. With
respect to amounts payable to chairmen for calendar 2006, such amounts shall be payable
retroactively to January 1, 2006 (except for the audit committee chairman who has received
payment for the six month period ended June 30, 2006).Each unexercised, nonmanagement director warrant outstanding as of October 13, 2006 was amended
to provide that such warrants may be exercised only upon the happening of the earlier to occur
of the following events: death or disability of the director, termination of his service as a
director, change in control of the company or the sale, license or other commercial transfer of
a substantial amount of the companys assets, all of such terms to be interpreted in accordance
with the provisions of section 409A of the Internal Revenue Code of 1986 and the regulations
promulgated thereunder.For the three month period ended September 30, 2007, the company issued 11,978 common shares
pursuant to the Nonmanagement Directors Plan to satisfy the June 30, 2007 payable in the amount
of $41,925 and recorded a charge of $41,925 for such period. For the nine month period ended
September 30, 2007, the company has issued 21,960 common shares to satisfy the March 31, 2007
and June 30, 2007 payable in the aggregate amount of $83,850 and has recorded a charge of
$83,850 for such period.The Nonmanagement Director Plan was amended on October 10, 2007 (See Note K).
 [5] Shares issued for services and rent:
 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 1998, the company granted 1,000 shares of common stock, valued at $3.00 per share, for
services provided. 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 three and nine month periods ended September
30, 2007 and 2006, no restricted shares were issued.
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##### Table of Contents



[6] Business, Financial and Engineering Consultants:
 In connection with its business, financial and engineering operations for the three month
period ended September 30, 2006, the company issued 85,333 warrants exercisable for ten years
at $0.01 per common share to business, financial and engineering consultants. During the nine
month period ended September 30, 2006, the company issued 492,833 warrants exercisable for ten
years to such consultants. In connection with the issuance of these warrants, the company
recorded a charge of $1,389,000 and $2,032,477 in consulting expense for the three months and
nine months ended September 30, 2006.During the three month period ended September 30, 2007, the company did not issue any warrants
to its business, financial and engineering consultants. During the nine month period ended
September 30, 2007, the company issued 150,000 warrants exercisable for ten years at $5.00 per
common share to such consultants. In connection with the issuance of these warrants, the
company recorded a charge of $650,000 for the nine month period ended September 30, 2007. The
50,000 warrants issued during the first quarter of 2007 require that the company engage in a
commercializing event for the warrants to become exercisable.During the three and nine month periods ended September 30, 2006, 90,750 of these warrants were
exercised for proceeds of $908. No warrants were exercised for the three and nine month periods
ended September 30, 2007.
 [7] Stock Option Plan:
 In December, 1997, the board of directors approved a Stock Option Plan (the Option Plan)
which provides for the grant of up to 2,000,000 common stock options to officers, directors and
consultants who are eligible to receive incentive, nonqualified or reload stock options.
Options granted under the Option Plan are exercisable for a period of up to ten years from the
date of grant at an exercise price which is not less than the per share trading price of the
underlying common stock on the date of grant, except that the exercise period for options
granted to a greater than 10% shareholder may not exceed five years and the exercise price may
not be less than 110% of such trading price per share on the date of grant.In 1997, in connection with certain consulting agreements, the company granted an aggregate
75,000 nonqualified options at an exercise price of $5.00 per common share. The options vested
at a rate of 20% per annum and are exercisable through November 30, 2007. The company valued
these options using the Black-Scholes option-pricing method. The fair value of these options
was expensed over the term of the consulting agreements.In 1998, the company granted three directors an aggregate 380,000 options under the Option
Plan, all exercisable immediately at $5.00 per common share. These options expire on January 1,
2008.In 2001, the company granted 100,000 options to an officer in his capacity as a consultant
under the Option Plan exercisable immediately at $5.00 per common share. In connection with
this grant, the company recorded a stock compensation charge of $398,000. The option expires in
August 28, 2011.In 2002, in connection with certain consulting agreements, the company granted an aggregate
727,047 options under the Option Plan, all exercisable immediately at $5.00 per common share.
The options were granted in payment of an aggregate $653,000 owed under the consulting
agreements. These options expire on September 30, 2007.In 2003, in connection with the same consulting agreements, the company granted 166,848 options
under the Option Plan, all exercisable immediately at $5.00 per common share. The options were
granted in payment of an aggregate $265,000 owed under the consulting agreements. These options
expire on December 22, 2013.In 2003, the company granted an aggregate 225,000 options under the Option Plan to three
directors, all immediately exercisable at $5.00 per common share. These options expire on
October 15, 2013.In 2003, the company granted 50,000 options to a consultant under the Option Plan, immediately
exercisable at $2.26 per common share. In connection with this grant, the company recorded a
stock compensation charge of $46,000. These options expire on May 20, 2013.In 2005, the company granted 100,000 options to a consultant under the Option Plan, immediately
exercisable at $5.00 per common share. In connection with this grant, the company recorded a
stock compensation charge of $247,000 allocated to research and development. These options
expire on June 30, 2015.
 17




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##### Table of Contents



No options were granted under the Option Plan during the three and nine month periods ended
September 30, 2007 and 2006.A summary of options granted under the Option Plan is set forth in the following table:
 Nine Months Ended September 30,2007
    
    
    2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    1,823,895
    
    
    $
    4.85
    
    
    
    1,823,895
    
    
    $
    4.85Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at September 30, 2007
    
    
    1,823,895
    
    
    
    4.85
    
    
    
    1,823,895
    
    
    
    4.85Options exercisable September 30, 2007
    
    
    1,823,895
    
    
    
    4.85
    
    
    
    1,823,895
    
    
    
    4.85
 At September 30, 2007, 176,105 options are available for future grants under the Plan.The following table represents information relating to stock options outstanding at September
30, 2007:
 Options Outstanding
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    Remaining Life
    
    
    
    
    
    ExerciseShares
    
    Price
    
    
    in Years
    
    Shares
    
    
    Price1,773,895
    
    $
    5.00
    
    
    2.94
    
    
    1,773,895
    
    
    $
    5.0050,000
    
    
    2.26
    
    
    5.67
    
    
    50,000
    
    
    
    2.261,823,895
    
    
    4.85
    
    
    3.09
    
    
    1,823,895
    
    
    
    4.85
 As of September 30, 2007, the company did not have any unrecognized stock compensation related
to unvested awards.The company did not record any stock based compensation for the three and nine month periods
ended September 30, 2007 and 2006.
 18




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##### Table of Contents



The following summarizes the activity of the companys stock options for the three and nine
month periods ended September 30, 2007 and 2006:
 WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueNumber of shares under option plan:Outstanding at January 1, 2007
    
    
    1,823,895
    
    
    $
    4.85GrantedExercisedCanceled or expiredOutstanding at September 30, 2007
    
    
    1,823,895
    
    
    $
    4.85
    
    
    
    3.09
    years
    
    $
    34,500Exercisable at September 30, 2007
    
    
    1,823,895
    
    
    $
    4.85
    
    
    
    3.09
    years
    
    $
    34,500
 At September 30, 2007, all outstanding options were fully vested.At September 30, 2007 the company has 134,964 restricted shares issued outside the plan.
 [8] Warrants:
 As of September 30, 2007, outstanding warrants to acquire shares of the companys common stock
are as follows:
 Number ofExercise
    
    
    
    SharesPrice
    
    Expiration
    
    Exercisable(a)
    
    (a)
    
    
    125,000
    
    
    (a)$.75
    
    None
    
    
    500,000
    
    
    (b)$.01
    
    None
    
    
    511,200
    
    
    (c)$.01
    
    None
    
    
    54,500
    
    
    (d)$.01
    
    None
    
    
    39,000
    
    
    (e)$5.00
    
    10 years
    
    
    505,000
    
    
    (f)$.01
    
    None
    
    
    6,000
    
    
    (g)$.01
    
    None
    
    
    25,000
    
    
    (h)$1.00
    
    None
    
    
    20,500
    
    
    (i)(j)
    
    (j)
    
    
    (j
    )
    
    (j)$3.27
    
    10 years
    
    
    400,000
    
    
    (k)$3.75
    
    10 years
    
    
    200,000
    
    
    (l)$5.00
    
    10 years
    
    
    50,000
    
    
    (m)$5.00
    
    10 years
    
    
    100,000
    
    
    (n)
 (a)
    
    Exercisable only if company has an IPO at the IPO price and exercisable five years from IPO.
Through September 30, 2007, the company has not completed an 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 him 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.(c)
    
    The company has issued 1,080,000 warrants, exercisable at $.01 per share, to a management
consulting firm in accordance with agreements between the company and a management firm.
528,800 of these warrants have been exercised for aggregate proceeds
 
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##### Table of Contents



of $5,484. In accordance with the court of original jurisdictions order rendered on May 8, 2006
in connection with the litigation against such consulting firm as more fully 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. The company appealed the lower courts order to the Appellate Division of the New York
State Supreme Court. On March 16, 2007, the Appellate Division unanimously reversed the lower
courts decision. During the pendency of its appeal, the company had been required to issue and
deposit with the Clerk of the Court for Monroe County, New York, 40,000 common shares and 245,000
additional common stock warrants and deposit $250,000 with the Monroe County, New York
Treasurers office. As a result of the Appellate Divisions decision, on April 5, 2007, the lower
court ordered the return of the 40,000 shares, 245,000 warrants and $250,000 to the company. Upon
such return, the shares and warrants were cancelled. Thus, 511,200 warrants does not include
either the 40,000 warrants or the 245,000 warrants cancelled on the companys books. See Notes I
and J.(d)
    
    The company issued an aggregate 123,500 warrants to its nonmanagement directors for services
rendered to the board under its Nonmanagement Directors Stock Plan prior to its amendment on
October 13, 2006. For the years ended December 31, 2006, 2005 and 2004, the company issued
26,500, 44,000 and 53,000 warrants, immediately exercisable for a ten year term at $.01 per
common share. No further warrants are issuable under the Plan as modified by the board of
directors on October 13, 2006 (See Note G [4]). During 2005, 21,000 warrants were exercised. No warrants were exercised during the three
month period ended September 30, 2007 and 3,000 warrants were exercised during the three
month period ended September 30, 2006. During the nine month periods ended September 30, 2007
and 2006, 6,000 and 42,000 of these warrants were exercised for proceeds of $60 and $180.(e)
    
    In 2005, the company issued 12,000 warrants to a consultant, immediately exercisable at .01
per common share. During 2005, 3,000 warrants were exercised for proceeds of $30. In 2006, the
company issued 30,000 warrants to consultants exercisable immediately for a ten year term at
$5.00 per common share.(f)
    
    During 2005, the company issued 210,000 warrants to certain engineering consultants,
exercisable immediately for a ten year term at $5.00 per common share. During 2006, the
company issued 295,000 warrants to certain engineering consultants exercisable over a ten year
term at $5.00 per common share, but only exercisable if the company sells, licenses or
otherwise transfers one or more technologies for value. None of these warrants have been
exercised through September 30, 2007.(g)
    
    During 2005, the company issued 6,000 warrants to a consultant, exercisable at .01 per common
share. None of these warrants have been exercised through September 30, 2007.(h)
    
    During 2005, the company issued 62,500 warrants to investors in connection with their
purchase of 62,500 Class A Preferred, exercisable at $.01 per common share. 50,000 of these
warrants were exercised in 2005 for proceeds of $625. During 2006, the company issued 135,849
warrants to investors along with their purchase 162,000 Class A Preferred and 20,000 Class B
Preferred, all immediately exercisable at $.01 per common share. During 2006, 110,849 of these
warrants were exercised for proceeds of approximately $1,171. None of these warrants were
exercised during the three month period ended September 30, 2007. 12,500 of these warrants
were exercised during the nine month period ended September 30, 2007 for proceeds of $125.(i)
    
    During 2006, one investor purchased 20,500 warrants immediately exercisable at $1.00 per
common share for a purchase price of $2,000. None of these warrants have been exercised
through September 30, 2007.(j)
    
    In connection with its business and financial operations for the year ended December 31,
2006, the company issued 91,583 warrants, immediately exercisable over a ten year term at $.01
per common share. During the year ended December 31, 2006, 91,083 of these warrants were
exercised for proceeds of $910. None of these warrants were exercised during the three month
period ended September 30, 2007. 500 of these warrants were exercised during the nine month
period ended September 30, 2007 for net proceeds of $5.(k)
    
    During 2006, the company issued 400,000 warrants immediately exercisable for ten years at an
exercise price of $3.27 per common share to a business consultant. None of these warrants have
been exercised through September 30, 2007.(l)
    
    During 2006, the company issued 200,000 warrants immediately exercisable for ten years at an
exercise price of $3.75 per common share to its governmental affairs consultant. None of these
warrants have been exercised through September 30, 2007. The company recorded a charge of
$948,000 to general and administrative expenses.(m)
    
    During the quarter ended March 31, 2007, the company issued 50,000 warrants exercisable for a
ten year period at $5.00 per common share upon the happening of a commercializing event. The
warrants were issued to a consultant who assisted the company develop its New York State and
national school bus program. None of these warrants have been exercised through September 30,
2007. The company recorded a charge of $249,000 to general and administrative expenses.
 
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(n)
    
    On April 19, 2007, the company issued 100,000 warrants immediately exercisable for ten years
at an exercise price of $5.00 per common share to two engineering consultants in connection
with the companys engagement to furnish constant velocity joints to a military contractor.
None of these warrants have been exercised through September 30, 2007. The company recorded a
charge of $401,000 to general and administrative expenses.The following summarizes the activity of the companys outstanding warrants for the nine
months ended September 30, 2007:
 WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicWarrants
    
    
    Price
    
    
    Term*
    
    
    ValueOutstanding at January 1, 2007
    
    
    2,652,700
    
    
    $
    2.19
    
    
    7.44 yearsGranted
    
    
    150,000
    
    
    
    5.00
    
    
    9.59 yearsExercised
    
    
    (19,000
    )
    
    
    0.01Canceled or expired
    
    
    (247,500
    )
    
    
    0.01Outstanding at September 30, 2007
    
    
    2,536,200
    
    
    $
    2.58
    
    
    8.52 years
    
    $
    2,924,308Exercisable at September 30, 2007
    
    
    1,616,200
    
    
    $
    2.50
    
    
    5.09 years
    
    $
    1,824,308
 *
    
    Does not include those shares with no expiration date.
 The fair value of warrants were estimated using the Black-Scholes option pricing model
utilizing the following assumptions: risk free rate of 3.76%; expected option life of 10 years;
expected volatility of 1.64%; and expected dividend yield 0% for the nine months period ended
September 30, 2007.
 [9] Issuance of Stock and Warrants by Subsidiary:
 The following is a summary of warrants outstanding issued by Ice Surface Development, Inc.
 Three Months EndedSeptember 30,2007
    
    
    2006Outstanding at the beginning of the period
    
    
    103,948
    
    
    
    103,948Forfeited
    
    
    (103,948
    )
    
    
    Outstanding at the end of the period
    
    
    
    
    
    
    103,948
 All warrants had an exercise price of $.76 per share. On June 7, 2007, all of the 103,948
outstanding warrants issued by Ice Surface Development, Inc. were tendered and forfeited in
connection with the vote of the shareholders of Ice Surface Development, Inc. to liquidate and
dissolve the company.
 [10] Shares Issued for Consulting Services:
 On 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 on September 27, 2005, contingent
on the performance by the consultants of future services under such consultant agreements. The
company fair values the shares issued to the trust using the closing market price of the
companys common stock on the date immediately prior to the date of issuance.No shares were sold in the trust during the 2005 calendar year. During the calendar year ended
December 31, 2006, the company issued an aggregate 160,000 business consultant common shares
valued in the aggregate at $419,000 to satisfy the payment of invoices submitted by the
consultants for services rendered. During the year ended December 31, 2006, the trustee sold an
aggregate 199,260 business consultant common shares for aggregate proceeds of $498,990 and
distributed the proceeds from the trust to the consultants in accordance with the trusts
terms.During the three month periods ended September 30, 2007 and 2006, the company issued 45,000 and
50,000 business consultant common shares valued at $132,000 and $170,500 to satisfy invoices
submitted by the consultants for services rendered. During the nine month periods ended
September 30, 2007 and 2006, the company issued 87,500 and 150,000 business consultant common
            shares valued at $304,000 and $361,000 to satisfy invoices submitted by the consultants for
services rendered. During the three month periods ended September 30, 2007 and 2006, the
trustee sold 50,000 and 64,200 business consultant common shares and distributed $140,000 and
$155,000 from the trust to the consultants in accordance with the trusts terms.
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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.
 [11] Commercializing Event Plan:
 On October 13, 2006, the board of directors adopted a Commercializing Event Plan (Event Plan)
designed to reward the companys directors, executives and certain administrative personnel for
the successful completion of one or more commercializing events. Currently, eight people
participate in the Event Plan. Under the Event Plan, if a commercializing event occurs, each
participant will receive 50,000 business consultants common shares for each one of the
technologies commercialized. If a second commercializing event occurs with respect to the same
technology, each participant will receive an additional 25,000 business consultants common shares.
No additional shares are issuable for any additional commercializing event for the same
technology. Under the Event Plan, this commercializing event sequence applies separately to
each of the companys eight automotive technologies.In the event the entire company was to be acquired by a third party, regardless of the manner
of acquisition, each participant would receive 400,000 business consultants common shares upon
the consummation of the transaction. This feature of the Event Plan operates independently of
the feature whereby each participant receives shares for a first or second commercializing
event. Thus, under the Event Plan, it is possible for each participant to receive up to
1,000,000 business consultants common shares if each and every patented automotive invention
was the subject of both a first and second commercializing event (8x75,000 shares) and then,
subsequent to and independent of such events, the entire company were to be sold.Effective June 15, 2007, the company assigned the license granted by the Trustees of Dartmouth
College pertaining to the ice technology in exchange for a royalty equal to 5% of the gross
revenues generated by the license and the assumption by the assignee of the companys
obligations to Dartmouth College under the license agreement. See Note C. The companys board
of directors concluded that this transaction did not constitute a commercializing event as
defined in the Event Plan and no shares were issued or are issuable under the Event Plan as the
result of such assignment.No shares have been issued under the Event Plan since its inception through the period ended
September 30, 2007.This Commercializing Event Plan was terminated effective October 10, 2007 and a new Commercializing Event Plan was adopted by the Board
of Directors. See Note K.
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Note H  Commitments and Other Matters
 [1] Consulting Agreements:
 On 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.During the year ended December 31, 2006, the company issued an additional 295,000 warrants
exercisable immediately over a ten year term at $5.00 per common share to the same consultants.
The company valued the warrants at $1,441,000 using the Black-Scholes option/pricing model and
charged operations. The company also issued 200,000 warrants in connection with its engagement
of a governmental affairs consultant. The warrants are immediately exercisable over a 10 year
period at an exercise price of $3.75 per common share. The company valued the warrants at
$948,000.No additional securities have been issued under new and/or existing consulting agreements
during the three and nine month periods ended September 30, 2007 and no outstanding securities
issued under these consulting agreements were exercised during the three and nine month periods
ended September 30, 2007.
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[2] Variable Gear, LLC:
 Under the operating agreement of Variable Gear, LLC, the company was required to purchase the
51% membership interest it does not own in such entity on January 1, 2008 at the then fair
market value. Since inception, Variable Gear, LLC generated no revenues, incurred no expenses
and had no operations. On June 3, 2007, the company and the 51% owner agreed that his
membership interest would be repurchased in exchange for 5,000 common shares of the company,
valued at the close of trading on such date ($3.85 per share) at $19,250. Such repurchase was
closed on June 6, 2007.The Company has recorded the purchase of the membership interests as additional
goodwill. The Company then recorded the deferred revenue of $150,000 as revenue at June 30, 2007
because all of the Companys obligations regarding this payment have been met. Since there are no
operations of the Variable Gear entity since inception, the Company has concluded that there is no
future benefit to the purchased interest and has treated as impaired the goodwill at June 30, 2007.
 [3] Leases:
 The company leased premises for use as its executive offices. The lease was for a period of 3
years, commencing July 1, 2004 expiring on June 30, 2007 with monthly rental payments of
approximately $2,200. Under the lease, the company was also responsible for its share of real
estate taxes, certain maintenance and repair costs, and increases in utility costs associated
with the premises. The company has not renewed this lease.On August 1, 2004, the company sublet, as a tenant, a portion of a facility located in Webster,
New York 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 calls for payment of a
rental of $2,100 per month. The initial lease term expired on February 28, 2007 and was renewed
for an additional two years, through February 28, 2009.
The company anticipates that, upon completion of the remodeling to the Rochester facility, it will move its operations carried on at the Webster facility to its
Rochester facility. The company has made arrangements with the owner of the Webster facility that the
existing lease may be terminated upon thirty days written notice with
no penalty. We believe that the Rochester facility will be sufficient to meet our future needs.For the nine month periods ended September 30, 2007 and 2006, rent expense was
approximately $39,000 and $42,000.
 Note I  Management Agreement
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Note J Litigation
    25




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Note K  Subsequent Events
   Participants
   Effective Date of Amendment
  Terms of the Plan as Amended
  27




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
 PLAN OF OPERATION
 (a) Overall Business Strategy
  
    
    to license or sell any one or a number of its automotive technologies (i.e. the
infinitely variable transmissions, the hydraulic pump/motor system, the Iso-Torque
differential, the constant velocity joint mechanism, and the full terrain vehicle) in order
to provide the capital management believes is necessary to commercialize its FTV worldwide,
especially in the Asian, African, South and Central American, and Eastern European markets.
  
    
    to continue its working relationship with the National Aeronautics and Space
Administration with respect to that agencys development of a lunar rover to return to the
moon by approximately the year 2020;
    
    to continue refining the companys infinite variable transmissions to maximize the cost
savings, fuel-efficiencies and pollution reduction capabilities of such transmissions as
compared to conventional automatic transmission technologies;
    
    to continue its attempt to generate governmental support for the companys New York State
and national school bus program;
    
    to initiate working relationships with automotive manufacturers, first-tier suppliers and
local municipalities, including entering into supply contracts with such companies and
municipalities, either in preparation for or in concert with one or more licensing
arrangements with such entities;
    
    to provide constant velocity joint units to a military contractor for integration in a
newly-designed demonstration vehicle;
    
    to continue demonstrating the companys automotive technologies to interested
representatives of the traditional auto industry, government and innovative auto companies
with advanced automotive technologies for selected, niche markets;
 
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
    
    to adapt and modify the companys automotive technologies to the specification
requirements of end-users with whom the company may be engaged and as adapted and modified,
to file new patent applications to the extent necessary and appropriate.
 www.torvec.com
         $500,000
    
    paid upon closing, June 15, 2007;$300,000
    
    payable quarterly, commencing March 1, 2008, until entire amount paid*
 
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(b) Current Status of Automotive Product Development
    
 
 
 
 
 
 
  .
 31




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(c) Company Expenses
        32




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(d) Liquidity and Capital Resources
         33




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(e) Critical Accounting Policies
 Revenue Recognition
  Recent Accounting Pronouncement
   (f) Impact of Inflation
  (g) Quarterly Fluctuations
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   Forward-Looking Statements
  34




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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.
 
 Item 4. CONTROLS AND PROCEDURES .
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
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Item 1A. Risk Factors .
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .
  37




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Item 3. Defaults Upon Senior Securities .
  
 Item 4. Submission of Matters to a Vote of Security Holders .
  
 Item 5. Other Information .
  
 Item 6. Exhibits
   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.
  3.1
    
    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, 2004.3.6
    
    Certificate of Amendment to the Certificate of Incorporation dated
January 26, 2007 increasing the authorized common shares from
40,000,000 to 400,000,000 common shares, incorporated by reference to
annual report (Form 10-K) filed for the calendar year ended December
31, 2006.
  None
  None
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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;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, 2,500,000 and 5,000,000 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,
April 20, 2004 and October 13, 2006, 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;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;
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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;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;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;
 40




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##### Table of Contents



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, 2006.10.47
    
    Excerpts from minutes of the meeting of Board of Directors Torvec, Inc., adopting changes to the non-management
directors plan creating, a commercialized event plan, approving an increase in shares to be issued under
business consulting plan and adopting recommendation that shareholders increase number of authorized common
            shares from 40,000,000 to 400,000,000 common shares, incorporated by reference to Form 8-K filed on October 16,
2006.10.48
    
    Order of Supreme Court of the State of New York with respect to litigation between the company and a management
consulting firm, incorporated by reference to Form 8-K filed on June 20, 2006;10.49
    
    Letter agreement with American Continental Group, LLC, executed on October 22, 2006, incorporated by reference
to Form 8-K filed on October 30, 2006;10.50
    
    New York State School Bus Proposal incorporated by reference to Form 10-Q filed for quarter ended March 31, 2006;
 41




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##### Table of Contents



10.51
    
    Order of Supreme Court of the State of New York directing the Monroe County Clerk to release back to the company
40,000 common shares and 245,000 common stock warrants issued to a management consulting firm with which the
company is in litigation and held in escrow by such Clerk by virtue of a previous court order and directing the
return to the company of a $250,000 (less administrative fee) undertaking deposited with the Monroe County
Treasurer in connection with the same litigation, incorporated by reference to Form 10-Q filed for the quarter
ended March 31, 2007;10.52
    
    License Assignment and Transfer Agreement by and between Ice Engineering, LLC and Torvec, Inc. made effective
June 15, 2007 assigning license granted by Dartmouth College with respect to ice technology from Torvec to Ice
Engineering, incorporated by reference to Form 8-K filed on July 18, 2007.
  Not applicable
   None
  None
  None
  Ice Surface Development, Inc. (New York)Iso-Torque Corporation (New York)IVT Diesel Corp. (New York)Variable Gear, LLC (New York)
  None
   
 None
    None
 42




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##### Table of Contents



SIGNATURES
  TORVEC, INC.Date: November 15, 2007
    By:
    /s/ James Y. GleasmanJames Y. Gleasman, Chief Executive Officer   By:
    /s/ James Y. GleasmanJames Y. Gleasman, Chief Executive Officer andInterim Chief Financial Officer 43




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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 Torvec Subsidiary
    
    N/ACorporation, Torvec, Inc., UTEK Corporation and ICE Surface Development, Inc.incorporated by reference to Form 8-K filed November 30, 2000 and Form 8K/A filedFebruary 12, 2001.(3)
    
    Articles of Incorporation, By-laws3.1
    
    Certificate of Incorporation, incorporated by reference to Form 10-SB/A, Registration
    
    N/AStatement, registering Companys $.01 par value common stock under section 12(g) of theSecurities Exchange Act of 1934;3.2
    
    Certificate of Amendment to the Certificate of Incorporation dated August 30, 2000,
    
    N/Aincorporated 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
    
    N/Afiled for fiscal year ended December 31, 2002;3.4
    
    By-laws, as amended by shareholders on January 24, 2002, incorporated by reference to
    
    N/AForm 10-KSB filed for fiscal year ended December 31, 2002;3.5
    
    Certification of Amendment to the Certificate of Incorporation dated October 21, 2004
    
    N/Asetting forth terms and conditions of Class B Preferred, incorporated by reference toForm 10-QSB filed for fiscal quarter ended September 30, 2004.3.6
    
    Certificate of Amendment to the Certificate of Incorporation dated January 26,2007
    
    N/Aincreasing authorized common shares from 40,000,000 to 400,000,000 common shares,incorporated by reference to annual report Form 10-K filed for the calendar year endedDecember 31, 2006.(4)
    
    Instruments defining the rights of holders including indentures
None
    
    N/A(9)
    
    Voting Trust AgreementNone
    
    N/A(10)
    
    Material Contracts10.1
    
    Certain Employment Agreements, Consulting Agreements, certain assignments of patents,
    
    N/Apatent properties, technology and know-how to the Company, Neri Service and SpaceAgreement and Ford Motor Company Agreement and Extension of Term, all incorporated byreference to Form 10-SB/A, Registration Statement, registering Companys $.01 par valuecommon stock under section 12(g) of the Securities Exchange Act of 1934;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;
    
    N/A10.3
    
    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 Statement registering an additional 200,000, 200,000, 100,000, 800,000, 250,000, 250,000, 350,000, 250,000,2,500,000 and
5,000,000 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,April 20, 2004 and
October 13, 2006 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
quarter ended 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 ended June
30, 2000;
    
    N/A10.6
    
    License Agreement between Torvec, Inc. and Variable Gear, LLC dated June 28, 2000, incorporated by reference to Form SB-2 filed October
19, 2000;
    
    N/A
 44




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##### Table of Contents



EXHIBIT
    
    
    
    
    
    PAGE10.7
    
    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;
    
    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 ended December 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 ended December 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 ended December 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 March 31, 2001;
    
    N/A10.12
    
    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;
    
    N/A10.13
    
    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;
    
    N/A10.14
    
    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;
    
    N/A10.15
    
    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;
    
    N/A10.16
    
    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;
    
    N/A10.17
    
    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;
    
    N/A10.18
    
    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;
    
    N/A10.19
    
    Pittsford Capital Group, LLC Agreement dated January 30, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended
December 31, 2001;
    
    N/A10.20
    
    Gleasman-Steenburgh Indemnification Agreement dated April 9, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended
December 31, 2001;
    
    N/A10.21
    
    Series B Warrant dated April 10, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2001;
    
    N/A10.22
    
    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;
    
    N/A10.23
    
    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;
    
    N/A10.24
    
    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;
    
    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 ended December 31, 2003;
    
    N/A10.26
    
    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;
    
    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 quarter ended 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-QSB filed 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 ended September 30, 2004;
    
    N/A
 45




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##### Table of Contents



EXHIBIT
    
    
    
    
    
    PAGE10.30
    
    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;
    
    N/A10.31
    
    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;
    
    N/A10.32
    
    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;
    
    N/A10.33
    
    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;
    
    N/A10.34
    
    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;
    
    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 Form 10-QSB filed for fiscal quarter
ended March 31, 2005;
    
    N/A10.36
    
    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;
    
    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 quarter ended 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 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;
    
    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 ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 to Form 10-KSB for fiscal year ended
December 31, 2005
    
    N/A10.47
    
    Excerpts from minutes of the meeting of Board of Directors Torvec, Inc., adopting changes to the non-management directors plan creating a commercializes event plan, approving an
increase in shares to be issued under business consulting plan and adopting recommendation that shareholders increase number of authorized common Shares from 40,000,000 to
400,000,000, incorporated by reference to Form 8-K filed on October 16, 2006.
    
    N/A10.48
    
    Order of Supreme Court of the State of New York with respect to litigation between the company and a management consulting firm,
incorporated by reference to Form 8-K filed on June 20, 2006;
    
    N/A10.49
    
    Letter agreement with American Continental Group, LLC dated October 27, 2006 incorporated by reference to Form 8-K filed on October 30,
2006;
    
    N/A10.50
    
    New York State School Bus Proposal, incorporated by reference to Form 10-Q filed for the quarter ended March 31, 2006;
    
    N/A
 46




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##### Table of Contents



EXHIBIT
    
    
    
    
    
    PAGE10.51
    
    Order of Supreme Court of the State of New York directing
the Monroe County Clerk to release back to the company
40,000 common shares and 245,000 common stock warrants
issued to a management consulting firm with which the
company is in litigation and held in escrow by such Clerk
by virtue of a previous court order and directing the
return to the company of a $250,000 (less administrative
fee) undertaking deposited with the Monroe County Treasurer
in connection with the same litigation, incorporated by
reference to Form 10-Q filed for the quarter ended March
31, 2007;
    
    N/A10.52
    
    License Assignment and Transfer Agreement by and between
Ice Engineering, LLC and Torvec, Inc. made effective June
15, 2007 assigning license granted by Dartmouth College
with respect to ice technology to Ice Engineering,
incorporated by reference to Form 8-K filed on July 18,
2007.
    
    N/A(11)
    
    Statement regarding computation of per share earnings (loss)
Not applicable
    
    N/A(14)
    
    Code of Ethics
    
    N/A(16)
    
    Letter on change in certifying accountantNone
    
    N/A(18)
    
    Letter regarding change in accounting principlesNone
    
    N/A(20)
    
    Other documents or statements to security holders
None
    
    N/A(21)
    
    Subsidiaries of the registrant
Ice Surface Development, Inc. (New York)
Iso-Torque Corporation (New York)
IVT Diesel Corp. (New York)
Variable Gear, LLC (New York)
    
    N/A(22)
    
    Published report regarding matters submitted to vote of security holders
None
    
    N/A(23)
    
    Consents of experts and counsel
    
    N/A(24)
    
    Power of attorney
None
    
    N/A(31.1)
    
    Rule 13(a)-14(a)/15(d)-14(a) Certifications
    
    50(32)
    
    Section 1350 Certifications
    
    51(99)
    
    Additional exhibitsNone
    
    N/A
 47