##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 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)
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
  o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS:
 practicable date:
 Number of Shares Outstanding atClass
    
    August 14, 2009Common Stock, $.01 par value
    
    34,287,553




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##### 



INDEX
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Condensed Consolidated Statements of OperationsThree and six months Ended June 30, 2009 and
2008 and September 25, 1996 (Inception) through June 30, 2009 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows  Six months Ended June 30, 2009 and 2008
and September 25, 1996 (Inception) through June 30, 2009 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements(Unaudited)
    
    
    6-23Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24-29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31-36SIGNATURE PAGE
    
    
    36EXHIBIT INDEX
    
    
    38Exhibit 31.1Exhibit 32




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    FINANCIAL STATEMENTS
 
 
  June 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCurrent assets:Cash
    
    $
    124,000
    
    
    $
    304,000Prepaid expenses and other receivables
    
    
    85,000
    
    
    
    102,000Total current assets
    
    
    209,000
    
    
    
    406,000Property and Equipment:Office equipment
    
    
    68,000
    
    
    
    68,000Shop equipment
    
    
    139,000
    
    
    
    139,000Leasehold improvements
    
    
    213,000
    
    
    
    213,000Transportation equipment
    
    
    106,000
    
    
    
    106,000526,000
    
    
    
    526,000Less accumulated depreciation and amortization
    
    
    (270,000
    )
    
    
    (237,000
    )Net property and equipment
    
    
    256,000
    
    
    
    289,000Total Assets
    
    $
    465,000
    
    
    $
    695,000LIABILITIESCurrent liabilities:Notes payable, current portion
    
    $
    15,000
    
    
    $
    15,000Accounts Payable and Accrued Liabilities
    
    
    172,000
    
    
    
    177,000Deferred Compensation and Other
    
    
    1,270,000
    
    
    
    755,000Total current liabilities
    
    
    1,457,000
    
    
    
    947,000Deferred revenue
    
    
    800,000
    
    
    
    800,000Deferred rent expense
    
    
    34,000
    
    
    
    39,000Notes payable, net of current portion
    
    
    21,000
    
    
    
    29,000Total liabilities
    
    $
    2,312,000
    
    
    $
    1,815,000Commitments and contingenciesSTOCKHOLDERS CAPITAL DEFICITPreferred stock, $.01 par value, 100,000,000 shares authorized 3,300,000
designated as Class A, convertible Non-voting,
cumulative dividend $.40 per share, per annum, June 30, 2009
and December 31, 2008: 655,851 and 707,101 shares issued and
outstanding, respectively (liquidation preference $3,741,020
and $3,858,015, respectively)300,000 designated as Class B, convertible Non-voting,
cumulative dividend $.50 per share, per annum, June 30, 2009
and December 31, 2008: 77,500 and 97,500 shares issued and
outstanding, respectively (liquidation preference $359,574
and $360,339, respectively)
    
    
    8,000
    
    
    
    8,000Common stock, $.01 par value, 400,000,000 shares authorized, 34,022,236
and 32,811,422 issued and outstanding, at June 30,  2009
and December 31, 2008, respectively
    
    
    334,000
    
    
    
    328,000Additional paid-in capital
    
    
    49,381,000
    
    
    
    48,485,000Deficit accumulated during the development stage
    
    
    (51,570,000
    )
    
    
    (49,941,000
    )Total Torvec, Inc. Stockholders Capital Deficit
    
    
    (1,847,000
    )
    
    
    (1,120,000
    )Noncontrolling Interest of Subsidiary
    
    
    
    
    
    
    Total Stockholders Capital Deficit
    
    
    (1,847,000
    )
    
    
    (1,120,000
    )Total Liabilities and Stockholders Capital Deficit
    
    $
    465,000
    
    
    $
    695,000
 See notes to condensed consolidated financial statements.
  3




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##### Table of Contents



SeptemberThree
    
    
    Three
    
    
    
    
    
    
    
    
    
    
    25, 1996Months
    
    
    Months
    
    
    Six Months
    
    
    Six Months
    
    
    (Inception)ended June
    
    
    ended June
    
    
    ended June
    
    
    ended June
    
    
    through June30, 2009
    
    
    30, 2008
    
    
    30, 2009
    
    
    30, 2008
    
    
    30, 2009Revenue
    
    $
    
    
    
    $
    15,000
    
    
    $
    175,000
    
    
    $
    30,000
    
    
    $
    422,000Cost of Goods Sold
    
    
    
    
    
    
    6,000
    
    
    
    90,000
    
    
    
    11,000
    
    
    
    315,000Gross Profit
    
    
    
    
    
    
    9,000
    
    
    
    85,000
    
    
    
    19,000
    
    
    
    107,000Costs and expensesResearch and development
    
    
    96,000
    
    
    
    114,000
    
    
    
    229,000
    
    
    
    262,000
    
    
    
    15,564,000General and
administrative
    
    
    834,000
    
    
    
    734,000
    
    
    
    1,485,000
    
    
    
    1,781,000
    
    
    
    38,461,000Asset Impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,071,000Loss for operations
    
    $
    (930,000
    )
    
    $
    (839,000
    )
    
    $
    (1,629,000
    )
    
    $
    (2,024,000
    )
    
    $
    (54,989,000
    )Other Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    260,000Loss before Reversal of
liability and tax
benefit
    
    $
    (930,000
    )
    
    $
    (839,000
    )
    
    $
    (1,629,000
    )
    
    $
    (2,023,000
    )
    
    $
    (53,188,000
    )Reversal of liability
on Cancellation of debt
    
    
    
    
    
    
    1,541,000
    
    
    
    
    
    
    
    1,541,000
    
    
    
    1,541,000Net (Loss) Income Before
Income Tax Provision
    
    $
    (930,000
    )
    
    $
    702,000
    
    
    $
    (1,629,000
    )
    
    $
    (482,000
    )
    
    $
    (52,842,000
    )Income Tax Benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    346,000Net (Loss) Income
    
    $
    (930,000
    )
    
    $
    702,000
    
    
    $
    (1,629,000
    )
    
    $
    (482,000
    )
    
    $
    (51,570,000
    )Less: Net Loss
attributable to
non-controlling interest
in subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,272,000Net Loss (Income)
attributable to Torvec,
Inc
    
    $
    (930,000
    )
    
    $
    702,000
    
    
    $
    (1,629,000
    )
    
    $
    (482,000
    )
    
    $
    (51,570,000
    )Preferred stock
beneficial conversion
feature
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    763,000Preferred stock dividends
    
    
    78,000
    
    
    
    84,000
    
    
    
    161,000
    
    
    
    167,000
    
    
    
    1,337,000Net (Loss) Income
attributable to common
stockholder
    
    $
    (1,008,000
    )
    
    $
    618,000
    
    
    $
    (1,790,000
    )
    
    $
    (649,000
    )
    
    $
    (53,670,000
    )Basic and Diluted net
(loss) income
attributable to common
stock per share
    
    
    (0.03
    )
    
    
    0.02
    
    
    
    (0.05
    )
    
    
    (0.02
    )Weighted average number
of shares ofCommon stock, Basic
    
    
    33,635,000
    
    
    
    32,020,000
    
    
    
    33,308,000
    
    
    
    31,899,000Common stock , Diluted
    
    
    33,635,000
    
    
    
    35,751,000
    
    
    
    33,308,000
    
    
    
    31,899,000
 See notes to condensed consolidated financial statements.
  4




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September 25,1996(Inception)Six months Ended
    
    
    ThroughJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (1,629,000
    )
    
    $
    (482,000
    )
    
    $
    (51,570,000
    )Adjustments to reconcile net loss to net cash used in operating activities:Loss attributable to noncontrolling interest in consolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    (1,272,000
    )Depreciation and amortization
    
    
    33,000
    
    
    
    35,000
    
    
    
    2,483,000Loss on impairment of license
    
    
    
    
    
    
    
    
    
    
    1,071,000Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    19,000Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Compensation expense attributable to common stock in Subsidiary
    
    
    
    
    
    
    
    
    
    
    619,000Common stock issued for services
    
    
    756,000
    
    
    
    1,081,000
    
    
    
    13,922,000Shares issued for future consulting services
    
    
    
    
    
    
    
    
    
    
    103,000Stockholder contribution of services
    
    
    
    
    
    
    
    
    
    
    2,409,000Gain on cancellation of debt
    
    
    
    
    
    
    
    
    
    
    (1,541,000
    )Contribution to Capital, Ford Truck
    
    
    
    
    
    
    
    
    
    
    16,000Common Stock Issued in connection with Commercializing Event
    
    
    14,000
    
    
    
    28,000
    
    
    
    78,000Compensatory common stock, options and warrants
    
    
    
    
    
    
    249,000
    
    
    
    17,835,000Changes in:Accounts receivable
    
    
    
    
    
    
    
    
    
    
    Inventory
    
    
    
    
    
    
    (46,000
    )
    
    
    Prepaid expenses and other receivables
    
    
    17,000
    
    
    
    6,000
    
    
    
    76,000Deferred Revenue
    
    
    
    
    
    
    
    
    
    
    709,000Deferred rent
    
    
    (5,000
    )
    
    
    44,000
    
    
    
    36,000Accounts payable and accrued expenses
    
    
    198,000
    
    
    
    (1,475,000
    )
    
    
    4,134,000Deferred Compensation and Other
    
    
    374,000
    
    
    
    398,000
    
    
    
    1,083,000Net cash used in operating activities
    
    
    (242,000
    )
    
    
    (162,000
    )
    
    
    (9,800,000
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    
    
    
    
    (11,000
    )
    
    
    (360,000
    )Cost of acquisition
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Proceeds from sale of fixed asset
    
    
    
    
    
    
    
    
    
    
    10,000Net cash used in investing activities
    
    
    
    
    
    
    (11,000
    )
    
    
    (366,000
    )Cash flows from financing activities:Net proceeds from sales of common stock and upon exercise of options and warrants
    
    
    70,000
    
    
    
    100,000
    
    
    
    6,769,000Net proceeds from sales of preferred stock
    
    
    
    
    
    
    
    
    
    
    3,537,000Net proceeds from sale of subsidiary stock
    
    
    
    
    
    
    
    
    
    
    234,000Proceeds
from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    85,000Repayments
of long-term debt
    
    
    (8,000
    )
    
    
    (6,000
    )
    
    
    (73,000
    )Proceeds from stockholders loan and advances
    
    
    
    
    
    
    
    
    
    
    250,000Repayment of stockholders loan and advances
    
    
    
    
    
    
    
    
    
    
    (147,000
    )Distributions
    
    
    
    
    
    
    
    
    
    
    (365,000
    )Net cash (used in) provided by financing activities
    
    
    (62,000
    )
    
    
    94,000
    
    
    
    10,290,000Net
(decrease) increase in cash
    
    
    (180,000
    )
    
    
    (79,000
    )
    
    
    124,000Cash at beginning of period
    
    
    304,000
    
    
    
    192,000Cash at end of period
    
    $
    124,000
    
    
    $
    113,000
    
    
    $
    124,000Supplemental Disclosures:Interest paid
    
    $
    2,000
    
    
    $
    3,000
    
    
    $
    26,000Income Tax Paid
    
    $
    
    
    
    $
    
    
    
    $
    1,000Non cash investing and financing activities:Shares issued for acquisition leasehold improvements
    
    $
    
    
    
    $
    64,000
    
    
    $
    166,000Issuance of common stock in settlement of payables
    
    
    62,000
    
    
    
    
    
    
    
    90,000Preferred stock issued in payment of dividend
    
    
    
    
    
    
    6,000
    
    
    
    39,000Shares issued for acquisition of Variable Gear
    
    
    
    
    
    
    
    
    
    
    19,000Issuance of common stock for license
    
    
    
    
    
    
    
    
    
    
    3,405,000Issuance of common stock, warrant and options in settlement of liabilities,
except notes payable
    
    
    
    
    
    
    
    
    
    
    2,907,000Notes Payable exchanged for common stock
    
    
    
    
    
    
    
    
    
    
    50,000Advance settled with common stock
    
    
    
    
    
    
    
    
    
    
    25,000Loss on exchange of minority interest
    
    
    
    
    
    
    
    
    
    
    232,000Shares issued for future consulting services
    
    
    
    
    
    
    
    
    
    
    103,000Issuance of common stock for a finder fee
    
    
    
    
    
    
    
    
    
    
    225,000Advance from stockholder
    
    
    
    
    
    
    
    
    
    
    250,000Contribution of FTV Ford Truck
    
    
    
    
    
    
    
    
    
    
    16,000ICE payable netted against receivable
    
    
    
    
    
    
    
    
    
    
    91,000Common stock issued in settlement of payable
    
    
    
    
    
    
    
    
    
    
    58,000Common stock issued in settlement of Patent expense
    
    
    
    
    
    
    
    
    
    
    117,000
 See notes to condensed consolidated financial statements.
  5




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##### Table of Contents



NOTE A  The Company and Basis of Presentation
     6




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##### Table of Contents



NOTE B  Summary of Significant Accounting Policies
 [1]
    
    Consolidation:
  [2]
    
    Cash and Cash Equivalents:
  [3]
    
    Use of Estimates:
  [4]
    
    Loss per Common Share:
  [5]
    
    Income Taxes:
   7




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##### Table of Contents



[6]
    
    Fair Value of Financial Instruments:
  [7]
    
    Inventory:
  [8]
    
    Stock-Based Compensation
      8




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##### Table of Contents



[9]
    
    Revenue Recognition:
  [10]
    
    Recent Accounting Pronouncements:
       9




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10




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##### Table of Contents



NOTE CLicense from the Trustees of Dartmouth College
       11




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##### Table of Contents



NOTE D  Related Party Transactions
 [1]
    
    On March 28, 2008 the board of directors approved the
governance and compensation committees
recommendation that, effective January 1, 2008, each
of Keith and James Gleasman be compensated at the
rate of $300,000 per year. Such amount is payable in
cash. No payment of all or any portion of the
Gleasmans compensation shall be paid unless and
until the company shall have the requisite cash
available. The determination of the availability of
the requisite amount of cash shall be made by the
board of directors in the light of approved-budgets,
existing and anticipated capital requirements and
existing and estimated cash flows. Unpaid amounts are
accumulated and carried over from one year to the
next. No amount was paid to either of the Gleasmans
under this compensation arrangement during the year
ended December 31, 2008. The amount of unpaid
compensation accrued as of December 31, 2008 and June
30, 2009 is $600,000 and $900,000, respectively.Since the company did not have the requisite cash
available to pay the Gleasmans compensation under
this arrangement with the company for each of the three and six
month periods ended June 30, 2009 and 2008, the
company accrued an aggregate of $162,000 and $319,000, respectively, of compensation
expense, including $12,000 and $19,000, respectively, of payroll taxes, for each
period and recorded the compensation expense of
$100,000 to research and development and $200,000 to
general and administrative expense for each period
based upon managements estimate.
 [2]
    
    During the three and six month periods ended June 30,
2009 and 2008, the company incurred an expense of
$25,350 and $50,700 for both periods to a member of
the Gleasman family for administrative, technological
and engineering consulting services. Management
believes this compensation is reasonable.For the three and six months ended June 30, 2009, the
company issued 16,900 and 66,711 business
consultant common shares in connection with this liability.
For the three and six months period ended June 30,
2008, the company issued 9,281 and 19,500 business
consultant common shares in  connection with this liability.
 [3]
    
    During the three and six month periods ended June 30,
2009 and 2008, the company incurred an expense of
$23,270 and $46,540 for both periods to a family
member of its general counsel for engineering
services rendered to the company. Management believes
this compensation is reasonable.For the three and six months ended June 30, 2009, the
company issued 15,531 and 61,237 business
consultant common shares in  connection with this liability.
For the three and six months period ended June 30,
2008, the company issued 8,462 and 17,900 business
consultant common shares in  connection with this liability.
 [4]
    
    On September 14, 2007, the company moved its
executive offices and engineering operations from
Pittsford and Webster, New York to a Rochester, New
York facility, which includes both manufacturing and
executive office space. The Rochester facility is
owned by a partnership, in which Asher J. Flaum, a
company director is a partner. On April 28, 2008, the
companys board of directors approved the terms of a
lease for these premises and such lease was executed
on April 29, 2008. (See Note F 2).
  12




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##### Table of Contents



NOTE E  Stockholders Equity (Capital Deficit)
 [1]
    
    Common Stock
    [2]
    
    Class A Preferred stock:
        13




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##### Table of Contents



[3]
    
    Class B Preferred stock:
     [4]
    
    Stock-Option Plan:
  Six Months Periods Ended June 30,2009
    
    
    2008Weighted
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    Aggregate
    
    
    
    
    
    
    AverageExercise
    
    
    Remaining
    
    
    Intrinsic
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Life in Years
    
    
    Value
    
    
    Shares
    
    
    PriceOutstanding at
beginning of period
    
    
    641,848
    
    
    $
    4.70
    
    
    
    4.3
    
    
    
    
    
    
    
    1,021,848
    
    
    $
    4.77Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (380,000
    )
    
    
    Outstanding at end
of period
    
    
    641,848
    
    
    
    4.70
    
    
    
    4.3
    
    
    $
    
    
    
    
    641,848
    
    
    
    4.70Options exercisable
at end of period
    
    
    641,848
    
    
    
    4.70
    
    
    
    4.3
    
    
    $
    
    
    
    
    641,848
    
    
    
    4.70Options Vested and
Expected to Vest
    
    
    641,848
    
    
    
    4.70
    
    
    
    4.3
    
    
    $
    
    
    
    
    641,848
    
    
    
    4.70
    14




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##### Table of Contents



[5]
    
    Business Consultants Stock Plan:
  [6]
    
    Nonmanagement Directors Plan:
    .
  15




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##### Table of Contents



[7]
    
    Business, Financial and Engineering Consultants:
   [8]
    
    Warrants:
  Number ofExercise
    
    
    
    
    
    
    
    SharesPrice
    
    
    
    Expiration
    
    
    Exercisable(a)
    
    
    
    
    (a)
    
    
    125,000
    (a)$
    .75
    
    
    
     
   None
    
    
    
    500,000
    (b)$
    .01
    
    
    
     
   None
    
    
    
    54,500
    (c)$
    .01 - 5.00
    
    
    
     
   None
    
    
    
    39,000
    (d)$
    5.00
    
    
    
    
    2015
    
    
    
    255,000
    (e)$
    .01
    
    
    
     
   None
    
    
    
    6,000
    (f)$
    .01
    
    
    
     
   None
    
    
    
    16,250
    (g)$
    1.00
    
    
    
     
   None
    
    
    
    20,500
    (h)$
    3.27
    
    
    
    
    2016
    
    
    
    400,000
    (i)$
    3.75
    
    
    
    
    2016
    
    
    
    200,000
    (j)$
    5.00
    
    
    
    
    2017
    
    
    
    50,000
    (k)$
    5.00
    
    
    
    
    2017
    
    
    
    100,000
    (l)
 (a)
    
    Exercisable only if the company has an IPO and exercisable at the IPO price five years from IPO. Through the quarter June 30, 2009, the company has not
conducted an IPO.  16




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##### Table of Contents



(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
automotive 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 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. No further
warrants are issuable under the Plan as modified by the
board of directors on October 13, 2006 (See Note E
[6]). An aggregate 69,000 warrants have been exercised
for approximately $630 of proceeds, with 6,000 warrants
exercised during the second quarter of 2008 for
proceeds of $60. No warrants were exercised during the
three and six month periods ended June 30, 2009.(d)
    
    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. None of these
warrants were exercised during the three and six month
periods ended June 30, 2009 and 2008.(e)
    
    During 2005, the company issued 210,000 warrants to
certain engineering and administrative 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. The engineering consultants
holding 445,000 of these warrants agreed to cancel them
in the fourth quarter of 2008 in exchange for their
participation in the companys Commercializing Event
Plan. On March 28, 2008, the company issued an
aggregate 195,000 warrants exercisable until 2016 at
$5.00 per common shares to two consultants who elected
not to participate in the companys 2008
Commercializing Event Plan. The company recorded a
charge of $249,000 to general and administrative
expense.(f)
    
    During 2005, the company issued 6,000 warrants to a
consultant, exercisable immediately for a five year
term at .01 per common share. None of these warrants
have been exercised through June 30, 2009.(g)
    
    During 2005, the company issued 62,500 warrants to
investors in connection with their purchase of 62,500
Class A Preferred, immediately exercisable at $.01 per
common share. 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. At
December 31, 2008 an aggregate 182,099 of these
warrants have been exercised for proceeds of
approximately $1,258. No additional warrants were
issued in the three and six month periods ended June
30, 2009.(h)
    
    During 2006, one investor purchased 20,500 warrants
immediately exercisable immediately for a five year
term at $1.00 per common share for a purchase price of
$2,000. None of these warrants have been exercised
through June 30, 2009.(i)
    
    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 June 30, 2009.  17




---



##### Table of Contents



(j)
    
    During 2006, the company issued 200,000 warrants immediately
exercisable for ten years at an exercise price of $3.75 per
common share to a former governmental affairs consultant. None of
these warrants have been exercised through June 30, 2009.(k)
    
    During 2007, the company issued 50,000 warrants exercisable for
ten years at $5.00 per common share upon the happening of a
commercializing event. The warrants were issued to a consultant
who assisted the company to potentially place its products in
various state school bus programs. The company recorded a charge
of $249,000 to general and administrative expenses. None of these
warrants have been exercised through June 30, 2009.(l)
    
    During 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. The company recorded a charge of $401,000 to
general and administrative expenses. None of these warrants have
been exercised through June 30, 2009.  WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicWarrants
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2009
    
    
    1,766,250
    
    
    $
    4.25
    
    
    4.13 years
    
    $
    GrantedExercisedCanceled or expiredOutstanding at June 30, 2009
    
    
    1,766,250
    
    
    $
    4.25
    
    
    3.63 years
    
    $
    44,000Exercisable at June 30, 2009
    
    
    1,141,250
    
    
    $
    5.68
    
    
    3.63 years
    
    $
    
  18




---



##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualShares
    
    
    Price
    
    
    TermOutstanding at January 1, 2008
    
    
    2,084,950
    
    
    $
    3.14
    
    
    4.90 yearsGranted
    
    
    195,000
    
    
    $
    5.01
    
    
    8.84 yearsExercised
    
    
    (2,500
    )
    
    
    0.01Canceled or expiredOutstanding at June 30, 2008
    
    
    2,277,450
    
    
    $
    3.30
    
    
    4.64 yearsExercisable at June 30, 2008
    
    
    1,652,450
    
    
    $
    3.93
    
    
    4.42 years
 [9]
    
    Shares Issued to Trust for Consulting Services:
      19




---



##### Table of Contents



[10]
    
    Commercializing Event Plan:
       20




---



##### Table of Contents



June 30, 2008
Black-Scholes Inputs
 Term
    
    8.84 yearsExpected forfeiture rate
    
    
    -0-
    %Risk-free rate
    
    
    2.89
    %Volatility
    
    
    0.55Dividend yield
    
    
    0.0
    %
 NOTE F  Commitments and Other Matters
 [1]
    
    Consulting Agreements:
    21




---



##### Table of Contents



[2]
    
    Leases:
     22




---



##### Table of Contents



Note G Management Agreement
    NOTE H  Litigation
 
 NOTE I  Royalty Agreement
   23




---



##### Table of Contents



Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 PLAN OF OPERATION
 (a)
    
    Overall Business Strategy
 ® ® ®
 (b)
    
    2009 Plan of Operation
  ®
    24




---



##### Table of Contents



®
     (c)
    
    Ice Technology License
       25




---



##### Table of Contents



The company has accounted for the receipt of reimbursement proceeds as a
recovery of its cost since such amounts represent an initial payment and is
subject to additional installments and when payments received exceed the cost
accumulated revenue will be recorded under the cost recovery approach to the
extent that the proceeds exceed the basis.
 (d)
    
    Results of Operations
     26




---



##### Table of Contents



(f)
    
    Liquidity and Capital Resources
       27




---



##### Table of Contents



(g)
    
    Critical Accounting Policies
 Revenue Recognition:
  Recent
Accounting Pronouncements:
  Disclosures
about Derivative Instruments and Hedging Activities-an amendment of
FASB Statement No. 133).
     28




---



##### Table of Contents



(h)
    
    Impact of Inflation
  Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Item 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
   29




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
 (1)
    
    On February 20, 2004 the company entered into an
agreement with a management firm to develop and
implement a business plan to commercialize its full
terrain vehicle. In June, 2004, the company engaged
three members of the management firm as the companys
chief executive officer, chief financial officer and
chairman of its board of directors. In June, 2004 and
in April, 2005, the company and the management firm
purported to execute agreements reflecting the
company-related capacities of the management firms
three members and reflecting the management firms
reorganization, respectively.In September, 2005, the company commenced litigation
challenging the validity of the June, 2004 and April,
2005 agreements. On March 6, 2009, the company and the
management firm executed a Settlement Agreement and
Release pursuant to which any and all claims and
counterclaims the parties had or may have had arising
out of or related to their relationship, arrangement or
services provided one to the other were resolved and
released and any and all obligations between and among
them, specifically including the contested agreements,
were terminated effective December 31, 2008.(2)
    
    On October 31, 2008, the company commenced an action in
New York State Supreme Court, County of New York,
Commercial Division against Ice Engineering, LLC
seeking the total balance owed by Ice Engineering to
the company pursuant to an agreement entered into by
the parties, effective June 15, 2007, namely,
$2,700,000. Under the agreement, in connection with
Torvecs assignment of the ice technology license, Ice
Engineering agreed to reimburse Torvec for
approximately $3,500,000 the company previously had
expended acquiring and maintaining the license. Ice
Engineering has paid approximately $800,000 but is in
arrears with respect to installments due June 1, 2008,
September 1, 2008 and December 1, 2008 and apparently
has repudiated its remaining payment obligations under
the agreement. Ice Engineering has counterclaimed for
the $800,000 paid under the agreement thus far,
alleging that the company failed to deliver certain
business information to Ice Engineering as called for
under the agreement.The company filed a motion for summary judgment with
respect to its claims and on April 14, 2009, the Court
denied the motion without prejudice which means that
the company can re-file the motion after discovery has
been completed. The parties have commenced discovery
and that process is continuing.
 
 Item 1A.
    
    Risk Factors
   30




---



##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
 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)
    
    Plan of acquisition, reorganization, arrangement, liquidation, or succession
 2.1
    
    Agreement and Plan of Merger, dated
November 29, 2000 by and among Torvec
Subsidiary Corporation, Torvec, Inc.,
UTEK Corporation and ICE Surface
Development, Inc. incorporated by
reference to Form 8-K filed November
30, 2000 and Form 8K/A filed February
12, 2001.
 (3)
    
    Articles of Incorporation, By-laws
 3.1
    
    Certificate of Incorporation, incorporated by
reference to Form 10-SB/A , Registration
Statement, registering Companys $.01 par
value common stock under section 12(g) of the
Securities Exchange Act of 1934;3.2
    
    Certificate of Amendment to the Certificate
of Incorporation dated August 30, 2000,
incorporated by reference to Form SB-2 filed
October 19, 2000;3.3
    
    Certificate of Correction dated March 22,
2002, incorporated by reference to Form
10-KSB filed for fiscal year ended December
31, 2002;3.4
    
    By-laws, as amended by shareholders on
January 24, 2002, incorporated by reference
to Form 10-KSB filed for fiscal year ended
December 31, 2002;3.5
    
    Certification of Amendment to the Certificate
of Incorporation dated October 21, 2004
setting forth terms and conditions of Class B
Preferred, incorporated by reference to Form
10-QSB filed for fiscal quarter ended March
31, 2004.3.6
    
    Certificate of Amendment to the Certificate
of Incorporation dated January 26, 2008
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.
 (4)
    
    Instruments defining the rights of holders including indentures
   31




---



##### Table of Contents



(9)
    
    Voting Trust Agreement
  (10)
    
    Material Contracts
 10.1
    
    Certain Employment Agreements,
Consulting Agreements, certain
assignments of patents, patent
properties, technology and know-how to
the Company, Neri Service and Space
Agreement and Ford Motor Company
Agreement and Extension of Term, all
incorporated by reference to Form
10-SB/A, Registration Statement,
registering Companys $.01 par value
common stock under section 12(g) of
the Securities Exchange Act of 1934;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 March
31, 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 March
31, 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;
  32




---



##### Table of Contents



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
March 31, 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
March 31, 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 March 31, 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 March 31, 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 March 31, 2001;10.19
    
    Pittsford Capital Group, LLC Agreement dated January 30,
2002, incorporated by reference to Form 10-KSB filed for
fiscal year ended December 31, 2001;10.20
    
    Gleasman-Steenburgh Indemnification Agreement dated April
9, 2002, incorporated by reference to Form 10-KSB filed
for fiscal year ended December 31, 2001;10.21
    
    Series B Warrant dated April 10, 2002, incorporated by
reference to Form 10-KSB filed for fiscal year ended
December 31, 2001;10.22
    
    Billow Butler & Company, LLC investment banking
engagement letter dated October 1, 2003, incorporated by
reference to Form 10-QSB filed for fiscal quarter ended
March 31, 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
March 31, 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
March 31, 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 March 31, 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 March 31, 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;
  33




---



##### Table of Contents



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 March
31, 2005, incorporated by reference to Form 10-QSB filed
for fiscal quarter ended March 31, 2005;10.37
    
    Option Agreement between Matthew R. Wrona and Torvec,
Inc. dated March 31, 2005, incorporated by reference to
Form 10-QSB filed for fiscal quarter ended March 31,
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
March 31, 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 March 31, 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 March 31, 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 March 31, 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 March 31, 2005;10.43
    
    Consultant Agreement with Steven Urbanik, dated October
1, 2005, incorporated by reference to Form 10-QSB filed
for fiscal quarter ended March 31, 2005;10.44
    
    Consultant Agreement with Kiwee Johnson, dated March 31,
2005, incorporated by reference to Form 10-QSB filed for
fiscal quarter ended March 31, 2005;10.45
    
    Confidentiality Agreement with Joseph B. Rizzo, dated
October 24, 2005, incorporated by reference to Form
10-QSB filed for fiscal quarter ended March 31, 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.
  34




---



##### Table of Contents



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;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, 2008;10.52
    
    License Assignment and
Transfer Agreement by and
between Ice Engineering, LLC
and Torvec, Inc. made
effective June 15, 2008
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, 2008.10.53
    
    License Agreement by and
between High Density
Powertrain and Torvec, Inc.
dated December 12, 2008,
incorporated by reference to
current report (Form 8-K)
filed December 14, 2008;10.54
    
    Consulting Agreement by and
between Clifford Carlson and
Torvec, Inc. dated December
12, 2008, incorporated by
reference to current report
(Form 8-K) filed December 14,
2008;10.55
    
    Minutes of meeting of
Governance and Compensation
Committee dated February 19,
2008 establishing
compensation for the
companys president and chief
executive officer and
amending the companys
commercializing event plan,
incorporated by reference to
annual report (Form 10-K)
filed for year ended December
31, 2007;10.56
    
    Consulting Agreement by and
between Capital Campaigns,
Inc. and Torvec, Inc., dated
February 6, 2009,
incorporated by reference to
annual report (Form 10-K)
filed for the year ended
December 31, 2008;10.57
    
    Settlement and Release
Agreement by and between CXO
on the GO of Delaware, LLC,
et. al and Torvec, Inc. et.
al., dated March 6, 2009,
incorporated by reference to
annual report (Form 10-K)
filed for the year ended
December 31,2008;
 (11)
    
    Statement regarding computation of per share earnings (loss)
  (14)
    
    Code of Ethics
 (16)
    
    Letter on change in certifying accountant
   35




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##### Table of Contents



(18)
    
    Letter regarding change in accounting principles
  (20)
    
    Other documents or statements to security holders
  (21)
    
    Subsidiaries of the registrantIce Surface Development, Inc. (New York)Iso-Torque Corporation (New York)IVT Diesel Corp. (New York)Variable Gear, LLC (New York)(22)
    
    Published report regarding matters submitted to vote of security holders
  (23)
    
    Consents of experts and counsel(24)
    
    Power of attorney
  (31.1)
    
    Rule 13(a)-14(a)/15(d)-14(a) Certifications(32)
    
    Section 1350 Certifications(99)
    
    Additional exhibits
   36




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##### Table of Contents



SIGNATURES
  TORVEC, INC.Date: August 14, 2009By:
    /s/ James Y. GleasmanJames Y. Gleasman, Chief Executive Officer  Dated: August 14, 2009
    By:
    /s/ James Y. GleasmanJames Y. Gleasman, Chief Executive Officer andInterim Chief Financial Officer  37




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##### Table of Contents



EXHIBIT INDEX
 (31.1)
    
    Rule 13(a)-14(a)/15(d)-14(a) Certifications(32)
    
    Section 1350 Certifications
  38