(a)

History and Development of Our Inventions

Torvec, Inc. was incorporated as a New York business corporation on September 25, 1996. Upon its incorporation, the company acquired numerous patents, inventions and know-how developed for more than thirty years by Vernon E. Gleasman and members of his family. Upon its incorporation, the company commenced the development of its full terrain vehicle ("FTV™") - the merger of the speed and handling of a truck with the full terrain capability of a tracked vehicle. Through the ongoing creation, development and improvement of its FTV, the company developed the following inventions relating to seven distinct fields of automotive and related technology, each of which having individual licensing potential:

(i)

Iso-torque™ differential (next generation of Torsen® differential - see "Torsen" on Google websearcher);

(ii)

infinitely-variable transmission;

(iii)

steering drive and suspension system for tracked vehicles;

(iv)

high speed, steel-reinforced rubber tracks;

(v)

hydraulic pump and motor;

(vi)

spherical gearing constant velocity mechanism;

(vii)

ice adhesion modification system.

As a family, the Gleasmans have manufactured,operated and sold their own innovative products and companies over the past 30 years. The Gleasmans knowledge of the automotive industry and its trends was the basis of the invention of the company's FTV. The Gleasman's creativity, experience and expertise have been recognized worldwide - in particular, Vernon E. Gleasman was the recipient of the Society of Automotive Engineers' 1983 Schwitzer Award for the most innovative new product at the Indianapolis 500 and the 2001 Distinguished Inventor of the Year Award granted by the Rochester Intellectual Property Law Association. In addition Vernon Gleasman has been nominated by professor Alexander Slocum of the Massachusetts Institute of Technology for the Lemelson-MIT prize, one, if not the, most prestigious engineering awards in the world. For further information on this prize please see www.lemelson.org. .

To this date there is no worldwide, patented tracked vehicle with the high speed (60mph+) and handling characteristics of the company's FTV. To facilitate the development of the FTV the company had to resolve numerous engineering hurdles and the company's success in so resolving these engineering problems led to the inventions described above. The first generation FTV prototype was completed in February, 1999 and was initially showcased to the public in early spring, 1999. We have continued to improve the FTV since its introduction in the spring of 1999. We intend to build up to two production-ready, state-of-the-art FTVs and to demonstrate these vehicles to potential joint venture candidates in China, Mexico and the United States, depending upon the availability of funds.

The company intends to incorporate all of the above-referenced inventions into its FTV and commercialize the FTV as a stand alone vehicle. However, each of the company's inventions can be commercialized on an individual basis and the company intends to license and/or jointly commercialize each of its inventions separately in order to generate monies necessary to fully develop and commercialize the company's FTV.
.

                                                                -8-

practical, demonstrable ice technology - see our web site www.torvec.com and the web site of our subsidiary ISDI- www.icesurfacedev.com. The Ice technology as developed by ISDI allows for the rapid deicing of vehicle services utilizing three variations for deicing and corresponding process technologies:

(i)

direct current method-through electrolysis, creates a pressurized gas that breaks up and ejects ice, which is ideal for initial ice removal;

(ii)

alternating current (high frequency) method-melts interfacial ice with minimal heat exchange to the surrounding environment thereby reducing power requirements-this method is capable of continuously maintaining ice-free surfaces;

(iii)

pulse method-creates a short-term water barrier that enables ice to be easily removed. This method works well for initial removal and is relatively simple to produce.

The following grid delineates certain characteristics of the three methodologies:

ICE
TECHNOLOGY

Operating
Parameters

Manufacturing
Process

Potential
Automotive
Applications

DC Method

* DC voltage 30-60 volts
* Operating power
    -0.5 to 1.5 KW/M ²
* Electrolysis method
* De-ice time-2 secs.

* Multi-Layer transparent
electrical circuits

* Mirrors
* Sensors
* Trailer roofs
* Sun roofs
* Antennas

High Frequency AC Method

* AC voltage 40-80 volts
   @20KHz
* Operating power
   -0.25 to 2 KW/M ²
* Electro-magnetic method
* De-ice time-2 secs.
* Anti-icing capability

* Single layer transparent electrical circuits with abrasive resistant protective coating

* Windshields
* Rear Windows
* Side Windows
* Cameras
* Lighting
* Antennas

Pulse Method

* DC voltage 60-120 volts
* Operating power
    -5-20 KW/M ²
* Instantaneous heat method
* De-ice time-10 secs.

* Flood coating or continuous coating with protection coating

* Small surfaces
     * Sensors
     * Camera lenses
* Wiper mechanisms

Aside from repelling ice on glass and other surfaces, our ice technology also increases the traction of rubber on ice. New ice traction systems based upon this technology could give vehicles, including the FTV, as much traction on ice as if they were driving on dry pavement. Vehicles could one day be equipped with "smart" tracks that grab ice.

-9-

vehicle applications (e.g. cars, trucks, trains and trailers), including their components (e.g. windshields).

o

The Iso-Torque ä differential- the company is currently engaged in numerous discussions with companies regarding the possible licensing of this technology and has filed a preliminary application for patent protection for the ISO-Torque differential;

o

The generation III infinitely variable transmission-- the prototype which incorporates the hydraulic pump and motor, has been completed and will be installed in a 2003 Dodge Ram 3/4 ton 4x4 quad cab pickup truck, using an electronically controlled 2004 emissions compliant Cummins turbo-diesel engine. After installation, we will test the truck to ascertain the fuel economies and emissions reductions achieved;

o

the first generation FTV has been completed and continues to be showcased to automobile, truck manufacturers and assembly suppliers. We have made substantial improvements to the first generation FTV and intend to build up to two-production ready, state-of-art FTVs depending upon the availability of funds;

o

the constant velocity joint-the prototype is complete and is ready for comprehensive tests. A partner is being sought to further commercialization;

o

the ice technology-we have developed three methods of de-icing glass and other vehicle surfaces. We are developing, jointly with a partner, coatings suitable for applying micro-circuitry to glass and other surfaces. We are continuing in our efforts to develop industry acceptable power supplies.

1.

Election of Directors :

For :

Withheld

Eric Steenburgh

22,543,200

4,940

Keith E. Gleasman

22,543,800

4,340

Morton A. Polster

22,543,700

4,440

Herbert H. Dobbs

22,542,500

5,640

James A. Gleasman

22,544,100

4,040

Gary A. Siconolfi

22,543,000

4,640

Joseph Alberti

22,543,000

5,140

Daniel R. Bickel

22,543,500

4,640

2.

Ratification of the appointment of Eisner, LLP by the Audit Committee of the Board of Directors as independent auditors for the fiscal year ending December 31, 2002.

For
22,536,485

Against
8,815

Abstain
2,840

3.

Management Survey : would shareholders prefer to receive the annual report, proxy statement and other shareholder communications -

Electronically
470,011

CD-ROM
174,897

Mail
642,218

A.

Number of Shares

The number of Class A Preferred Shares initially authorized is 3,300,000 Class A Preferred Shares. The initial number authorized shall be increased as required to provide Class A Preferred Shares for payment of dividends as described in Section B, distribution to holders in accordance with Section C and as described in Section F.

B.

Dividends

(i)

So long as any Class A Preferred Shares are outstanding, the holders of the Class A Preferred Shares will be entitled to receive cumulative preferential dividends in the amount of $.40 per Class A Preferred Share and no more for each annual dividend period. The annual dividend period shall commence on the first day of each March and shall end on the last day of the immediately succeeding February, which February date is referred to as the "Dividend Accrual Date".

(ii)

When and as declared by the Board, dividends payable on the Class A Preferred Shares will be paid in cash out of any funds legally available for the payment of dividends or, in the discretion of the Board, 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.

(iii)

assets of the Company legally available for the payment of dividends.

(iv)

Accumulated and unpaid dividends on the Class A Preferred Shares will not bear interest.

(v)

So long as any Class A Preferred Shares are outstanding, the Company may not declare or pay any dividend, make any distribution, or fund, set aside or make monies available for a sinking fund for the purchase or redemption of, any shares or stock of the Company ranking junior to the Class A Preferred Shares with respect to the payment of dividends, including the $.01 par value common stock of the Company ("Junior Stock"), unless all dividends in respect of the Class A Preferred Shares for all past annual dividend periods have been paid and such dividends for the current annual dividend period have been paid or declared and duly provided for. Subject to the foregoing, and not otherwise, the dividends (payable in cash, stock or otherwise) as may be determined by the Board, may be declared and paid on any Junior Stock from time to time out of any funds legally available therefor, and the Class A Preferred Shares will be entitled to participate in any such dividends, whether payable in cash, stock or otherwise on a pro rata basis.

C.

Liquidation Rights

(i)

In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Class A Preferred Shares then outstanding are entitled to be paid out of the assets of the Company available for distribution to its shareholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount in respect of any shares of any Junior Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Company, all accumulated and unpaid dividends (including a prorated dividend from the last Dividend Accrual Date) in respect of any liquidation, dissolution or winding up consummated except that, notwithstanding the provisions of Section B(ii), all of such accumulated and unpaid dividends will be paid in Class A Preferred Shares at a rate of 1 Class A Preferred Share for each $4.00 of dividends. No fractions of Class A Preferred Shares shall issue. The Company shall pay cash in lieu of paying fractions of Class A Preferred Shares on a pro rata basis.

(ii)

The Class A Preferred Shares will be entitled to participate on a pro rata basis in any distribution of assets as may be made or paid on Junior Stock upon the liquidation, dissolution or winding up of the Company.

(iii)

           -16-

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.

D.

Redemption

(i)

The Company may, in the absolute discretion of its Board, redeem at any time and from time to time from any source of funds legally available any and all of the Class A Preferred Shares at the Redemption Price.

(ii)

For each redemption, the Redemption Price for each Class A Preferred Share shall be equal to amount paid per Class A Preferred Share payable in cash, plus an amount payable (not withstanding the provisions of Section B (ii)) in cash equal to the sum of all accumulated unpaid dividends per Class A Preferred Share (including a prorated annual dividend from the last Dividend Accrual Date) to the respective date for each redemption on which the Company shall redeem any Class A Preferred Shares (the "Redemption Date").

(iii)

In the event of a redemption of only a portion of the then outstanding Class A Preferred Shares, the Company will affect the redemption pro rata according to the number shares held by each holder of Class A Preferred Shares.

(iv)

At least 20 days and not more than 60 days prior to the date fixed by the Board for any redemption of Class A Preferred Shares, written notice (the "Redemption Notice") will be mailed, postage prepaid, to each holder of record of the Class A Preferred Shares at his or her post office address last shown on the records of the Company. The Redemption Notice will state:

o

Whether all or less than all of the outstanding Class A Preferred Shares are to be redeemed and the total number of Class A Preferred Shares being redeemed;

o

the number of Class A Preferred Shares held by the holder that the Company intends to redeem;

o

the Redemption Date and Redemption Price; and

o

that the holder is to surrender to the Company, in the manner and at the place designated in Section D(v), his or her certificate or certificates representing Class A Preferred Shares to be redeemed.

(v)

On or before the date fixed for redemption, each holder of Class A Preferred Shares must surrender the certificate or certificates representing Class A Preferred Shares to the Company, accompanied by instruments of transfer satisfactory to the Company and sufficient to transfer the Class A Preferred Shares being redeemed to the Company free and clear of any adverse interest, at the place designated in the Redemption Notice. The Redemption Price for the Class A Preferred Shares redeemed will be payable in cash on the Redemption Date to the person whose name appears on the certificate(s) as the owner of such certificate(s) as of the date of the Redemption Notice. In the event that less than all of the Class A Preferred Shares represented by any certificate(s) are redeemed, a new certificate will issued by the Company representing the unredeemed Class A Preferred Shares to the same record owner.

(vi)

As promptly as practicable after surrender of the certificate(s) representing the redeemed Class A Preferred Shares, the Company will pay the Redemption Price to the record holder of the redeemed Class A Preferred Shares.

(vii)

Unless the Company defaults in the payment in full of the Redemption Price, the obligation of the Company to pay dividends on the Class A Preferred Shares redeemed shall cease on the Redemption Date, and the holders of the Class A Preferred Shares redeemed will cease to have any further rights with respect to such redeemed Class A Preferred Shares on the Redemption Date, other than to receive the Redemption Price.

(viii)

The holders of the Class A Preferred Shares have no right to seek or to compel redemption of the Class A Preferred Shares.

E.

Voting Rights

The holders of Class A Preferred Shares are not be entitled to vote in any and all elections of directors and with respect to any and all other matters as to which the vote or consent of shareholders of the Company shall be required or taken.

F.

Conversion Privilege

(i)

The holders of the Class A Preferred Shares have the right, at each holder's option but subject to Board approval in each case, to convert each Class A Preferred Share into 1 fully paid and nonassessable share of the $.01 par value common stock of the Company ("Common Share") without payment of any conversion price or other consideration. Such 1 for 1 rate of conversion is subject to adjustment as set forth in F(x).

(ii)

The Conversion Privilege set forth in this Section F may not be exercised by the holder of Class A Preferred Shares until 1 year shall have elapsed from the issue date of the Class A Preferred Shares held by such holder and may not be exercised if the Board shall not have approved the actual exercise of such Conversion Privilege by such holder of Class A Preferred Shares. Such approval shall not be unreasonably withheld. Upon receipt of the Notice of Conversion described in Section F(iii) below and the Board's approval of such conversion, the Company shall give a Notice of Approval to the holder within 48 hours of the receipt of the Notice of Conversion that the exercise of the Conversion Privilege by such holder is approved.

(iii)

In order to exercise the Conversion Privilege, the holder of Class A Preferred Shares must give written notice to the Company that the holder elects to covert the number of Class A Preferred Shares as specified in the Notice of Conversion. The Notice of Conversion will also state the name(s) and address(es) in which the certificate(s) for Common Shares issuable upon the conversion are to be issued. Upon receipt of the Company's Notice of Approval, the holder of the Class A Preferred Shares must surrender the certificate(s) representing the Class A Preferred Shares being converted to the Company, accompanied by instruments of transfer satisfactory to the Company and sufficient to transfer the Class A Preferred Shares being converted to the Company free and clear of any adverse interest at the office maintained for such purpose by the Company. As promptly as practicable after the surrender of the certificate(s) representing the Class A Preferred Shares converted, the Company will issue and deliver to the holder, or to such other person designated by the holder's written order, a certificate(s) for the number of full Common Shares issuable upon the conversion of the Class A Preferred Shares in accordance with the provisions of this Section F(iii).

(iv)

The Conversion Privilege may be exercised in whole or in part and, if exercised in part, a certificate(s) will be issued for the remaining Class A Preferred Shares in any case in which fewer than all of the Class A Preferred Shares represented by a certificate(s) are converted to the same record holder of Class A Preferred Shares converted.

(v)

Each conversion will be deemed to have been effective immediately prior to the close of business on the date on which the Class A Preferred Shares will have been so surrendered as provided in Section F(iii) (the "Conversion Date") and the person(s) in whose name(s) any certificate(s) for Common Shares will be issuable upon the conversion will be deemed to have become the holder(s) of record of the Common Shares on the Conversion Date. Effective as of the Conversion Date, the Company will have no obligation to pay dividends on the Class A Preferred Shares converted provided that effective as of the Conversion Date, the Company shall pay all accumulated and unpaid dividends (including the prorated dividend from the last Dividend Accrual Date) on the Class A Preferred Shares converted, payable in the discretion of the Board, in cash out of any funds legally available for payment of such dividends or in Class A Preferred Shares.

(vi)

The Conversion Privilege shall terminate with respect to Class A Preferred Shares called for redemption by the mailing of a Redemption Notice described in Section D(iv) on the close of business on the date immediately preceding the Redemption Date.

(vii)

Notwithstanding the requirement for Board approval and the 1 year limit set forth in Section F(ii), in case of any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the surviving corporation or in case of any sale or conveyance to another corporation of all or substantially all of the assets of the Company or in the case of any statutory exchange of securities representing an excess of 50% of the total outstanding securities of the Company with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), the holders of Class A Preferred Shares then outstanding will have the right to convert the Class A Preferred Shares into the kind and amount of securities, cash or other property which the holder would have owned or have been entitled to receive immediately after the consolidation, merger, statutory exchange, sale or conveyance, had the Class A Preferred Shares been converted immediately prior to the effective date of the consolidation, merger, statutory exchange, sale or conveyance as the case may be.

(viii)

Notwithstanding the 1 year holding period set forth in Section F(ii), in the event the highest bid price for the Company's $.01 par value common stock quoted on any exchange, automated quotation system or the OTC Bulletin Board on which such stock is actively traded is $20 or more on 5 consecutive trading days, the holders of Class A Preferred Shares shall have the right to convert such Class A Preferred Shares upon Board approval.

(ix)

Common Shares delivered upon conversion of Class A Preferred Shares will be, upon delivery, validly issued, fully paid and nonassessable, free of all liens and charges and not subject to any preemptive rights.

(x)

In case the Company

o

Declares a dividend, or makes a distribution, on shares of its $.01 par value common stock in shares of its $.01 par value common stock; or

o

Subdivides its outstanding shares of its $.01 par value common stock into a greater number of shares of its $.01 par value common stock; or

o

Combines its outstanding shares of its $.01 par value common stock into a smaller number of shares of $.01 par value common stock,

the number of Common Shares issuable upon the conversion of the Class A Preferred Shares shall be adjusted at the time of the record date for the dividend or distribution or the effective date of the subdivision or a combination so that after such record or effective date, the holder of Class A Preferred Shares will be entitled to receive the same percentage of ownership of the Company's $.01 par value common stock as such holder would have been entitled to receive immediately prior to such record or effective date.

The company's overall business strategy relating to its automotive inventions is

o

to license our Iso-Torque ™ differential to a first-tier supplier of automotive and truck systems and component parts;

o

to license our generation III infinitely variable transmission to a first-tier supplier of automotive and truck systems and component parts;

o

to manufacture, market and sell, either directly, through others or jointly, our hydraulic pump and motor and constant velocity joint, which includes our spherical gearing, to automotive and truck manufacturers, suppliers and component part assemblers;

o

ultimately, to manufacture, market and sell, either directly, through others or jointly, the FTV ™ , including the steering drive and suspension for tracked vehicles to domestic and foreign customers, especially in the Asian, African, South and Central American markets.

The company's plan of operation relative to its automotive inventions during fiscal 2003 is:

o

to license our Iso-Torque ™ differential to a first-tier supplier of automotive and truck systems and component parts;

o

to install our generation III infinitely variable transmission using an electronically controlled 2004 emissions compliant Cummins turbo-diesel engine in a 2003 Dodge Ram 3/4 ton 4x4 quad cab pickup truck;

o

to road test the truck to ascertain the fuel economies and emission reductions achieved by the infinitely variable transmission with respect to this application;

o

to license our generation III infinitely variable transmission to a first-tier supplier of automotive and truck systems and component parts;

o

to initiate discussions with national and state environmental agencies in the United States and other countries to determine the potential effect of the infinitely variable transmission on the worldwide problem of diesel engine pollutants;

o

to continue to improve the company's inventions and, where appropriate, to obtain patent protection on such new improvements.

Item 7.

FINANCIAL REPORTS

Page

     Independent auditors' report

F-2

     Consolidated balance sheet as of December 31, 2002

F-3

     Consolidated statements of operations for each of the years in the two-year period ended
          December 31, 2002 and for the period from September 25, 1996 (inception) through
          December 31, 2002

F-4

     Consolidated statements of changes in stockholders' equity (deficit) for the periods from
          September 25, 1996 (inception) through December 31, 2002

F-5

     Consolidated statements of cash flows for each of the years in the two-year period ended
          December 31, 2002 and for the period from September 25, 1996 (inception) through
          December 31, 2002

F-7

     Notes to financial statements

F-8

F-1

F-2

ASSETS
Current assets:
     Cash

$   293,000
    13,000

          Total current assets

    303,000

Equipment:
     Office equipment
     Transportation equipment

     15,000
     53,000

Less accumulated depreciation

     68,000
     62,000

Net equipment

     6,000

License, less accumulated amortization of $353,000

  2,907,000

$ 3,216,000

LIABILITIES
Current liabilities:
     Current portion of loan payable
     Accounts payable and accrued expenses
     Consulting fees payable to stockholders
     Loans payable stockholders and officers
          Total current liabilities

$     2,000
  316,000
    56,000
    28,000
  402,000

Deferred revenue

     150,000

          Total liabilities

  552,000

Minority Interest

  765,000

Commitments and other matters

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 100,000,000 shares authorized, 3,300,000 designated as
     Series A non-voting cumulative $.40 per share convertible preferred, 38,500 shares issued
      and outstanding (liquidation preference $166,000)
Common stock, $.01 par value, 40,000,000 shares authorized, 25,629,708 issued and
     outstanding (including 109,890 shares issuable)
Additional paid-in capital
Deficit accumulated during the development stage

  256,000
20,786,000
( 19,143,000)
1,899,000
$   3,216,000

See notes to financial statements

F-3

Year Ended
December 31,
________________________
     2002              2001     

September 25,
1996
(Inception)
Through
December 31,
      2002     

Cost and expenses:
   Research and development
   General and administrative

$   1,551,000
     3,312,000

     1,459,000
     2,412,000

$     6,054,000
     13,375,000

Loss before minority interest

$ (4,863,000 )

$   (3,871,000 )

$   (9,429,000 )

    Minority interest in loss of consolidated subsidiary

       286,000

         286,000

Net Loss

    (4,577,000)

      (3,871,000)

     (19,143,000)

    Preferred Stock Dividend

         12,000

           12,000

Net loss attributable to common stockholders

 $ (4,589,000)

    $ (3,871,000)

$   (19,155,000)

Basic and diluted loss per common share

$(0.19 )

$(0.17 )

Weighted average number of shares of common
   stock - basic and diluted

    24,567,000

    22,750,000

See notes to financial statements

F-4

   Preferred Stock    
Shares          Amount

       Common Stock       
Shares              Amount

Additional
Paid-in
Capital

Unearned
Compensatory
Stock and
Options

Deficit Accumulated
During the
Development
Stage

Total
Stockholders'
Equity

Issuance of shares to founders (Note A)
Issuance of stock for services (Note A)
Sale of common stock - Nov. ($1.50 per share)
Sale of common stock - Dec. ($1.50 per share)
Distribution to founders (Note A)
Net loss
Balance - December 31, 1996
Issuance of compensatory stock (Note H[3])
Issuance of stock for services (Note H[7])
Sale of common stock - January ($1.50 per share)
Sale of common stock - February ($1.50 per share)
Sale of common stock - May ($1.50 per share)
Issuance of stock for services (Note H[7])
Sale of common stock - June ($3.00 per share)
Sale of common stock - July ($3.00 per share)
Sale of common stock - August ($3.00 per share)
Sale of common stock - Sept, ($3.00 per share)
Sale of common stock - Oct. ($3.00 per share)
Sale of common stock - Nov. ($3.00 per share)
Sale of common stock - Dec. ($3.00 per share)
Iss. of compensatory options to cons. (Note H[5]
Compensatory stock and options earned
Distributions to founders (Note A)
Net loss
Balance - December 31, 1997
Issuance of stock for services (Note H[7])
Sale common stock - May 11 to Sept. 20 ($5.00 ps)
Sale common stock - Sept. 21 to Dec. 31 ($10. ps)
Costs of offering
Compensatory stock and options earned
Contribution of services (Note E[3])
Net loss
Balance - December 31, 1998
Issuance of stock for services (Note I[4])
Sale of common stock - Jan 1 to Aug 9 ($10 ps)
Sale of common stock - Aug. 10 to Nov 30 ($5. ps)
Iss. of compensatory options to cons. (Note H[3])
Common stock issued- exercise options (Note H[3])
Compensatory stock and options earned
Contribution of services (Note D[3])
Net loss
Balance - December 31, 1999
Issuance of stock for services (Note H[6])
Sale of common stock - March 29 ($4.51 per share)
Sale of common stock - June 23 ($3.50 per share)
Acquisition of Ice Surface Development (Note A)
Proceeds from exercise of put option
Compensatory stock and options earned
Contribution of services (Note D[3])
Net loss
Balance - December 31, 2000
Issuance of stock for liabilities (Note D[1])
Issuance of stock for services (Note H[6])
Issuance of option to cons. for services(Note I[3])
Proceeds from exercise of put option
Contribution of services (Note D[3])
Net loss
Balance - December 31, 2001
Exercise of warrants (Note H[8]
Exercise of warrants (Note H[9]
Loss on sale of minority interest (NoteA)
Sale of preferred stock and warrants, net (Note H[2])
Issuance of stock for services (Notes H[6] H[7]
Issuance of options in settlement of liabilities and
consulting fees (Note D[1]
Issuance of warrants to chairman (Note H[9]
Proceeds from exercise of put option ($.90 per
share) (Note H[8]
Common stock issued in exchange for loan (Note G)
Sale of common stock - July ($1.45 per share)
Sale of common stock - August ($1.42 per share)
Sale of common Stock - Sept. ($1.42 per share)
Sale of common stock - Dec. ($.91 per share)
Contribution of services (Note D [3])
Issuance of warrant for financial services
Warrant issued in lieu of compensation (Note I[1])
Iss of shares of settlement of liabilities (Note H[4])
Compensatory stock options (Note I[1])
Contribution of services in subsidiary (Note I[1])
Net Loss

Balance - December 31, 2002

38,500

















            

$38,500

            

-0-

      16,464,400
      2,535,600
      64,600
      156,201

                     
      19,220,801
      1,000,000
      12,000
      58,266
      75,361
      30,000
      2,000
      73,166
      13,335
      60,567
      10,000
      7,000
      10,000
      100,000



                     
      20,672,496
      1,000
      112,620
      25,500



                     
      20,811,616
      45,351
      80,670
      84,500

      21,000


                     
   21,043,137
      196,259
      44,321
      100,000
      1,068,354
      36,735


                     
   22,488,806
      126,667
      361,100

101,910

                   
      23,078,483
         124,448
250,000


1,001,454




440,000
35,461
46,897
211,265
140,845
109,890



190,965


           

$25,629,708

$      165,000
      25,000
      1,000
      1,000

                     
      192,000
      10,000

      1,000
      1,000


      1,000

      1,000



      1,000



                     
      207,000

      1,000




                     
      208,000

      1,000
      1,000




                     
      210,000
      2,000

      1,000
      11,000
      1,000


                     
      225,000
       1,000
      4,000

1,000

                
$      231,000
1,000
3,000


10,000




5,000


2,000
1,000
1,000



2,000


                

$256,000

$   (165,000)
      381,000
      96,000
      233,000
      (27,000)
                     
      518,000
      1,490,000
      18,000
      86,000
      112,000
      45,000
      6,000
      219,000
      40,000
      181,000
      30,000
      21,000
      30,000
      299,000
      234,000

      (338,000)
                     
      2,991,000
      3,000
      562,000
      255,000
      (60,000)

      15,000
                     
      3,766,000
      327,000
      806,000
      422,000
      2,780,000
      105,000

      15,000
                     
      8,221,000
      838,000
      200,000
      349,000
      3,394,000
      108,000

      15,000
                     
    13,125,000
     664,000
       1,007,000
      398,000
323,000
15,000
                  
$   15,532,000
126,000
72,000
(232,000)
142,000
1,224,000
653,000

690,000

391,000
50,000
68,000
298,000
199,000
99,000
15,000
8,000
633,000
267,000
32,000
519,000
                

$20,786,000

$   (1,500,000)












      (234,000)
      451,000

                     
      (1,283,000)




      578,000

                     
      (705,000)



      (2,780,000)

      3,050,000

                     
      (435,000)
   


   

      435,000

                     
      0
   




                     
$               0





















                

-0-

$       (489,000 )
     (489,000)
















         (922,000 )
      (1,411,000)






       (2,122,000 )
      (3,533,000)







         (4,788,000 )
      (8,321,000)







         (2,374,000 )
      (10,695,000)





         (3,871,000 )
$      (14,566,000)





















     (4,577,000)

($(19,143,000)

$   0
      406,000
      97,000
      234,000
      (27,000)
         (489,000 )
      221,000
      0
      18,000
      87,000
      113,000
      45,000
      6,000
      220,000
      40,000
      182,000
      30,000
      21,000
      30,000
      300,000
      0
      451,000
      (338,000)
         (922,000 )
      504,000
      3,000
      563,000
      255,000
      (60,000)
      578,000
      15,000
      (2,122,000 )
      (264,000)
      327,000
      807,000
      423,000
      0
      105,000
      3,050,000
      15,000
      (4,788,000 )
      (325,000)
      840,000
      200,000
      350,000
      3,405,000
      109,000
      435,000
      15,000
      (2,374,000 )
      2,655,000
665,000
      1,011,000
      398,000
      324,000
      15,000
      (3,871,000 )
$   1,197,000
127,000
75,000
(232,000)
142,000
1,234,000
653,000

690,000

396,000
50,000
68,000
300,000
200,000
100,000
15,000
8,000
633,000
269,000
32,000
519,000
    (4,577,000)

$1,899,000

See notes to financial statements                                                                                                                          F-6

        F-5

TORVEC, INC. AND SUBSIDIARY
(a development stage company)

Consolidated Statements of Cash Flows
December 31, 2002December 31, 2002

Year Ended
December 31,
2002                 2001

September 25,
1996
(Inception)
Through
December 31,
      2002     

Cash flows from operating activities:
   Net loss
   Adjustments to reconcile net loss to net cash used in
      operating activities:
         Depreciation and amortization
         Minority interest and loss of consolidated subsidiary
         Compensation expense attributable to common stock
          in subsidiary
         Common stock issued for services
         Contribution of services
         Compensatory common stock and options and warrants
         Changes in:
            Prepaid expenses
            Deferred revenue
            Accounts payable and accrued expenses

               Net cash used in operating activities

$   (4,577,000)


      182,000
(286,000)

619,000
      1,812,000
      735,000
      729,000

      (10,000)
      
     (241,000)

      (1,037,000 )

$   (3,871,000)


      182,000

      
      
      1,011,000
15,000
      398,000
      
147,000

      1,514,000

    (604,000 )

$   (19,143,000)


      415,000
(286,000)
      
      619,000
      4,400,000
819,000
      5,640,000

      150,000
150,000
      2,015,000

     (5,221,000 )

Cash flows from investing activities:
   Purchase of equipment
   Cost of acquisition

               Net cash used in investing activities

      (3,000)
              

      (3,000 )

(3,000)
                

      (3,000 )

      (68,000)
      (16,000 )

      (84,000 )

Cash flows from financing activities:
   Net proceeds from sales of common stock and preferred
         stock and upon exercise of options and warrants
   Proceeds from loan
   Repayments of loan
   Proceeds from (repayment of) stockholders' loans
   Distributions

               Net cash provided by financing activities

      1,408,000

      (7,000)
      (81,000)
              

     1,320,000

      433,000

      (6,000)
159,000
              

     586,000

      5,883,000
         29,000
        (27,000)
        78,000
      (365,000 )

     5,598,000

Net increase (decrease) in cash
Cash at beginning of period

      280,000
      13,000

      (21,000)
      34,000

      293,000
              

Cash at end of period

$     293,000

$      13,000

$     293,000

Supplemental disclosure of noncash investing and
   financing activities:
      Issuance of common stock, warrant and options in
         settlement of liabilities, except notes payable
       Notes payable exchanged for common stock
      Loss on exchange of minority interest
      Cash paid for interest

$   1,977,000
50,000
232,000
$   1,000

   



665,000


$   1,000

See notes to financial statements

F-6

[4]

License:

The license is being amortized over its remaining life of approximately 19 years which correlates to an underlying patent. Charges for amortization in each of the years ended December 31, 2002 and 2001 was $169,000. Such amortization expense is included in research and development expense .

Total future amortization of the license are as follows:

Year Ending December 31,

Amount

2003

$ 169,000

2004

$ 169,000

2005

$ 169,000

2006

$ 169,000

2007 and thereafter

$ 2,231,000

$ 2,907,000

[5]

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. The company periodically evaluates the economic life of long lived assets and intangible assets. Any such charge is done on a prospective basis.

[6]

Loss per common share:

Statement of Financial Accounting Standards 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 December 31, 2002 and 2001 the Company excluded 3,412,429 and 2,457,965 potential common shares, respectively, relating to outstanding options and warrants from its diluted net loss per common share calculation because they are anti-dilutive.

[7]

Fair value of financial instruments:

The carrying amount of cash, accounts payable and accrued expenses approximates their fair value due to the short maturity of those instruments. The fair value of consulting fees payable and loans payable to stockholders and officers are not readily determinable due to the related party nature of those items.

[8]

Stock-based compensation:

SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has elected to account for its employee stock based compensation plans using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's common stock at the date of the grant over the amount an employee must pay to acquire the stock. Stock options granted for goods or nonemployee services are measured using the fair value of these options and such costs are included in operating results as an expense.

The Company applies APB No. 25 and related interpretations in accounting for its employee stock options. Had compensation cost for the Company's stock options been determined based upon the fair value of awards under the Plan consistent with the methodology prescribed under SFAS No. 123, the Company's pro forma net loss and pro forma net loss per share would be as follows:

Year Ended
December

2002

2001

Net loss attributable to common stockholders

$(4,589,000)

$(3,871,000)

Add stock based compensation expense under APB No. 25 included in net loss

Less stock based compensation expense under SFAS No. 123

$(59,000)

$(1,972,000)

Proforma net loss attributable to common stockholders

$(4,648,000)

$(5,843,000)

Basic and diluted net loss per share

$(0.19)

$(0.17)

Proforma basic and diluted net loss per share

$(0.19)

$(0.26)

[9]

Revenue recognition:

Revenue in connection with the granting of a license to Variable Gear LLC (Note I[2]) is to be recognized when all conditions for earning such fee is complete. Generally revenue is only recorded when no future performance is required related to the item.

[10]

Impairment of long-lived assets:

The Company has adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets." Accordingly, whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable, management assesses the recoverability of the assets. Management is also required to evaluate the useful lives each reporting period. When events or circumstances indicate, our long-lived assets, including intangible assets with finite useful lives, are tested for impairment by using the estimated future cash flows directly associated with, and that are expected to arise as a direct result of, the use of the assets. If the carrying amount exceeds the estimated undiscounted cash flows, an impairment may be indicated. The carrying amount is then compared to the estimated discounted cash flows, and if there is an excess, such amount is recorded as an impairment

F-7

[11]

Recent accounting standards:

In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". The rescinded SFAS No. 4 had required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Upon adoption of SFAS No. 145, companies will be required to apply the criteria in APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in determining the classification of gains and losses resulting from the extinguishments of debt. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Management believes adoption of SFAS No. 145 will have no material effect on our financial statements

[12]

Reclassification:
Certain amounts in 2001 have been reclassified to conform to current year presentation.

[1]

On December 1, 1997, the Company entered into three-year consulting agreements with three members of the Gleasman family (major stockholders and directors) whereby each will provide technical services to the Company in exchange for compensation of $12,500 each per month. In addition, the Company granted them options to purchase a total of 75,000 shares of common stock at an exercise price of $5.00 per share (Note H[5]). For the years ended December 31, 2002, 2001, 2000, 1999, 1998 and 1997, the Company incurred expenses amounting to approximately $450,000, $450,000 $522,000, $528,000, $528,000 and $45,000, respectively, in connection with these agreements. Effective December 1, 2000, the agreement was extended for three years and amended to provide for the payment of prior and future compensation at the discretion of the Board of Directors in either cash or shares of common stock or combination of both. Prior to these agreements, one member of the Gleasman family provided consulting services to the Company. Amounts charged to operations for the year ended December 31, 1997 and for the period ended December 31, 1996 were approximately $55,000 and $18,000, respectively. During 2001, the Company issued 126,667 shares of common stock in settlement of $665,000 of expenses accrued for consulting service. On September 30, 2002 fees due under the consulting agreement of approximately $653,000 were settled for 727,047 common stock options exercisable immediately at $5.00 per share (see Note H[5]). The options are exercisable for five years .

[2]

During the years ended December 31, 2002 and 2001, the Company engaged the services of a partnership for which two of the officers of ICE are partners. Included in operations is $0 and $667,000 for services performed by the partnership for the year ended December 31, 2002 and 2001, respectively. At December 31, 2002, such partnership and officers of ICE are owed $122,000 for expenses incurred on the Company's behalf, which is included in accounts payable.

[3]

During each of the five years ended December 31, 2002 a stockholder provided space and services to the Company at no charge. The estimated fair value of such space and services amounted to $15,000 in each year and was treated as a capital contribution and expensed.

[4]

During the year ended December 31, 2000 the Company issued to a director 2,282 shares of common stock, under the business consultants stock plan (Note H[6]) for services rendered as patent counsel.

[5]

During 2002, the Company paid approximately $6,000 to a member of the Gleasman family for investor services rendered.

F-10

F-11

[1]

Private placement:

The Company received net proceeds from private placements of its common stock of $550,000, $1,230,000 (of which $507,000 was received from the Gleasman family), $758,000, $1,068,000 and $331,000 from private placements for the years ended December 31, 2000, 1999, 1998 and 1997 and for the period ended December 31, 1996, respectively .

[2]

Preferred Stock:

In connection with this offering the Company granted the placement agent 7,500 Series A warrants, exercisable for five years at an exercise price of $1.52 per share. Such warrant was treated as a cost of the offering. Also, the placement agent was granted 10,000 warrants for providing certain financial analysis for the Company. The warrant is immediately exercisable at $.30 per share for five years. The warrant contains a cashless exercise feature. The Company valued the warrant at $8,000 using the Black-Scholes option-pricing model and charged operations .

[3]

Consultant:

In February 1997, the Company entered into a three-year agreement with a consultant (the "Consultant") whereby the Consultant will provide financial consulting services and assistance in obtaining financing as well as other services. In consideration thereof, employees of the Consultant received an aggregate of 1,000,000 shares of common stock for $50. The Company valued the shares of common stock at $1.50 per share.

[4]

Common stock subject to resale guarantee:

[5]

[5]

                 Year Ended December 31,              
2002                                    2001

Shares

Weighted
Average
Exercise
Price

Shares

Weighted
Average
Exercie
Price

Outstanding at beginning of year
Granted (Note D[1]
Exchanged (Note I[1]

Outstanding at end of year

Options exercisable at year end

Weighted average fair value of options granted during the year

      1,005,000
727,047
    (450,000 )

   1,282,047

     1,282,047


$.90

$   5.00
   5.00
   5.00

   5.00

5.00

   455,000
550,000
               

  1,005,000

   915,250


$4.10

$   5.00
   5.00


   5.00

5.00

[6]

Business consultant stock plan:

In June 1999, the Company adopted the Business Consultant Stock Plan, as amended (the "Stock Plan"). The plan provides for up to 2,000,000 shares of common stock to be issued from time to time to consultants in exchange for services. For the years ended December 31, 2002, 2001, 2000 and 1999, 1,057,455 (including 190,965 issued in settlement of amounts owed (see Note H[4])), 361,000, 196,259 and 45,351 shares were issued, respectively, to consultants and third parties in exchange for services and amounts owed to them. During the years ended, December 31, 2002, 2001, 2000 and 1999 the Company charged $1,036,000 (excluding $269,000 (see Note H[4])), $1,011,000, $840,000 and $327,000, respectively, to operations in connection with the share issuances. At December 31, 2002, 339,835 shares are available for future grants under the Plan.

[7]

[8]

Equity funding commitment:

On September 5, 2000, the Company entered into an agreement with Swartz Private Equity, LLC ("Swartz") pursuant to which Swartz granted to the Company a $50,000,000 equity funding commitment which continues for a period of thirty-six months. The agreement provides that from time to time, at the Company's request, Swartz will purchase from the Company that number of the Company's common shares equal to 15% of the number of shares traded on the market in the 20 business days after the start of the requested purchase. The purchase price will be the lesser of, 91% of the average market price during that 20-day period or such market price minus $0.20. Swartz will not be required to purchase at any one time shares having a value in excess of $2,000,000. If the Company is in need of funds, the Company may make additional requests at intervals of approximately 30 days.

As a commitment fee, the Company granted to Swartz commitment warrants to purchase 960,101 shares of the Company's common stock which warrants can be exercised at $.75 per share through August 15, 2005. The total number of commitment warrants is subject to antidilution provisions. The warrant exercise price is reset to the lowest closing price of the Company's common stock during the five trading days ending on each six-month anniversary of warrant issue date. During 2002, 76,456 commitment warrants were exercised for proceeds of approximately $80,000.

In addition to the commitment warrants referred to above, Swartz will be issued a warrant to purchase one share of common stock of the Company for every ten shares that it purchases pursuant to the agreement. These purchase warrants will initially be exercisable at 110% of the market price of the shares simultaneously purchased by Swartz, subject to the same reset provisions as govern the commitment warrants. During 2002, 47,992 of such warrants were exercised for proceeds of approximately $47,000. In connection therewith the Company has reserved 4,296,907 shares of common stock under the agreement and at December 31, 2002, Swartz had the following warrants outstanding in addition to commitment warrants:

Shares

Weighted Average
Exercise Price

Weighted Average
Remaining Life in Years

3,674

$.86

3.0

1,995

1.06

3.2

4,206

1.07

3.8

9,875

The Company has agreed to reserve 5,000,000 common shares for sale pursuant to this agreement. During the years ended December 31, 2002, 2001 and 2000, 440,000, 101,910 and 36,735 shares of common stock were put, respectively, under the agreement. The Company received proceeds in the amount of approximately $396,000, $324,000 and $109,000 for the years ended December 31, 2002, 2001 and 2000 respectively .

[9]

At December 31, 2002, outstanding warrants to acquire shares of the Company's common stock are as follows:

Exercise Price

Expiration

Number of shares Reserved

September 18, 2007

7,500 (Note H[2])

$1.52

November 11, 2007

10,000 (Note H[2])

$ .30

(a)

125,000 (Note H[3])

(a)

None

448,865 (Note I[1])

$. 01

April 15, 2007

250,000 (b)(c)

$ .50

August 15, 2005

883,645 (Note H[8])

$ .75 (d)

Various

9,875 (Note H[8])

Various

1,734,885

(a)

Exercisable at IPO price and exercisable five years from IPO.

(b)

Excluding 500,000 contingent warrants exercise price of $.75 (see (c) below)

(c)

During the year ended December 31, 2002, 250,000 warrants were exercised for $.30 per share, resulting in proceeds $75,000.

(d)

Subject to antidilution provision

Note I - Commitments and Other Matters

[1]

Employment agreements:

The Company has entered into three employment agreements with stockholders for a period of three years, commencing on the first day of the month in which the Company receives the proceeds from an IPO. Two agreements each provide for salaries of $150,000 per year. The third agreement provides for a salary of $240,000 in the first year, $252,000 in the second year and $264,000 in the third year and provides for a minimum bonus of $15,000 per quarter for the duration of the agreement. Effective August 1, 2001, such employment agreements were terminated. However, options previously granted pursuant to those agreements remain in effect. No compensation charge has been reflected related to their change in status since the individuals were also members of the board of directors. As of December 31, 2002, the options were fully vested.

Effective January 1, 2002, one of the directors resigned. Consequently, the Company recorded a charge of $32,000 relating to the estimated fair value of the remaining vesting of such directors options during 2002.

The Company may pay all compensation under these terminated agreements either in cash or common stock as determined by the Board of Directors. In connection with these agreements, the Company granted 450,000 options at $5.00 per share. The term of the options granted shall be for a period of 10 years and vest immediately. These options were exchanged for a 28% interest in Ice in March 2002. (see note A)

[2]

Variable Gear LLC

In June 2000, the Company sold 100,000 shares of common stock to a stockholder for $5.00 per share and granted an exclusive world-wide license of all its technology to Variable Gear, LLC ("Variable Gear") (an entity owned 51% by the stockholder) for the aeronautical and marine markets. Variable Gear is to pay the Company a royalty of 4% of the gross selling price of products incorporating the technology and 49% of compensation received with respect to sublicense income through January 1, 2008. The Company owns the remaining 49% of Variable Gear. The Company does not share in any profit or losses in this entity. On January 1, 2008, the Company is required to purchase the membership interest of the stockholder at the then fair market value as defined. At December 31, 2001 such fair value cannot yet be reasonably determined

The market price of the Company's stock at the date of the transaction was $3.50. Accordingly, $1.50 per share has been allocated to the license agreement. The license revenue of $150,000 is classified as deferred revenue in accordance with Staff Accounting Bulletin 101.

[3]

Litigation

The Company, together with the Gleasmans, commenced an action in November 2000 in the United States District Court for the Northern District of Oklahoma against McElroy Manufacturing, Inc. ("McElroy"). The complaint sets forth five causes of action against McElroy. McElroy brought a motion to dismiss the complaint arguing that the action constituted an impermissible collateral attack on a previous arbitration and that the issues presented had already been determined in arbitration. The motion to dismiss was granted on one of the causes, but denied on the remaining causes. On September 26, 2002, the Company and the Gleasmans dismissed their claims with prejudice.

[4]

Lease:

In November 2002, the Company entered into a vehicle lease, which provides for lease payments as follows:

2003

$ 6,700

2004

6,700

2005

5,600

$19,000

F-15

Item 8.     

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .

None.

Nominee

Principal Occupation

Age

Date of Election
or Designation

Date of Termination or Resignation

(1)

Eric Steenburgh
20 Moraine Point
Victor, New York 14564

Chairman of the Board
Chief Executive Director

62

04/16/02

*

(2)

Keith E. Gleasman
11 Pond View Drive
Pittsford, NY 14534

President, Torvec, Inc.;
Director

55

09/26/96

*

(3)

Morton A. Polster
c/o Eugene Stephens & Associates
56 Windsor Street
Rochester, NY 14605

Secretary, Torvec, Inc.;
Director

75

09/27/96

*

(4)

Herbert H. Dobbs
448 West Maryknoll Road
Rochester Hills, MI 48309

Director

71

02/20/98

*

(5)

James A. Gleasman
11 Pond View Drive
Pittsford, NY 14534

Director; Consultant to
Torvec, Inc.

62

02/20/98

*

(6)

Gary A. Siconolfi
325 VanVoorhis Avenue
Rochester, New York 14617

Director

51

10/31/02

*

(7)

Joseph Alberti
1140 Hillsboro Cove Circle
Webster, New York 14580

Director

53

10/31/02

*

(8)

Daniel R. Bickel
39 Whippletree Road
Fairport, New York 14450

Director

54

10/31/02

*

(9)

Samuel M. Bronsky
6653 Main Street
Williamsville, NY 14221

Chief Financial and
Accounting Officer

41

04/01/98

*

(1)

Eric Steenburgh became chairman and chief executive officer on April 16, 2002. Prior to joining the company, Mr. Steenburgh was Executive Vice President, Global Operations and Assistant Chief Operating Officer of Eastman Kodak Company for the past four years. Prior to his tenure at Kodak, he was President of the Industrial Products Group of ITT Industries' Fluid Technology Corporation where he was responsible for Goulds Pumps, Allis Chalmers, Vogel Pumps and Richter. Prior to that, Mr. Steenburgh was President of Ricoh Corporation, a Japanese business equipment corporation doing business in North and South America. He also spent 27 years with Xerox Corporation in manufacturing, engineering and marketing after graduating from General Motors Institute (BIE) and Renssalaer Polytechnic Institute (MSM). Mr. Steenburgh is past Chairman of the Rochester Chamber of Commerce, a past member of the Executive Committee of the National Association of Manufacturers and on the Board of Trustees of Clarkson University.

(2)

Co-Inventor with Vernon E. Gleasman on all Torvec patents, Mr. Gleasman's strengths include his extensive marketing and sales executive experience, in addition to his design and development knowledge. His particular expertise has been in the area of defining and demonstrating the products to persons within all levels of the automotive industry, race crew members, educators and students.

o

As former Vice President of Sales for the unrelated Gleason Corporation (Power Systems Division), designed and conducted seminars on vehicle driveline systems for engineers at the U.S. army tank automotive command.

o

Designed a complete nationwide after-market program for the Torsen Differential, which included trade show participation for the largest after-market shows in the U.S., SCORE and SEMA.

o

Extensive after-market experience including pricing, distribution, sales catalogs, promotions, trade show booths designs and vehicle sponsorships.

o

Responsible for over 300 articles in trade magazines highlighting the Torsen Differential (e.g., Popular Science, Auto Week, Motor Trend, Off-Road, and Four Wheeler).

o

Designed FTV vehicle prototype, (from concept to assembly).

o

Assisted in developing engineering and manufacturing procedures for the Torsen Differential and for all of the Torvec prototypes.

o

Instructed race teams on use of the Torsen Differential (Indy cars, Formula 1, SCCA Trans-Am, IMSA, GTO, GTU, GT-1, NASCAR, truck pullers and off-road racers).

o

Has been trained for up-to-date manufacturing techniques such as NWH, statistical process control and MRP II.

Mr. Gleasman has extensive technical and practical experience, covering all aspect of the company's products such as, promotion, engineering and manufacturing. 

(3)

Partner in the intellectual property law firm of Eugene Stephens & Associates. Formerly, General Patent Counsel and, thereafter, Secretary and Corporate Counsel for Gleason Corporation (1969 - 1989) and prior to that, Patent Counsel for Eastman Kodak Corporation (1960 - 1969). While with Gleason Corporation, Mr. Polster represented Gleason when the latter purchased the Gleasman's Triple D, Inc., and exclusive rights to the Gleasman patents relating to the design and manufacture of the Torsen differential. He was part of the management team overseeing the operation of the Gleason Power Systems Division, which was created to manufacture and sell the Torsen differential. Also, he represented Gleason when the latter sold its Power Systems Division and its rights to the Torsen Differential to Diesel Kiki, Ltd. of Japan (now Zexel Corporation). While in private practice, since 1989, Mr. Polster represented Zexel Torsen, Inc., (subsidiary of Zexel Corp.), which was created to manage the manufacture and sale of Torsen Differentials. Mr. Polster has been patent counsel to the Gleasmans since 1989 and has been in charge of the preparation and execution of their U.S. and international patent protection.

(4)

Dr. Dobbs, Ph.D., P.E., has worked at every level from design engineer to technical director of an Army Major Commodity Command at the two-star level. He has worked as a hands-on engineer and scientist in industry and government, commanded field units, managed Army R & D programs and laboratories and currently has his own practice as a consultant engineer. He has the broad background needed to guide the company's growth and development.

During his career he has:

o

Worked as a manufacturing engineer.

o

Worked as a design engineer in the aircraft and missile industry.

o

Managed Army laboratories as a captain, lieutenant colonel and colonel.

o

Organized, implemented and operated the theater-wide "Red Ball Express" quick response supply system in Vietnam to get disabled weapons and other critical equipment repaired and back into combat as rapidly as possible.

o

Done basic research on multi-phase turbulent fluid dynamics supporting development of the gas turbine primary power system now used in the M1 Abrams Main Battle Tank (MBT).

o

Managed advanced development of the laser guided 155mm-artillery shell now known as the "Copperhead".

At the end of 1985, Herbert H. Dobbs left government service and started his own consulting practice and began working with the Gleasmans to develop and market Vernon Gleasman's inventions. Herbert H. Dobbs holds a Ph.D. in Mechanical Engineering from the University of Michigan and is a registered professional engineer in Michigan. He holds several patents of his own and, among many affiliations, is a member of SAE, ASME, NSPE, AAAS, Sigma XI, AUSA, NDIA and the U.S. Army Science Board. The last named organization is a small group of senior technical and managerial people chosen from industry and academia to provide direct advice to the Secretary of the Army, the Chief of Staff, and the Department of the Army concerning issues of policy, budgets, doctrine, organization, training and technology.

(5)

James A. Gleasman has been a director and consultant of the company since its inception. His business background includes the following:

o

Life-long entrepreneur.

o

Skilled in management, finance, strategic planning, organizing and marketing.

o

Co-inventor of the Gleasman steer drive mechanism.

o

Established manufacturing of the Torsen® Differential in Argentina, Brazil, etc.

o

Former principal with two companies formerly owned by the Gleasman family.

o

Set business strategies for small companies' dealings with large companies.

o

Joint venture partner with Clayton Brokerage Co. of St. Louis, MO.

o

Owned financial-consulting business.

o

Negotiated with numerous Asian Corporations (including Mitsubishi and Mitsui).

o

Educated in Asian philosophy, business practices and culture.

(6)

A very active participant in his community, Mr. Siconolfi is currently involved in commercial real estate.

(7)

Mr. Alberti was project manager for Johnson & Johnson's Clinical Diagnostics NAD facility from 1995-1998 where he transformed an existing 45,000 square feet warehouse facility to become a Food and Drug Administration regulated "clean room" manufacturing facility. He founded Alberti Associates in 1995 to provide project and facilities management services for industrial, pharmaceutical and commercial properties. From 1996-1998, Alberti Associates was retained by Boston University to provide project management services for abatement of environmental code violations..

(8)

Daniel R. Bickel is a partner in the accounting firm of Bickel & Dewar, C.P.A.'s, an accounting firm providing a variety of accounting services to small to medium sized business. The services provided include audits, reviews, compilations, business and personal consulting, business acquisition and sale assistance and income tax preparation. Mr. Bickel is a graduate of the Rochester Institute of Technology. He has been licensed in New York State as a certified public accountant for almost 30 years and is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. He has served as an officer and director of numerous non-profit and civic organizations.

(9)

Mr. Bronsky is the owner of a Certified Public Accounting firm specializing in small to medium-sized businesses. Services include audits, reviews, compilations, and consulting services, including among other items, business valuations, computer applications, assisting in debt acquisition and consolidation, purchasing and selling of businesses and related tax ramifications, and general business assistance for clients. In addition, Mr. Bronsky has worked with various government agencies in a variety of audit contexts, including sales tax audits, IRS examinations. Mr. Bronsky is licensed in New York and is a member of the New York State Society of CPAs and the American Institute of CPAs. Mr. Bronsky is past treasurer and director of the Amherst Chamber of Commerce.

Long Term
Compensation Awards

Name and Position

Annual
Compensation

Options Granted

Stock
Awards

  Salary

Consultants Fee

Eric Steenburgh
Chief Executive Officer(1)

Keith E. Gleasman
President and Consultant

James A. Gleasman
Consultant

Vernon E. Gleasman
Consultant

Michael Martindale
Chief Executive Officer*

Jacob H. Brooks
Chief Operating Officer*

David R. Marshall
Vice President, Manufacturing*

Morton A. Polster
Secretary and Consultant

Samuel M. Bronsky
Chief Financial Officer

$0


$0


$0


$0


$0


$0


$0


$0


$0

$0


(2)


(3)


(4)


(5)


(6)


(7)


$0


$0

0


181,149(2)


270,164(3)


275,734(4)


(5)


(6)


(7)


$0


$0

0


0


0


0


0


0


0


0


0

(1)

Mr. Steenburgh became chief executive officer on April 16, 2002.

*

Messrs. Martindale, Brooks and Marshall resigned their positions in connection with a management restructuring effective March 31, 2002.

(2)

On December 1, 1997, the company entered into a 3 year consulting agreement with Keith E. Gleasman, under which he is obligated to devote substantially all of his business and professional time to the company in the capacity of consultant to the company. Under such agreement, Mr. Gleasman is entitled to receive an annual consulting fee of $150,000 and was granted an option to purchase 5,000 shares of the company's common stock pursuant to the company's 1998 Stock Option Plan. The consulting agreement was extended as of December 1, 2000 for an additional 3 years and was modified to authorize the Board of Directors, in its sole discretion, to pay accrued and future consulting fees in cash or the capital stock of the company, or a combination of both, at such times as the Board deems appropriate. Pursuant to the consulting agreement, the company granted 181,149 options at $5.00 per share in payment of Keith Gleasman's fee through September 30, 2002 and accrued $37,500 for the fourth quarter of 2002.

(3)

On December 1, 1997, the company entered into a 3 year consulting agreement with James A. Gleasman, under which he is obligated to devote substantially all of his business and professional time to the company in the capacity of consultant to the company. Under such agreement, Mr. James A. Gleasman is entitled to receive an annual consulting fee of $150,000 and was granted an option to purchase 25,000 shares of the company's Common Stock pursuant to the Company's 1998 Stock Option Plan. The consulting agreement was extended as of December 1, 2000 for an additional 3 years and was modified to authorize the Board of Directors, in its sole discretion, to pay accrued and future Gleasman consulting fees in cash or the capital stock of the Company, or a combination of both, at such times as the Board deems appropriate. Pursuant to the consulting agreement, company granted 270,164 options at $5.00 per share in payment of James Gleasman's fee through September 30, 2002 and accrual $37,500 for the fourth quarter of 2002.

(4)

On December 1, 1997, the company entered into a 3 year consulting agreement with Vernon E. Gleasman, under which he is obligated to devote substantially all of his business and professional time to the company in the capacity of Consultant to the company. Under such agreement, Mr. Vernon Gleasman is entitled to receive an annual consulting fee of $150,000 and was granted an option to purchase 25,000 shares of the company's Common Stock pursuant to the company's 1998 Stock Option Plan. The consulting agreement was extended as of December 1, 2000 for an additional 3 years and was modified to authorize the Board of Directors, in its sole discretion, to pay accrued and future Gleasman consulting fees in cash or the capital stock of the company, or a combination of both, at such times as the Board deems appropriate. The company granted 275,734 options at $5.00 per share in payment of Vernon Gleasman's fee through September 30, 2002 and accrued $37,500 for the fourth quarter of 2002.

Each of the consulting agreements contain customary covenants prohibiting the consultant or employee from disclosure of confidential information regarding the company, its inventions and its products, and provisions confirming that all inventions conceived, made or developed by the consultant or employee and relating to the business of the company constitutes the sole property of the company. Each of the consulting and employment agreements contains covenants restricting the consultant or employee from engaging in any activities competitive with the business of the company during the terms of such agreements and for a period of two years after termination. Each of the consulting agreements also contain a provision that the benefits provided thereunder continue even if the consultant were to become unable to perform services for the company during its term.

(5)

The company issued Mr. Martindale a warrant for 178,277 common shares in payment of Mr. Martindale's accrued salary and bonus through March 31, 2002.

(6)

The company issued Mr. Brooks a warrant for 178,277 common shares in payment of Mr. Brooks accrued salary and bonus through March 31, 2002.

(7)

The company issued Mr. Marshall a warrant for 92,311 common shares in payment of Mr. Marshall's accrued salary and bonus through March 31, 2002.

Shares Underlying

% of Options

Name

Options Granted

   Granted   

Exercise Price

Expiration Date

Eric Steenburgh

0

0%

$0

--

Keith E. Gleasman