(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 commercial 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 manufactured, operated and sold their own innovative products and companies for the 30 years prior to the company's incorporation. 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 for the Lemelson-MIT prize, one of, 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 (60 mph) 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.

                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 sell, 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.

(c)     Our Ice Technology

               On November 29, 2000, the company acquired Ice Surface Development, Inc. ("ISDI"), from UTEK Corporation, 202 South Wheeler Street, Plant City, Florida 33566. As a result of the merger, the company acquired a 20-year, exclusive worldwide license granted by the Trustees of Dartmouth College for land-based motorized applications to a novel ice adhesion modification system developed by Professor Victor F. Petrenko at Dartmouth's Thayer School of Engineering. Our subsidiary, ISDI, is in the process of developing Dr. Petrenko's theoretical constructs into 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 being developed by ISDI may allow 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.

               Aside from being designed to repel ice on glass and other surfaces, our ice technology may also increase 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.

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

(1)

As of December 31, 2004.

(2)

The company granted 125,000 warrants to a consultant in connection with a non-exclusive financial consulting agreement dated February 11, 1997. The warrants are only exercisable if and when the company has an initial public offering of its common stock.

The company granted 7,500 warrants to its placement agent in connection with its 2002 private placement of its Class A Preferred Shares. 2,500 warrants have been exercised leaving a balance of 5,000.

(3)

The company granted 940,000 warrants to a management consulting firm during 2004 of which 345,600 were exercised in 2004. An indeterminate number of additional warrants are issuable in the future under the company's agreement with the firm. See footnote J to the company's financial statements on page 39.

(4)

The company is obligated to issue up to 12,000 warrants per annum to each nonmanagement director under its Nonmanagement Directors Plan and up to an additional 5,000 warrants per annum to the chairman of the company's audit committee. 53,000 warrants were issued in 2004. (see Note H[8])

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)

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.

          Pursuant to the offering, the company sold 38,500 Class A Preferred Shares for aggregate proceeds of $154,000. The offering terminated on July 31, 2002.

          Additional shares of Class A Preferred have been sold from time to time in a number of private placements. In 2003, 15,687 shares were sold to a private investor. On March 19, 2004 the company sold 62,500 Class A Preferred Shares to each of three shareholders for $250,000 per investor. The company also sold 50,575 Class A Preferred Shares to a shareholder for $202,300 at various times in 2004.

            During 2004, Class A Preferred holders converted 38,500 Class A Preferred into 38,500 common shares and received dividends of 8,031 Class A Preferred upon conversion. In 2005, these shares issued as dividends were converted into 2,550 common shares.

           Subsequent Event

           In March, 2005, the company sold an additional 47,500 Class A Preferred to the same shareholder for aggregate proceeds of $190,000.

The company's overall business strategy relating to the commercialization of its technologies is:

o

to license or sell any one or all of our technologies (i.e. the infinitely variable transmission, the hydraulic pump/motor system, the Iso-Torque™ differential, the spherical gearing constant velocity joint mechanism, the ice technology) in order to provide the capital management believes is necessary to successfully implement its stated goal to manufacture and market its FTV™ worldwide, especially in the Asian, African, South and Central American, and Eastern European markets.

The company's plan of operation relative to its automotive inventions during fiscal 2005 is:

o

to continue in collaboration with CXO on the GO, LLC, to develop, refine and implement the company's overall strategy described above by soliciting indications of interest from first-tier suppliers and/or automotive OEMs to license and/or purchase one or more of our technologies;

o

to complete the EPA city testing of our infinitely variable transmission in a gasoline powered Tahoe;

o

to build an infinitely variable transmission to enable us to enter into one or more joint ventures with strategic partners to offer complete diesel drive-train units to the U.S. military and for use in commercial vehicles, including Class 3 trucks and school buses;

o

to compete with our FTV™ in the 2005 Grand Challenge sponsored by the Defense Advance Research Project Agency (DARPA), the central research and development organization of the U.S. Department of Defense;

o

to build one or more Iso-Torque™ prototypes to showcase to automotive companies and first-tier suppliers;

o

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

o

The Iso-Torque ä differential - patent protection for this invention was issued July 8, 2004. Through our wholly-owned subsidiary, Iso-Torque Corporation, we anticipate building one or more prototype Iso-Torques and expect to showcase the new differential to the military as well as automotive, truck, and bus manufacturers and first-tier suppliers.

o

The infinitely variable transmission - the prototype which incorporates our hydraulic pump and motor, was 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. In the fall of 2003, we successfully completed tests which demonstrated that the truck generated:

-


-


-

a 96% improvement in fuel mileage over that obtained by a gasoline-powered, 4-speed automatic 4x4 truck of comparable weight and horsepower to the most popular SUVs;

a 38.5% improvement in fuel efficiency over a same-model Dodge 4x4 diesel truck with 4-speed automatic, and

a 28.5% improvement in fuel efficiency over a same-model Dodge 4x4 diesel truck with a manual transmission.

We have installed the infinitely variable transmission in a 2004 gasoline-fueled Tahoe and are performing EPA city driving and other tests (some of which were suggested by auto manufacturers). The tests compare, among other items, the fuel efficiencies generated by the Tahoe running on a Mustang dynamometer equipped with the OEM automatic transmission (the "baseline tests") as against the same Tahoe running on the same dynamometer equipped with the company's infinitely variable transmission.

The company is conducting these tests using our own custom designed electronic engine control unit.

We are also in the process of building another infinitely variable transmission to enable our subsidiary, IVT Diesel Corp., to enter into one or more joint ventures with strategic partners to offer complete diesel drive-train units to the U.S. military and for use in commercial vehicles, including Class 3 trucks and school buses. We expect that the diesel drive-train units offered will be loaded with technology driven features which will significantly improve performance in the recipient vehicles. The combined technological improvements should result in fuel savings, lower environmental emissions, increased driving performance, enhanced safety and greater reliability and durability.

o

Through our wholly-owned subsidiary IVT Diesel Corp., we have entered the FTV™ in the 2005 Grand Challenge sponsored by the Defense Advance Research Project Agency (DARPA), the central research and development organization of the U.S. Department of Defense. The purpose of the DARPA Grand Challenge is to develop a fully autonomous (not remote controlled) vehicle needed by the U.S. military in the war against terror. The Challenge supports the Congressional mandate that 30% of all U.S. military vehicles be capable of autonomous navigation by 2015.

The 2005 DARPA Grand Challenge is a cooperative effort of IVT Diesel Corp., MotoTron (a subsidiary of Brunswick Corporation) and Traxen Corporation. MotoTron will provide the vehicle control system and suitable application support while Traxen will provide the sensor fusion software, obstacle detection components and appropriate application support for integration with the command and control systems.

The 2005 Grand Challenge will be held on October 8, 2005 in the desert Southwest. The team (and there were 195 entrants as of the February 11, 2005 deadline) that develops an autonomous ground vehicle that finishes the designated route most quickly within 10 hours will receive $2 million. The route will be no more than 175 miles over desert terrain featuring natural and manmade obstacles. The exact route will not be revealed until 2 hours before the event begins.

Teams must qualify in order to participate in the actual October 8, 2005 Challenge Event. The first step is submission of a video demonstration by March 11, 2005 to determine which teams advance to the Site Visit. The evaluation conducted at the Site Visit (to be held May 2-21, 2005) determines the teams eligible for entry to the National Qualification Event (September 28-October 6, 2005) at which final participants are determined. Of the 195 entrants, DARPA will select 40 as semifinalists for the NQE event and 20 finalists for the Challenge itself.

o

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

Contents

Page

Financial Statements

   Report of Independent Registered Public Accounting Firm

F-2

   Consolidated balance sheet as of 4

F-3

   Consolidated statements of operations for each of the years in the two-year period ended

      4 and for the period from September 25, 1996 (inception) through

      4

F-4

   Consolidated statements of changes in stockholders' equity (capital deficit) for the periods

      from September 25, 1996 (inception) through 4

F-5

   Consolidated statements of cash flows for each of the years in the two-year period ended

      4 and for the period from September 25, 1996 (inception) through

      4

F-9

   Notes to consolidated financial statements

F-10

ASSETS

Current assets:

   Cash

$       574,000

   Prepaid expenses

        149,000

      Total current assets

       723,000

Property and Equipment:

   Office equipment

27,000

Shop equipment

79,000

Leasehold improvements

3,000

   Transportation equipment

        95,000

        204,000

Less accumulated depreciation and amortization

        77,000

Net property and equipment

        127,000

Other Assets:

License, less accumulated amortization of $692,000

    2,568,000

Deposits

2,000

Total Other Assets

2,570,000

$    3,420,000

LIABILITIES

Current liabilities:

   Accounts payable

$     290,000

   Accrued liabilities

1,495,000

   Loans payable to stockholders and officers

        28,000

      Total current liabilities

1,813,000

Deferred revenue

      150,000

      Total liabilities

    1,963,000

Minority interest

      281,000

Commitments and other matters

STOCKHOLDERS' EQUITY

Preferred stock, $.01 par value, 100,000,000 shares authorized

   3,300,000 designated as Class A Non-voting cumulative dividend $.40 per share, convertible preferred, 259,243

   shares issued and outstanding (liquidation preference $1,150,063)

3,000

300,000 designated as Class B Non-voting cumulative dividend $.50 per share,

convertible preferred, 42,500 shares issued and outstanding (liquidation preference $218,181)

Common stock, $.01 par value, 40,000,000 shares authorized, 29,043,654 issued and

   outstanding

290,000

Additional paid-in capital

32,761,000

Due from stockholders

(3,000)

Deficit accumulated during the development stage

 (31,875,000 )

      1,176,000

$   3,420,000

September 25,

1996

(Inception)

Year Ended

Through

December 31,

December 31,

Revenue

$            -

$            -

$             -

Cost and expenses:

   Research and development

2,165,000 

1,839,000 

10,058,000 

   General and administrative

   7,932,000 

1,501,000 

22,808,000 

Loss before minority interest

(10,097,000)

(3,340,000)

(32,866,000)

   Minority interest in loss of consolidated subsidiary

     292,000 

  413,000 

991,000 

Net loss

(9,805,000)

(2,927,000)

(31,875,000)

Preferred Stock beneficial conversion feature

556,000

556,000

   Preferred stock dividend

      91,000 

   16,000 

       119,000 

Net loss attributable to common stockholders

$(10,452,000 )

$(2,943,000 )

$(32,550,000 )

Basic and diluted net loss attributable to common
stockholders per share

$(0.37 )

$ (0.11 )

Weighted average number of shares of common

   stock - basic and diluted

  28,515,000 

26,836,000 

Deficit

Unearned

Accumulated

Additional

Due

Compensatory

During the

Total

Class A Preferred Stock

Class B Preferred Stock

          Common Stock                

Paid-in

From

Stock and

Development

Stockholders'

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Stockholders

Options

Stage

Equity

Issuance of shares to founders

16,464,400

$ 165,000

$ (165,000)

$

$           0

Issuance of stock for services

2,535,600

25,000

381,000

406,000

Sale of common stock - November ($1.50 per share)

64,600

1,000

96,000

97,000

Sale of common stock - December ($1.50 per share)

156,201

1,000

233,000

234,000

Distribution to founders

(27,000)

(27,000)

Net loss

$ (489,000 )

      (489,000 )

Balance - December 31, 1996

19,220,801

192,000

518,000

(489,000)

221,000

Issuance of compensatory stock

1,000,000

10,000

1,490,000

$ (1,500,000)

0

Issuance of stock for services

12,000

18,000

18,000

Sale of common stock - January ($1.50 per share)

58,266

1,000

86,000

87,000

Sale of common stock - February ($1.50 per share)

75,361

1,000

112,000

113,000

Sale of common stock - May ($1.50 per share)

30,000

45,000

45,000

Issuance of stock for services

2,000

6,000

6,000

Sale of common stock - June ($3.00 per share)

73,166

1,000

219,000

220,000

Sale of common stock - July ($3.00 per share)

13,335

40,000

40,000

Sale of common stock - August ($3.00 per share)

60,567

1,000

181,000

182,000

Sale of common stock - September ($3.00 per share)

10,000

30,000

30,000

Sale of common stock - October ($3.00 per share)

7,000

21,000

21,000

Sale of common stock - November ($3.00 per share)

10,000

30,000

30,000

Sale of common stock - December ($3.00 per share)

100,000

1,000

299,000

300,000

Issuance of compensatory options to consultants

234,000

(234,000)

0

Compensatory stock and options earned

451,000

451,000

Distributions to founders

(338,000)

(338,000)

Net loss

 (922,000 )

     (922,000 )

Balance - December 31, 1997

20,672,496

207,000

2,991,000

(1,283,000)

(1,411,000)

504,000

Issuance of stock for services

1,000

3,000

3,000

Sale of common stock - May 11 to September 20 ($5.00 per share)

112,620

1,000

562,000

563,000

Sale of common stock - September 21 to December 31 ($10.00 per share)

25,500

255,000

255,000

Costs of offering

(60,000)

(60,000)

Compensatory stock and options earned

578,000

578,000

Contribution of services

15,000

15,000

Net loss

 (2,122,000 )

    (2,122,000 )

Balance - December 31, 1998

20,811,616

208,000

3,766,000

(705,000)

 (3,533,000)

(264,000)

Issuance of stock for services

45,351

327,000

327,000

Sale of common stock - January 1 to August 9 ($10.00 per share)

80,670

1,000

806,000

807,000

Sale of common stock - August 10 to November 30 ($5.00 per share)

84,500

1,000

422,000

423,000

Issuance of compensatory options to consultants

2,780,000

(2,780,000)

0

Common stock issued- exercise of options

21,000

105,000

105,000

Compensatory stock and options earned

3,050,000

3,050,000

Contribution of services

15,000

15,000

Net loss

 (4,788,000 )

    (4,788,000 )

Balance - December 31, 1999

21,043,137

210,000

8,221,000

$

(435,000)

(8,321,000)

(325,000)

Deficit

Unearned

Accumulated

Additional

Due

Compensatory

During the

Total

Class A Preferred Stock

Class B Preferred Stock

         Common Stock               

Paid-in

from

Stock and

Development

   Stockholders'

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Stockholders

Options

Stage

Equity

Issuance of stock for services

196,259

$  2,000

$  838,000

$

$   840,000

Sale of common stock - March 29 ($4.51 per share)

44,321

200,000

200,000

Sale of common stock - June 23 ($3.50 per share)

100,000

1,000

349,000

350,000

Acquisition of Ice Surface Development

1,068,354

11,000

3,394,000

3,405,000

Proceeds from exercise of put option

36,735

1,000

108,000

109,000

Compensatory stock and options earned

$   435,000

435,000

Contribution of services

15,000

15,000

Net loss

$   (2,374,000 )

(2,374,000 )

Balance - December 31, 2000

22,488,806

225,000

13,125,000

0

(10,695,000)

2,655,000

Issuance of stock for liabilities

126,667

1,000

664,000

665,000

Issuance of stock for services

361,100

4,000

1,007,000

1,011,000

Issuance of option to consultant for services

398,000

398,000

Proceeds from exercise of put option

101,910

1,000

323,000

324,000

Contribution of services

15,000

15,000

Net loss

   (3,871,000 )

(3,871,000 )

Balance - December 31, 2001

23,078,483

231,000

15,532,000

0

(14,566,000)

1,197,000

Exercise of warrants

124,448

1,000

126,000

127,000

Exercise of warrants

250,000

3,000

72,000

75,000

Loss on sale of minority interest

(232,000)

(232,000)

Sale of preferred stock and warrant

38,500

142,000

142,000

Issuance of stock for services

1,001,454

10,000

1,224,000

1,234,000

Issuance of options in settlement of liabilities and consulting fees

653,000

653,000

Issuance of warrants to chairman

690,000

690,000

Proceeds from exercise of put option ($.90 per share)

440,000

5,000

391,000

396,000

Common stock issued in exchange for loan

35,461

50,000

50,000

Sale of common stock - July ($1.45 per share)

46,897

68,000

68,000

Sale of common stock - August ($1.42 per share)

211,265

2,000

298,000

300,000

Sale of common stock - September ($1.42 per share)

140,845

1,000

199,000

200,000

Sale of common stock - December ($.91 per share)

109,890

1,000

99,000

100,000

Contribution of services

15,000

15,000

Issuance of warrant for financial services

8,000

8,000

Warrant issued in lieu of compensation

633,000

633,000

Issuance of shares in settlement of liabilities

190,965

2,000

267,000

269,000

Compensatory stock options

32,000

32,000

Employees/Stockholders Contribution of services in subsidiary

519,000

519,000

Net loss

    (4,577,000 )

(4,577,000 )

Balance - December 31, 2002

     38,500

      0

  25,629,708

$   256,000

$  20,786,000

$

$             0

$ (19,143,000)

$  1,899,000