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               Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes    X             No       

               Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]

               State issuer's revenues for its most recent fiscal year.     $0.00

               State the aggregate market value of the voting stock held by nonaffiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12(b)-2 of the Exchange Act).     $25,714,170

               Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

               Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes                    No          

               State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.  28,040,611.

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).

Transitional Small Business Disclosure Form (Check one):

Yes                No     X    

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               The company and its subsidiaries rely on the services of three officers and on the full-time services of Vernon, Keith and James Gleasman as consultants. The company utilized facilities, space, manpower and services of a major shareholder to install and test its infinitely variable transmission in its Dodge-Ram truck.

                Our chief executive officer, Eric Steenburgh, devotes substantial time to the company on a periodic basis. Herbert Dobbs, Joseph Alberti and Gary Siconolfi, directors of the company, are active in company presentations to and discussions with auto and truck manufacturers, auto parts suppliers, glass component suppliers and the U.S. military.

               The following is an overview of our automotive technologies:

               Historically, wheeled trucks and cars have been able to travel at high speeds on prepared roads and are easy to drive and steer. However, wheeled trucks and cars have lacked the ability to traverse truly difficult terrain. On the other hand, tracked vehicles have the ability to traverse truly difficult terrain but are difficult to steer precisely, are cumbersome to drive and are limited to relatively low speeds even on prepared roads.

               The company's FTV prototype is a new type of vehicle, that management believes combines the high speed capabilities of trucks and cars with the high traction capabilities of tracked vehicles.  The company has tested the FTV prototype over the past 3 years. It has demonstrated the FTV in person to representatives of many Tier I and Tier II automotive and truck componentry suppliers who are potential joint venture suppliers of the company's FTV. The company's overall strategy with respect to its FTV is to realize the capital necessary to launch the FTV through the sale or license of one or more of the company's patented technologies.

               Based upon these tests, demonstrations and the reaction of industry representatives, the company believes it has shown that the FTV is relatively easy to drive and steers as easily as a car and that it has shown that this tracked vehicle can traverse almost any terrain, with speeds of up to 60 mph being attainable on pavement and other relatively flat surfaces. The company also believes that it has shown that the FTV is also environmentally sensitive since its low ground pressure, less than 2 pounds per square inch, does not damage paved road surfaces or leave ruts or cause potholes on unpaved surfaces. We believe our rubber tracks will be made by Goodyear, a corporation dedicated to supporting original equipment manufacturers,and Goodyear has provided the tracks for the company's FTV prototype. The FTV is able to perform as it does because of its unique steering mechanism, which is protected by several patents in Europe and Japan as well as the following U.S. patents: multi-axle vehicle steer drive system (4732053), no-slip imposed differential reduction drive (4776235), no-slip imposed differential (4776236), steer-driven reduction drive system (4895052) and modular track system (6135220). This steer-drive mechanism can best be described in engineering terms as a hydro-mechanical steering mechanism. The "mechanical" portion is manufactured from conventional, high volume gearing, while the "hydro" portion is our patented hydraulic pump and motor. Conventional hydraulic pumps and motors are large, noisy and inefficient at low revolutions per minute. The company believes its patented hydraulic pump and motor has solved these problems.

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               It should be noted that unlike the United States, the vast majority of third world country roads are unpaved. The FTV is a highly desirable vehicle in these countries given their poor road conditions and weather extremes. The market is significant - 4,000,000 four wheel drive vehicles and light trucks are sold in the Asian, African, Central and South American markets annually (Automotive News, March 2003).

               The company has engaged the services of CXO on the GO, LLC, a general management consulting firm providing integrated business solutions to a wide variety of enterprises, to develop and implement a strategic plan to manufacture and market the FTV. The preliminary draft of the business plan has been presented to the company's management and to several outside parties as part of the company's overall strategy to realize the capital necessary to launch the FTV through the sale or license of one or more of the company's patented techniques. This funding strategy should preclude or sharply limit the need for third party financing associated with the FTV launch and operations.

               In 1951, Vernon E. Gleasman invented the dual-drive differential (the Torsen®). For the next thirty years, Vernon Gleasman and his sons manufactured and marketed this differential for the military, for incorporation in high performance cars, off road cars and 4x4 trucks. In 1982, after receiving the HUMVEE contract from the United States government, the Gleasmans sold the Torsen differential to Gleason Corporation which later transferred it to Zexel, (for further information on the Torsen, explore "Torsen" on the Google websearcher).

               The company's ISO-Torque differential is a dramatically less expensive more efficient and lighter improvement on the Torsen. The Torsen is standard equipment on many major automobiles including Lexis, Toyota, Audi, Land Rover, GM vehicles and others. The major hurdle to the Torsen's utilization in a larger percentage of cars and trucks is price and weight. The company believes that the ISO-Torque differential eliminates these barriers.

               The company's infinitely variable transmission is a transmission that provides an uninterrupted drive through an infinite number of geared speed ratios, allowing ideal torque flow to propel the vehicle while permitting the engine to run at optimum efficiency. The company believes that the next generation of diesel engines with state-of-the-art electronics will allow interfacing and provide the necessary mechanisms to adequately control the infinitely variable transmission. Industry data has shown that the use of constant velocity and infinitely variable transmissions improves the fuel efficiency of all engines (gas/diesel), thus leading to reduced pollution. The company believes that its infinitely variable transmission will permit automotive diesel/gasoline engines to operate at ideal combustion rates which will reduce pollution and provide improved fuel economy under normal operations. For instance, a vehicle wi th our infinitely variable transmission can attain sixty miles per hour without exceeding an engine speed over 1850 rpms. This achievement is in contrast with conventional transmissions which would need almost twice that rpm to attain 60 mph after shifting (changing gear ratios) several times. After attaining 60 mph, the hydraulics input is disengaged so that the vehicle is driving very efficiently in overdrive.

               In addition to having the potential of reducing diesel particulates and NOx, the company's transmission is less complicated and has approximately 1/3 fewer parts when compared to a conventional four or five speed automatic transmission, making it smaller in size and lighter in weight. The company's transmission, which the company believes will be simpler and less expensive to manufacture than existing transmissions, should provide the automotive industry with a higher performing product at a lower cost.

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                In December, 1999, the company finished an extensive CAD/CAM evaluation of the infinitely variable transmission. The evaluation included finite element analysis, fluid dynamics analysis and material compatibility analysis for "real world conditions" under temperatures ranging from minus 20 degrees fahrenheit to 120 degrees.

               During the summer and fall of 2003, the company took the next steps toward commercialization of its infinitely variable transmission. The company installed the infinitely variable transmission in a 2003 Dodge Ram 3/4 ton 4x4 quad pick-up truck, with an electronically controlled 2004 emissions compliant Cummins turbo-diesel engine. This engine is 5.9 liters in displacement, 250 bhp at 2900 rpm and has 460 lb-ft of torque at 1400 rpm. We chose this engine size because it represents a huge market - SUVs, light trucks, delivery trucks, school buses, airport shuttle buses and class 3 to 5 trucks.

               The company next engaged the independent engineering firm of Viewpoint Systems, Inc. (a "Select Integrator" of National Instruments) to conduct a series of fuel-efficiency tests on the transmission. These independent tests confirmed that the company's 3/4-ton 4x4 Dodge Ram truck, utilizing the company's infinitely variable transmission with a diesel engine, 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. The tests also confirmed that Torvec's 3/4 ton diesel truck --

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

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

               In addition to demonstrating that our transmission achieved superior fuel economy, the tests also confirmed that other objectives, long sought by the automotive industry, were achieved:

               --the elimination of "vehicle creep", a characteristic of an automatic transmission

                vehicle at rest without application of the brake;

               --interchangeability, i.e. Torvec's infinitely variable transmission fit in the same space
                as an existing automatic transmission, thus, eliminating the need for major costly
                design changes to car and truck frames;

               --the development of an advanced accumulator system which will generate significant additional
                fuel savings.

              An accumulator system provides a method to store and use otherwise wasted energy created by overcoming the inertia of a vehicle slowing down and completely stopping. This stored energy can then be used to accelerate the vehicle again, for example in stop and go traffic. Published results released by Eaton and the Ford Motor Company indicate that vehicles can achieve an additional 25% to 30% fuel savings by using an accumulator system.

              However, existing accumulator technology requires the addition by an automotive manufacturer of a hydraulic pump/motor system, the accumulator and a reverse valve mechanism or gear box to a vehicle's automatic or standard transmission. Since the company's infinitely variable transmission already incorporates our compact, highly efficient hydraulic pump/motor system, we only have to add the actual accumulator to achieve the same results at considerably less cost. We have developed an accumulator system to capture this otherwise wasted energy and have filed for patent protection for our advanced accumulator technology.

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               The company's patented infinitely variable transmission incorporates the company's new generation hydraulic pump and motor which does not utilize either a gimbel or spherical-gearing, thereby dramatically reducing weight, complexity and cost compared to previously designed pumps and motors. More specifically, a commercial hydraulic pump and motor that is 12.7 cubic inch displacement weighs approximately 360 pounds compared with the company's equivalent pump and motor which weighs approximately 80 pounds.

               On February 4, 2004, the company and the U.S. Environmental Protection Agency signed an agreement to determine the mechanical efficiency of the company's paradigm-shifting hydraulic pump/motor at its National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Michigan.

               When compared to the hydraulic pump/motors presently being tested by the EPA, our pump/motor is smaller, more than 100 lbs. lighter, approximately doubles hydraulic capacity, and is bi-directional. The company believes that the EPA's determination of mechanical efficiency will establish the superiority of the company's hydraulic pump/motor compared to any other piston/pump available today.

Spherical Gearing Constant Velocity Mechanism

               The company's constant velocity mechanism features a new form of gearing - spherical gearing - which is based upon the geometry of spheres rather than conventional gear geometry of cylinders and cones. The company has developed this spherical gearing to replace constant velocity joints used, among other places in all four wheel drive vehicles. The company's constant velocity joint is a departure from known designs and its efficiency and weight savings may provide significant competitive advantage in the annual constant velocity joint market of over 200,000,000 per year. The spherical gearing constant velocity mechanism has been prototyped in steel and constituted the basis for the Rochester Intellectual Property Law Association awarding Vernon Gleasman its Distinguished Inventor of the Year Award in 2001.

               The company's spherical gears have been used to form a geared ball and socket coupling in which driving tooth contact is maintained continuously while at the same time permitting the coupling to be

flexed up to 52 degrees. The potential versatility of the company's spherical gears may open the door to many yet unknown solutions and products yet to be discovered.

               The company's constant velocity joint delivers torque through a varying angle. For example, it moves through a drive shaft to the wheels of a front wheel drive car as it is steered. The patented breakthrough in the company's constant velocity joint, management believes, is the unique use of spherical geometry to deliver torque over a greater range of motion and more evenly, with fewer parts, less weight and lower cost than the competition.

               The company initially developed its constant velocity joint to provide a better performing torque transfer component for some of its other products. It has recently begun pursuing applications beyond its original intended use. In particular, the constant velocity joint has great potential as a general component to many automotive suppliers, providing a proprietary offering in a commodity field with annual unit sales in excess of 200 million.

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               Based upon our experience and research to date, we believe the following inventions will eventually become commercially viable:

These inventions are in the following stages of development:

               The company believes that its automotive technology is superior to similar products manufactured in the automotive industry and in some instances represents a true paradigm shift with respect to presently known technology. However, once the company commences operations, it will be competing against

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companies that have significantly greater financial, marketing and operating resources than the company. The company also believes that its ice technology is truly unique. No other company in the world possesses the right to commercialize such technology in the motorized, land-based vehicle field.

               The company's immediate future development is dependent upon its ability to successfully interest one or more strategic partners (either an automotive OEM and/or first tier supplier) in acquiring one or all of the company's technologies to fund the company's manufacture and marketing of its FTV™.. It is also dependent upon acceptance of the FTV vehicle especially in the Asian, African, South and Central American markets.

               With respect to these foreign markets, the infrastructure of most of Asia, Africa, South and Central America is very similar to the U.S. in the early 1900's. At that time U.S. demographics were as follows: eighty percent of the population lived in rural areas, income was low and transportation was limited to walking, bicycles, push carts and animal pulled vehicles. Roads, when they existed, were dirt and at time impassable due to terrain or inclement weather. Even with the advent of automobiles, commerce remained inhibited because paved roads were only found in the cities. Similarly, the wheeled vehicles of the developing country today can only traverse the rural dirt roads during certain seasons of the year. When roads are in rough condition (e.g., muddy, blocked by snow or ice, etc.), there is little difference in travel time between an animal drawn cart, a man on foot or bicycle, or a wheeled car. If they a re able to travel at all, even four-wheel drive vehicles are usually limited to 4-5 mph under these conditions. The idealized vehicle would be a vehicle that could travel at higher speeds (25-50 mph), regardless of the terrain, significantly shortening the travel time between rural areas and the primary marketplaces in the city. A tracked vehicle, in effect, "brings its own road with it".

               The company's ability to generate revenue and become profitable is also dependent upon the automotive industry's acceptance of its other products, namely the Iso-Torque differential, infinitely-variable transmission, the hydraulic pump and motor, the constant velocity joint and spherical gearing. The company's ultimate growth and future financial performance will depend on demonstrating the advantages of such products over existing technologies to an automotive industry which has committed substantial resources to product systems utilizing old technology. In addition, despite management's belief that its products are superior, the company will have to overcome the "not invented here" attitude that permeates the industry.

               The company has an oral understanding with a company shareholder pursuant to which the company rents, on a month-to-month basis as needed, a 3,131 square foot facility consisting of a 308 square foot office, and a 231 square foot conference room and a 2,592 square foot shop and manufacturing facility. The company is furnished with the services of three engineers and two machine operators at the facility. The company paid 70,000 shares of common stock to rent the facility in fiscal 2003.

               The executive offices of the company are located at 11 Pond View Drive, Rochester, New York 14534. The company pays nothing for the use of such offices.

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               The company is not a party to any pending, material litigation. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the company.

               There were no matters submitted to the Company's shareholders during the fourth quarter of the Company's fiscal year ended December 31, 2003.

                The annual meeting of the company's shareholders was held on January 29, 2004. At the meeting, at which a quorum of the requisite number of shares under the company's bylaws for the conduct of business was present either in person or by proxy, the following items were voted on by the shareholders with the following results:

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               Effective September 23, 1998, the company's $.01 par value common stock, as a class, was registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. As a result, shares of the company's common stock which had been owned for one year or more became eligible for trading of the over-the-counter bulletin board maintained by the National Association of Securities Dealers, Inc. on December 22, 1998. The company's stock began trading on January 21, 1999 at $12.00 per share. The company has approximately 10 market makers for its common stock.

               The following table presents the range of high and low bid prices for the company's $.01 par value common stock for each quarter during its last two fiscal years. The source of the high and low bid information is the over-the-counter bulletin board. The market represented by the OTC bulletin board is extremely limited and the price for our common stock quoted on the OTC bulletin board is not necessarily a reliable indication of the value of our common stock. Quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

               As of December 31, 2003, the company had 294 shareholders of record and an estimated 2,200 beneficial owners of its common stock. As of December 31, 2003, the company had 27,858,256 shares of its common stock issued and outstanding.

               The company has not paid any dividends on its common stock since its inception. The declaration or payment of dividends, if any, on the company's common stock is within the discretion of the Board of Directors and will depend upon the company's earnings, capital requirements, financial condition and other relevant factors. The Board of Directors does not currently intend to declare or pay any dividends on its common stock in the foreseeable future and intends to retain any earnings to finance the growth of the company.

               The payment of dividends on the company's common stock is limited by provisions of the New York State Business Corporation Law requiring that dividends be paid only if, after payment, its net assets at least equal its stated capital. Payment of dividends on common stock is also subordinated to the requirement that the company pay all current and accumulated dividends on its Class A Preferred Shares prior to the payment of any dividends on its common stock.

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(e)     Swartz Private Equity Financing

               On September 5, 2000 the company entered into an agreement with Swartz Private Equity, LLC pursuant to which Swartz Private Equity, LLC ("Swartz") granted to the company a $50,000,000 equity funding commitment which continued until September 5, 2003 when the agreement terminated. Pursuant to the arrangement, the company issued and sold 703,093 shares to Swartz and raised proceeds of $956,526.

               As a commitment fee, the company granted to Swartz commitment warrants to purchase 960,101 shares of the company's common stock. In 2002, Swartz exercised 76,456 commitment warrants for $80,000 in proceeds. In 2003, Swartz exercised the remaining 883,645 commitment warrants in a "cashless" exercise transaction, receiving 647,270 common shares.

               In addition to the commitment warrants referred to above, Swartz was issued a warrant to purchase one share of common stock of the company for every ten shares that it purchased pursuant to the agreement. We issued 57,867 common stock purchase warrants, of which 47,992 were exercised in 2002 for proceeds of $47,000 and the remaining 9,875 were exercised in 2003 in a "cashless" exercise transaction for 7,162 common shares.

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               On August 30, 2000, the company filed an amendment to its Certificate of Incorporation to increase its authorized shares to 140,000,000 and to divide such authorized shares into 100,000,000 shares of $.01 par value preferred stock and 40,000,000 shares of $.01 par value common stock.

               Under the amendment, the Board of Directors has the authority to issue preferred stock in series and to fix the designation, relative rights, preferences and limitations applicable to each series.

               On January 30, 2002, the company engaged Pittsford Capital Group as its nonexclusive agent to raise up to $5,000,000 in capital through the sale of up to 2,000,000 shares of the company's $.01 par value preferred stock. The Board designated the preferred stock to be issued in the fund raising effort as Class A Preferred Shares. The relative rights, preferences and limitations of the Class A Preferred Shares are as follows:

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Subsequent Event

          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 $202,297 at various times in 2004.

               The company furnishes its shareholders with an annual report containing audited financial statements and such other periodic reports as the Company may determine to be appropriate or as may be required by law. The company complies with periodic reporting, proxy solicitation and certain other requirements of the Securities Exchange Act of 1934.

               Continental Stock Transfer & Trust Company has been appointed as the company's Transfer Agent and Registrar for its common stock and for its preferred stock.

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               The company's website is www.torvec.com, and information regarding the company and all of its inventions can be found on such website.

               On June 29, 2000, the company announced that it had granted an exclusive, world-wide license of all its automotive technology to Variable Gear, LLC for the aeronautical and marine markets. Variable Gear will pay the company 4% royalties for 7 years after which the company is obligated to repurchase the license. Variable Gear is owned 51% by Robert C. Horton, Chairman and CEO of Ultrafab, Inc. and a company shareholder. The Company owns the remaining 49%. The company does not share in any profit or losses in this entity. Variable Gear to date has not commenced operations or sublicensed our automotive technology in its markets.

               The company's overall business strategy relating to its ice technology is to

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               The company's ice technology is held through its majority-owned subsidiary, Ice Surface Development, Inc. Our subsidiary has made significant progress in identifying three distinct methods for de-icing -- electrolysis, high frequency and pulse. It is currently developing with a joint venture partner a coating process designed to enable microcircuitry to be applied to glass surfaces without visual distortion. Our subsidiary is actively seeking a partner in the power supply field to assist it develop an industry-acceptable power supply for the ice technology.

               The company's license agreement with Dartmouth provides for a royalty of 3.5% based
on the value of net sales of licensed product with minimum annual payments of $10,000 for the
first two years, $15,000 for the third year and $25,000 per year thereafter. In addition, the
agreement provides for the payment of 50% of sub-license fee income.

               Dartmouth waived the $15,000 royalty payment due November, 2003 in the first quarter of 2004.

               The net loss for the year ended December 31, 2003 was $2,927,000 as compared to the year ended December 31, 2002 net loss of $4,577,000. The decrease in the net loss of $1,650,000 is principally related to decreases in general and administrative expense.

               Research and development expenses for the year ended December 31, 2003 amounted to $1,839,000 as compared to 1,551,000 for the year ended December 31, 2002. This increase amounted to $288,000. This increase is attributable to the development of three methods of de-icing glass and other vehicle services as well as the development of coatings suitable for applying micro-circuitry to glass and other surfaces.

               General and administrative expenses for the year ended December 31, 2003 amounted to $1,501,000 as compared to $3,512,000 for the year ended December 31, 2002. This decrease amounted to $2,011,000 and is due to compensation expense associated with warrants and development expenses made by Ice Surface Development, Inc. on its Ice technology.

               The company's business activities during its fiscal year ended December 31, 2003 were funded through the sale of 361,112 common shares to a major shareholder for $300,000, and the settlement of an advance of $25,000 for 10,000 shares of common stock, and the sale of 17,992 Class A Preferred Shares to the same shareholder for net proceeds of $71,687. In addition, our chief executive officer purchased 250,000 common shares for $125,000 upon the exercise of a common stock purchase warrant and an unrelated individual purchased 8,000 common shares for $20,000 in a private transaction.

               During the fiscal year ended December 31, 2003, the company issued 738,184 shares to business consultants under its Business Consultants Stock Plan in exchange for ongoing corporate legal services, internal accounting services, business advisory services as well as legal fees and associated expenses for ongoing patent work. We issued 15,640 restricted common shares for development of our generation III infinitely variable transmission and associated inventions. Our management accepted stock options for an aggregate 166,848 exercisable at $5.00 per share for accrued consulting fees through December 31, 2003.

               The company's consulting agreements with each of Vernon E. Gleasman, Keith E. Gleasman and James A. Gleasman expired on December 1, 2003. Management and the Gleasmans have jointly agreed not to renew these agreements but have developed a new working arrangement that assures the company with continued access to the Gleasmans' expertise without unduly burdening the company's financial statements with the continuing accrual of consulting fees.

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               The Gleasmans will continue to provide consulting services and assign new patents, existing patent improvements and all know-how in connection with all their inventions to the company. In addition, Keith E. Gleasman will continue to serve as President and as a director and James A. Gleasman will continue to serve as a director. However effective January 1, 2004 the company will no longer pay any consulting fees to the Gleasmans for these services.

               Under the new working arrangement, for calendar 2004, each of the Gleasmans intends to sell, from their own personal holdings of Torvec, an average of approximately 500 common shares daily at prevailing market prices at the time of sale. The total number of shares sold under this plan, if all shares are sold, represents approximately 2% of the current Gleasman family holdings.

               At December 31, 2003, the company's cash position was $56,000, and the company had a working capital deficiency of $1,092,000. The company's cash position at anytime during the fiscal year ended December 31, 2003 was directly dependent upon its success in selling stock since the company did not generate any revenues. The company does not know whether it will generate revenues from its business activities during fiscal year 2004.

               At December 31, 2003, the company had accounts payable and accrued expenses of $1,128,000.

                The company has an obligation to repurchase 51% of Variable Gear, LLC on January 1, 2008. The purchase price is equal to 51% of the then value of Variable Gear as determined by an independent appraiser selected by the parties. This liability can not be estimated at this time. We believe that a combination of cash flows from operations, financing and strategic alliances will produce sufficient cash flow to fund this obligation.

Subsequent Event

          On March 19, 2004 the company sold 62,500 Series A Preferred Shares to each of three shareholders for $250,000 per investor. The company also sold 50,575 Series A Preferred Shares to a shareholder for $202,297 at various times in 2004.

Revenue Recognition

               Revenue in connection with the granting of the license to Variable Gear, LLC 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.

                The Company has adopted SFAS No. 144, "Accounting for the Impairment of 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.

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Impact of Inflation

               Inflation has not had a significant impact on the company's operations to date and management is currently unable to determine the extent inflation may impact the company's operations during its fiscal year ending December 31, 2003.

               As of December 31, 2003, the company had not engaged in revenue producing operations. Once the company actually commences significant revenue producing operations, the company's operating results may fluctuate significantly from period to period as a result of a variety of factors, including purchasing patterns of consumers, the length of the company's sales cycle to key customers and distributors, the timing of the introduction of new products and product enhancements by the company and its competitors, technological factors, variations in sales by product and distribution channel, product returns, and competitive pricing. Consequently, once the company actually commences significant revenue producing operations, the company's product revenues may vary significantly by quarter and the company's operating results may experience significant fluctuations.

Board of Directors and Stockholders

Torvec, Inc.

We have audited the accompanying consolidated balance sheet of Torvec, Inc. and subsidiary (a development stage company), as of , and the related consolidated statements of operations and cash flows for each of the years in the two-year period ended and for the period from September 25, 1996 (inception) through and changes in stockholders' equity (capital deficit) for the periods from September 25, 1996 (inception) through . These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all material respects, the consolidated financial position of Torvec, Inc. and subsidiary as of and the consolidated results of their operations and their consolidated cash flows for each of the years in the two-year period ended and for the period from September 25, 1996 (inception) through in conformity with accounting principles generally accepted in the United States of America.

Eisner LLP

New York, New York

April 8, 2004

(a development stage company)

(a development stage company)

(a development stage company)

(a development stage company)

(a development stage company)

(a development stage company)

Torvec, Inc. (the "Company") was incorporated in New York on September 25, 1996. The Company, which is in the development stage, specializes in automotive technology. In September 1996, the Company acquired numerous patents, inventions and know-how (the "technology") contributed by Vernon E. Gleasman and members of his family (the "Gleasmans"). The Company intends to develop and design specific applications for this technology relating to steering drives for tracked vehicles, infinitely variable transmissions, hydraulic pumps and motors and constant velocity joints and spherical gearings. As consideration for this contributed technology, the Company issued 16,464,400 shares of common stock and $365,000 to the Gleasmans. In September 1996, the Company issued 2,535,600 shares of common stock (valued at $406,000) to individuals as consideration for the cost of services and facilities provided in assisting with the development of this technology.

For the period from inception through December 31, 2003, the Company has accumulated a deficit of $22,080,000, and at December 31, 2003 has a working capital deficiency of $1,092,000 and has been dependent upon equity financing and advances from stockholders to meet its obligations and sustain operations. The Company is in the development stage and its efforts have been principally devoted to research and development, raising capital and marketing of principal products. Substantial additional financing will be required by the Company to fund its activities. In the circumstances the Company has established a budget to provide for its continued operations through December 31, 2004. The Company has raised approximately $943,000 through the sale of 235,770 shares of its Class A Preferred Stock through March 22, 2004.

On November 29, 2000, the Company acquired Ice Surface Development, Inc. ("Ice") (incorporated on May 2, 2000) for 1,068,354 shares of common stock valued at approximately $3,405,000. The acquisition was accounted for under the purchase method. On March 31, 2002, the Company granted 28% of Ice to three former officers of the Company in exchange for forfeiting of previously granted fully vested options (see Note I[1]). The exchange was valued at $618,000 based upon the estimated fair value of the options forfeited. The difference between the Company's deemed proceeds of $618,000 and the carrying portion of the Company's investment deemed sold of $850,000 is reflected in stockholders' equity.

(a development stage company)

(a development stage company)