CurAegis (CRGS) 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File No. 000-24455

TORVEC, INC.

(Exact name of registrant as specified in its charter)

New York	16-1509512
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1169 Pittsford Victor Road, Suite 125 Pittsford, New York 14534
(Address of principal executive offices and Zip Code)

(585) 248-0740
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yesþ      Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero      Accelerated filero      Non-accelerated filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso      Noþ

APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date:

Class	Number of Shares Outstanding at November 1, 2006
Common Stock, $.01 par value	31,162,025
Options Outstanding & Not Exercised	Shares to cover the options will not be issued until they are exercised.
1,823,895

2

TORVEC, INC. AND SUBSIDIARIES
(A Development Stage Company)

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Torvec, Inc. and Subsidiaries Condensed Consolidated Balance Sheets — September 30, 2006 (Unaudited) and December 31, 2005 (Derived from Audited Financial Statements)		3
	Torvec, Inc. and Subsidiaries Condensed Consolidated Statements of Operations— Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited) and September 25, 1996 (Inception) through September 30, 2006		4
	Torvec, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows — Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited)		5
	Notes to Condensed Consolidated Financial Statements		6 – 25
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		30
Item 4.	Controls and Procedures		31
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3.	Defaults Upon Senior Securities		33
Item 4.	Submission of Matters to a Vote of Security Holders		33
Item 5.	Other Information		33
Item 6.	Exhibits		34 – 39
	SIGNATURES PAGE	��	40
	EXHIBIT INDEX		41
EX-31.1
EX-32
EX-31.1
EX-32

3

PART I — FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS.

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

Condensed Consolidated Balance Sheets

				December 31, 2005
				(Derived from
	September 30, 2006			Audited Financial
	(Unaudited)				Statements)
ASSETS
Current assets:
Cash	$	160,000		$	51,000
Prepaid expenses and other receivable		72,000			67,000
Total current assets		232,000			118,000
Property and Equipment:
Office equipment		44,000			42,000
Shop equipment		126,000			126,000
Leasehold improvements		3,000			3,000
Transportation equipment		107,000			99,000
		280,000			270,000
Less accumulated depreciation and amortization		113,000			82,000
Net property and equipment		167,000			188,000
Other Assets:
License, less accumulated amortization of $2,190,000 and $1,548,000, respectively		1,071,000			1,712,000
Deposits		252,000			2,000
Total Other Assets		1,323,000			1,714,000
	$	1,722,000		$	2,020,000
LIABILITIES
Current liabilities:
Notes payable, current portion	$	14,000		$	5,000
Accounts payable		192,000			148,000
Accrued liabilities		1,541,000			1,541,000
Total current liabilities		1,747,000			1,694,000
Deferred revenue		150,000			150,000
Notes payable, net of current portion		62,000			19,000
Advance from shareholder		250,000			—
Total liabilities		2,209,000			1,863,000
Minority interest		—			8,000
Commitments and other matters
STOCKHOLDERS’ (DEFICIENCY) 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, per annum, convertible preferred, 621,243 and 459,243 shares issued and outstanding (liquidation preference $2,894,027 and $2,085,179) at September 30, 2006 and December 31, 2005, respectively.		6,000			5,000
300,000 designated as Class B, Non-voting, cumulative dividend $.50 per share, per annum, convertible preferred, 42,500 shares issued and outstanding (liquidation preference $256,679 and $240,292) at September 30, 2006 and December 31, 2005, respectively		—			—
Common stock, $.01 par value, 40,000,000 shares authorized, 31,099,115 and 30,052,630 issued and outstanding, at September 30, 2006 and December 31, 2005, respectively		311,000			300,000
Additional paid-in capital		41,560,000			37,267,000
Shares issued for future consulting services		(160,000	)		(103,000	)
Deficit accumulated during the development stage		(42,204,000	)		(37,320,000	)
		(487,000	)		149,000
	$	1,722,000		$	2,020,000

See notes to condensed consolidated financial statements

4

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

Condensed Consolidated Statements of Operations
(Unaudited)

													September 25,
													1996
													(Inception)
	Three Months Ended						Nine Months Ended						Through
	September 30,						September 30,						September 30,
	2006			2005			2006			2005			2006
Revenue	$	—		$	—		$	—		$	—		$	—
Cost and expenses:
Research and development		334,000			782,000			1,252,000			2,266,000			14,029,000
General and administrative		1,957,000			244,000			3,640,000			2,218,000			29,447,000
Loss before minority interest		(2,291,000	)		(1,026,000	)		(4,892,000	)		(4,484,000	)		(43,476,000	)
Minority interest in loss of consolidated subsidiary		—			68,000			8,000			205,000			1,272,000
Net loss		(2,291,000	)		(958,000	)		(4,884,000	)		(4,279,000	)		(42,204,000)	)
Preferred stock beneficial conversion feature		—			—			—			159,000			715,000
Preferred stock dividend		65,000			41,000			177,000			111,000			452,000
Net loss attributable to common stockholders	$	(2,356,000	)	$	(999,000	)	$	(5,061,000	)	$	(4,549,000	)	$	(43,371,000	)
Basic and diluted net loss attributable to common stockholders per share	$	(0.08	)	$	(0.03	)	$	(0.17	)	$	(0.15	)
Weighted average number of shares of common stock — basic and diluted		30,640,000			29,692,000			30,472,000			29,417,000

See notes to condensed consolidated financial statements

5

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

Condensed Consolidated Statements of Cash Flows
(Unaudited)

							September 25,
							1996
							(Inception)
	Nine Months Ended						Through
	September 30,						September 30,
	2006			2005			2006
Cash flows from operating activities:
Net loss	$	(4,884,000	)	$	(4,279,000	)	$	(42,204,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		672,000			661,000			2,326,000
Gain on sale of fixed assets		—			(10,000	)		(10,000	)
Minority interest in loss of consolidated subsidiary		(8,000	)		(205,000	)		(1,272,000	)
Compensation expense attributable to common stock in Subsidiary		—			—			619,000
Common stock issued for services		921,000			1,539,000			10,302,000
Shares issued for future consulting services		(57,000	)		—			(68,000	)
Contribution of services		225,000			225,000			2,034,000
Compensatory common stock, options and warrants		2,498,000			1,071,000			15,486,000
Changes in:
Prepaid expenses		(5,000	)		122,000			89,000
Deposits		(250,000	)		—			(252,000	)
Accounts payable and accrued expenses		44,000			(56,000	)		3,641,000
Deferred revenue		—			—			150,000
Net cash used in operating activities		(846,000	)		(932,000	)		(9,150,000	)
Cash flows from investing activities:
Purchase of property and equipment		(10,000	)		(49,000	)		(280,000	)
Cost of acquisition		—			—			(16,000	)
Proceeds from sale of fixed asset		—			10,000			10,000
Net cash used in investing activities		(10,000	)		(39,000	)		(285,000	)
Cash flows from financing activities:
Net proceeds from sales of common stock and upon exercise of options and warrants		11,000			—			6,501,000
Net proceeds from sales of preferred stock		648,000			577,000			2,817,000
Net proceeds from sale of subsidiary stock		—			—			234,000
Net proceeds from sale of warrants		2,000			—			2,000
Proceeds from long — term borrowings		306,000			—			335,000
Repayments of long-term debt		(4,000	)		—			(33,000	)
Proceeds from stockholders’ loans-net		—			—			103,000
Distributions		—			—			(365,000	)
Net cash provided by financing activities		963,000			577,000			9,594,000
Net increase (decrease) in cash		109,000			(394,000	)		160,000
Cash at beginning of period		51,000			574,000			—
Cash at end of period	$	160,000		$	180,000		$	160,000
Supplemental disclosure of non-cash investing and financing activities:
Shares issued for future consulting services	$	160,000		$	103,000

See notes to condensed consolidated financial statements

6

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note A — The Company and Basis of Presentation

The interim information contained herein with respect to the three and nine month periods ended September 30, 2006 and September 30, 2005 and the period from September 25, 1996 (inception) through September 30, 2006 has not been audited but was prepared in conformity with generally accepted accounting principles for interim financial information and instructions for 10-Q and Item 310(b) of Regulation S-K. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by generally accepted accounting principles for financial statements. Included are ordinary adjustments, which in the opinion of management are necessary for a fair presentation of the financial information for the three and nine months ended September 30, 2006 and 2005, and since inception. The results are not necessarily indicative of results to be expected for the year.

Torvec, Inc. (the “company”) was incorporated in New York on September 25, 1996. The company, which is in the development stage, has developed automotive technology for use in automotive applications. The company intends to commercialize specific applications for this technology relating to steering drives for tracked vehicles, infinitely variable transmissions, hydraulic pumps and motors, constant velocity joints, differentials and spherical gearings.

For the period from September 25, 1996 (inception) through September 30, 2006, the company has accumulated a deficit of $42,204,000, and at September 30, 2006 has a working capital deficiency of $1,515,000 and has been dependent upon equity financing and advances from stockholders to meet its obligations and sustain operations. The company’s efforts have been principally devoted to the development of its technologies, raising capital and commercializing its 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, 2006. The company secured a funding commitment from a stockholder and officer to fund any cash shortfall for operations through September 30, 2007. As of September 30, 2006, there have not been any advances made under this funding commitment. Subsequent to September 30, 2006 and in addition to the funding commitment, the company has sold 68,750 Class A Preferred shares through November 6, 2006 for proceeds of $275,000 and has sold 5,000 Class B Preferred Shares through November 3, 2006 for proceeds of $25,000. Based upon the funding commitment, cash on hand and the additional sale of Class A Preferred Stock, the company anticipates that it will have sufficient cash to fund operations for at least the next twelve months.

Note B — Summary of Significant Accounting Policies

[1]	Consolidation:
	The financial statements include the accounts of the company, its majority-owned subsidiary, Ice (69.26% owned at September 30, 2006), and its wholly owned subsidiary Iso-Torque Corporation. All material intercompany transactions and account balances have been eliminated in consolidation.
[2]	Property and Equipment:
	Equipment, including a prototype vehicle, is stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets which range from three to seven years. Leasehold improvements are being amortized over shorter of lease term or useful life.
[3]	Research and development and patents:
	Research and development costs and patent expenses are charged to operations as incurred.

7

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note B — Summary of Significant Accounting Policies (continued)

[4] License:

Through December 31, 2004, the license for the company’s Ice technology was being amortized over its estimated remaining useful life which correlated to the underlying patent. Effective January 1, 2005, the company has changed its estimate of economic useful life to 3 years. Charges for amortization in each of the three and nine months ended September 30, 2006 and 2005 was $214,000 and 642,000, respectively. Such amortization expense is included in research and development expense.

Total future amortization of the license is as follows:

Period Ending
September 30,	Amount
2007	$	856,000
2008		214,000
	$	1,070,000

[5] Use of estimates:

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates are used in valuing the useful lives of its intangible assets and the future realizable value of such assets. These estimates are subject to a high degree of judgment and potential change. Actual results could differ from those estimates.

[6] Loss per common share:

Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” requires the presentation of basic earnings per share, which is based on common stock outstanding, and dilutive earnings per share, which gives effect to options, warrants and convertible securities in periods when they are dilutive. At September 30, 2006 and 2005, the company excluded 4,293,525 and 3,115,817 potential common shares, respectively, relating to convertible preferred stock 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, notes payable and accrued expenses approximates their fair value due to the short maturity of those instruments.

8

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note B — Summary of Significant Accounting Policies (continued)

[8] Stock-based compensation:

In December 1997, the Board of Directors of the company approved a Stock Option Plan (the “Plan”) which provides for the granting of up to 2,000,000 shares of common stock, pursuant to which officers, directors, key employees and key consultants/advisors are eligible to receive incentive, nonstatutory or reload stock options. Options granted under the Plan are exercisable for a period of up to 10 years from date of grant at an exercise price which is not less than the fair value on date of grant, except that the exercise period of options granted to a stockholder owning more than 10% of the outstanding capital stock may not exceed five years and their exercise price may not be less than 110% of the fair value of the common stock at date of grant. Options may vest over five years.

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share Based Payment.” We elected to use the modified prospective transition method; therefore, prior period results were not restated. Prior to the adoption of SFAS 123R, stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”.

SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. Under the modified prospective method, awards that were granted, modified, or settled on or after January 1, 2006 are measured and accounted for in accordance with SFAS 123R. Unvested equity-classified awards that were granted prior to January 1, 2006 will continue to be accounted for in accordance with SFAS 123, except that all awards are recognized in the results of operations over the remaining vesting periods. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized. In addition, the realization of tax benefits in excess of amounts recognized for financial reporting purposes will be recognized as a financing activity in accordance with SFAS 123R.

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets. We elected to adopt the alternative method of calculating the historical pool of windfall tax benefits as permitted by FASB Staff Position (FSP) No. SFAS 123R-c, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” This is a simplified method to determine the pool of windfall tax benefits that is used in determining the tax effects of stock compensation in the results of operations and cash flow reporting for awards that were outstanding as of the adoption of SFAS 123R.

9

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note B — Summary of Significant Accounting Policies (continued)

[8] Stock-based compensation:(continued)

As of September 30, 2006, the company did not have any unrecognized stock compensation related to unvested awards.

The following table illustrates the effect on net loss and earnings per share if the fair value based method had been applied to the prior period.

	Nine Months Ended
	September 30, 2005
Reported net loss attributable to common stockholders	$	(4,549,000	)
Add: Stock-based compensation expense under APB No. 25 included in net loss, net of related tax effects		—
Stock-based employee compensation determined under the fair value based method prior to adoption of SFAS 123R, net of related tax effects		—
Pro Forma net loss attributable to common stockholders	$	(4,549,000	)
Loss per share:
Basic and diluted attributable to common stockholders — as reported	$	(0.15	)
Basic and diluted attributable to common stockholders — pro forma	$	(0.15	)

There was no stock option compensation recorded for the three and nine months ended September 30, 2006 since all stock options vested at December 31, 2005.

The following summarizes the activity of the company’s stock options for the three and nine months ended September 30, 2006:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Number of shares under option plan:
Outstanding at January 1, 2006		1,823,895	$	4.85
Granted
Exercised
Canceled or expired
Outstanding at September 30, 2006		1,823,895	$	4.85		3.25	$	38,000
Exercisable at September 30, 2006		1,823,895	$	4.85		3.25	$	38,000

The company did not grant any options under the plan during the quarter ended September 30, 2006.

The company has 176,105 shares remaining for issuance under the plan.

At September 30, 2006, all outstanding options were fully vested.

The aggregate intrinsic value for the non-management director warrants at September 30, 2006 was $290,000. The warrants have a weighted average remaining term of 8.9 years and are fully vested.

10

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note B — Summary of Significant Accounting Policies (continued)

[9] Revenue recognition:

Revenue in connection with the granting of a license to Variable Gear LLC is to be recognized when all conditions for earning such fee is complete. Revenue will be recognized when the related products are shipped, title has passed, collections are reasonably assured and the company has no further obligation. An allowance for discounts and returns will be taken as a reduction of sales within the same period the revenue is recognized. Such allowances will be based on facts and circumstances.

[10] Impairment of long-lived assets:

The company follows Statement of Financial Accounting Standards 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.

[11] Recent accounting pronouncements:

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impractical to determine period specific changes. This statement is effective for fiscal periods beginning after December 15, 2005 and is not expected to have a significant impact on the Company’s financial statements.

In June 2006, the Financial Accounting Standards Board (“FASB”) has issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”), regarding accounting for, and disclosure of, uncertain tax positions. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact FIN 48 will have on its results of operations and financial position.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108, “Considering the Effects on Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”). SAB 108 requires registrants to quantify errors using both the income statement method (i.e. iron curtain method) and the rollover method and requires adjustment if either method indicates a material error. If a correction in the current year relating to prior year errors is material to the current year, then the prior year financial information needs to be corrected. A correction to the prior year results that are not material to those years, would not require a “restatement process” where prior financials would be amended. SAB 108 is effective for fiscal years ending after November 15, 2006. We do not anticipate that SAB 108 will have a material effect on our financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, the beginning of the Company’s 2008 fiscal year. The Company is assessing the impact the adoption of SFAS No. 157 will have on the Company’s financial position and results of operations.

11

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

NOTE C — LICENSES FROM THE TRUSTEES OF DARTMOUTH COLLEGE

On November 28, 2000, Ice entered into a 20-year exclusive license with the Trustees of Dartmouth College (“Dartmouth”) for land-based applications to a novel ice adhesion modification system developed by Dr. Victor Petrenko at Dartmouth’s Thayer School of Engineering. The license agreement provided for a single payment of $140,000 (paid in 2000) for sponsored research and a royalty of 3.5% based on the value of net sales of licensed product with minimum annual payments of $10,000 for the first two years, $15,000 for the third year and $25,000 per year thereafter. In addition, the agreement provides for the payment of 50% of sub-license fee income. Expense for the above agreements totaled $5,750 and $17,250 for the three and nine months ended September 30, 2006 and 2005, respectively.

NOTE D — RELATED PARTY TRANSACTIONS

[1]	Commencing January 1, 2004, the Gleasmans entered into an arrangement with the company to provide consulting services and assign new patents, existing patent improvements and all know-how in connection with all their inventions to the company on a noncompensated basis. In addition, Keith E. Gleasman will continue to serve as President and as a director and James Y. Gleasman will serve as Chief Executive Officer, Interim Chief Financial Officer and as a director, again on a noncompensated basis. In accordance with this arrangement, for the three and nine month periods ended September 30, 2006, the company did not pay the Gleasmans any consulting fees for their services. The company recorded approximately $225,000 for the estimated value of these services as a contribution to capital based upon approved time and hours spent and recorded $150,000 to research and development and $75,000 to general and administrative.
[2]	During the three and nine month periods ended September 30, 2006 and 2005 the company paid a member of the Gleasman family for administrative, technological and engineering services rendered. The individual is paid as a consultant for services. For the three and nine months period ended September 30, 2006 and 2005, this individual was paid $12,600 and $7,425 and $30,390 and $21,600, respectively. Management believes the rate of compensation is reasonable.
[3]	During the three month and nine month periods ended September 30, 2005, the company issued to a stockholder 30,000 and 70,000 common shares as rent for the company’s use of a facility valued at approximately $83,000 and $225,000 respectively, based upon the fair market value of the common stock on the date of issuance. This arrangement terminated effective February 28, 2006. No common shares were issued to the stockholder during the three and nine month periods ended September 30, 2006 and no further amounts are due under the arrangement.
[4]	During the three and nine month periods ended September 30, 2005 the company incurred approximately $121,000 and $419,000 for consulting services provided to the company by outside counsel exclusive of legal services. There were no charges for the three and nine month periods ended September 30, 2006.

12

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

NOTE E — NOTE PAYABLE

Notes Payable — Financial Institution

During the year ended December 31, 2005, the company financed a vehicle as a prototype and pledged the vehicle as collateral for a loan. The loan in the amount of $24,000 is paid in monthly installments of $479 consisting of principal and interest at 6.59% per annum through December 2010.

During the quarter ended September 30, 2006, the company refinanced two vehicles and pledged the vehicles as collateral for the loan. The loan in the amount of $56,174 is paid in monthly installments of $1,201 consisting of principal and interest at 10.3% per annum through August 2011.

The following represents the required minimum payments:

Period Ending
September 30,
2007	$	20,000
2008		20,000
2009		20,000
2010		20,000
2011		15,000
Total Minimum payments		95,000
Less-amount representing interest		19,000
		76,000
Less-Current Maturities		14,000
Long Term Portion	$	62,000

Advance from Shareholder

On June 19, 2006, a shareholder deposited $250,000 with the Monroe County, New York Treasurer representing the undertaking required to stay execution of a May 8, 2006 court order with respect to 40,000 common shares, 245,000 common stock warrants and 511,200 unexercised previous issued stock warrants pending the appellate court’s disposition of the company’s appeal of the court’s May 8, 2006 order. See Note I.

On July 25, 2006, the shareholder confirmed in writing his agreement to be repaid by the company the full amount of the advance, plus interest at 8.75% per annum, either by the issuance of the company’s Class A Preferred at $4.00 per share, associated warrants, cash and/or a combination thereof, with both the method of repayment as well as the timing of repayment totally within the company’s discretion.

For the three and nine months ended September 30, 2006, the company incurred and accrued interest charges in the amount of $4,183.

13

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note F — Stockholders’ (Deficiency ) Equity

[1] Class A Preferred stock:

In January 2002, the company authorized the sale of up to 2,000,000 shares of its Class A Non-Voting Cumulative Convertible Preferred Stock (“Class A Preferred”). During 2002, the company sold 38,500 shares at $4.00 per share of its Class A Preferred in a private placement for approximately $142,000 in net proceeds. Each share of Class A Preferred is convertible into one share of voting common stock and entitles the holder to dividends, at $.40 per share per annum. The holder has the right to convert after one year subject to Board approval.

In connection with this offering the company granted the placement agent 5,000 Class A Warrants, exercisable for five years at an exercise price of $1.52 per share into common stock. The company also granted to these investors 2,500 Class A Warrants, exercisable for five years at an exercise price of $0.01 per share. Such warrants were 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 warrants are 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. On July 8, August 14, September 11, 2003 and August 4, 2006, the company issued 2,500, 7,480, 1,200 and 2,500 common shares, respectively, to the placement agent upon the exercise of warrants issued in connection with this offering.

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 the Preferred Stock Agreement, 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 will be issued. The company shall pay cash in lieu of paying fractions of Class A Preferred Shares on a pro rata basis.
(ii)	The Class A Preferred Shares will be entitled to participate on a pro rata basis in any distribution of assets as may be made or paid on Junior Stock upon the liquidation, dissolution or winding up of the company.
(iii)	A consolidation or merger of the company with or into any other corporation or corporations or any other legal entity will not be deemed to constitute a liquidation, dissolution or winding up of the company as those terms are used in this Section C.

14

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note F — Stockholders’ (Deficiency) Equity (continued)

[1] Class A Preferred stock:(continued)

During 2005, the company sold 200,000 Class A Preferred for $800,000 and issued 62,500 associated common stock warrants with an exercise price of $.01 per share. Such warrants are convertible immediately and are exercisable for ten years.

During the three and nine month periods ended September 30, 2006, the company sold 78,750 and 162,000 Class A Preferred to investors for proceeds of $315,000 and $648,000, respectively. One investor also purchased 20,500 common stock warrants for a purchase price of $2,000 for the period ended March 31, 2006. The company issued 77,515 and 121,265 additional common stock warrants to investors in connection with the purchase of Class A Preferred for the three and nine month periods ended September 30, 2006. All such warrants are exercisable at $.01 per common share. For the three and nine month periods ended September 30, 2006, 35,000 and 47,500 of these warrants were exercised for proceeds of $350 and $475 respectively.

At September 30, 2006 and 2005, dividends in arrears amounted to approximately $409,000 and $208,000, respectively.

[2] Class B Preferred stock:

On October 21, 2004, the company authorized the sale of up to 300,000 shares of its Class B Non-Voting Cumulative Convertible Preferred Stock (“Class B Preferred”). During 2004, the company sold 42,500 shares at $5.00 per share of its Class B Preferred for $212,500. Each share of Class B Preferred is cumulative convertible into either one share of voting common stock of the company or one share of common stock of Iso-Torque Corporation under certain circumstances and entitles the holder to dividends, at $.50 per share per annum. The holder has the right to convert into shares of the company’s common stock after one year subject to Board approval. At September 30, 2006 and 2005, dividends in arrears amounted to approximately $43,000 and $22,000, respectively.

(1) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Class B Preferred Shares then outstanding are entitled to be paid out of the assets of the Corporation 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 Corporation, 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(2), all of such accumulated and unpaid dividends will be paid in Class B Preferred Shares at a rate of 1 Class B Preferred Share for each $5.00 of dividends. No fractions of Class B Preferred Shares shall be issued. The Corporation shall pay cash in lieu of paying fractions of Class B Preferred Shares on a pro rata basis.

(2) The Class B 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 Corporation.

15

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note F — Stockholders’ (Deficiency) Equity (continued)

[3] Business Consultants Stock Plan:

For the three and nine month periods ended September 30, 2005, the company issued 145,540 and 739,490 shares to business consultants under the Business Consultants Stock Plan. For the three and nine month periods ended September 30, 2006, the company issued 130,500 and 461,234 shares to business consultants under the Business Consultants Stock Plan. For the three and nine months ended September 30, 2006 the shares were valued at the market value of the shares on the date immediately prior to the date of issuance and approximated $334,000 and $926,000, respectively. For the three and nine month periods ended September 30, 2006 424,000 shares were issued to satisfy the exercise of warrants. As of September 30, 2006, 164,625 shares are available for future issuances under the Business Consultants Stock Plan.

[4] Nonmanagement Directors Plan:

On October 1, 2004, the Board of Directors approved a Nonmanagement Directors Plan pursuant to which each nonmanagement director is entitled to receive, if certain conditions are met, on an annual basis for services rendered as a director, warrants to purchase 12,000 shares of the company’s common stock at $.01 per share. In addition, the chairman of the audit committee is entitled to receive, on an annual basis for services rendered as chairman, additional warrants for 5,000 shares of the company’s common stock at $.01 per share.

At December 31, 2005, 83,750 warrants were issued and fully vested. The company issued 44,000 warrants and recorded a charge of $113,000 to general and administrative expenses representing the excess of the fair market value and $.01 per share of such warrants in 2005. During 2005, two directors exercised 24,000 warrants granted to them under the Nonmanagement Directors Plan.

For the three and nine months ended September 30, 2006, the company granted 0 and 39,750 warrants, respectively, under the Nonmanagement Directors Plan and recorded a charge of approximately $0 and $48,000, respectively to general and administrative expenses. During the three and nine month periods ended September 30, 2006, 3,000 and 19,000 warrants were exercised, respectively.

On October 13, 2006, the board modified the Plan to provide that, effective for periods commencing on and after July 1, 2006, a stipulated sum per annum should be paid to each nonmanagement director solely for his service as a director, with the amount of such payment determined by the board from time to time, based upon such considerations as risk, number of meetings, monitoring and reviewing company compliance with the Sarbanes-Oxley Act as well as all other applicable local, state, national and international rules and regulations, development and implementation of policies, including establishing and reviewing executive compensation, longevity, 24-hour a day availability, as well as oversight of management’s pursuit of one or more commercializing events for the company’s technologies. Until adjusted in accordance with such factors, the board determined that each nonmanagement director shall be paid $25,200 per annum exclusively for board and committee service, payable pro rata on a quarterly basis, provided each such director shall have attended, either in person or via telephonic conference, 75% of the meetings of the board and of the committee(s) of which he is a member, such attendance measured on an annual basis. Such amount shall be paid either in cash, Business Consultants stock or a combination of both and is payable to a newly elected director on a prospective basis upon his election as a director.

At the same meeting, the board also determined that a stipulated sum per annum should be paid to those nonmanagement directors serving as chairman of the board, chairman of the executive committee, chairman of the audit committee, chairman of the nominating committee and chairman of the compensation and governance committee, exclusively for service rendered in such capacities. Until further adjusted, the board determined that the chairman of the board shall be paid $7,500 per annum, the chairman of the executive committee shall be paid $12,000 per annum, the chairman of the audit committee shall be paid $12,000 per annum, the chairman of the nominating committee shall be paid $5,100 per annum and the chairman of the compensation and governance committee shall be paid $5,100 per annum. Such amounts are to be paid pro rata on a quarterly basis with payments made in cash, Business Consultants stock or a combination of both and is payable to a newly elected chairman on a prospective basis upon his election as chairman. With respect to amounts payable to chairmen for calendar 2006, such amounts shall be payable retroactively to January 1, 2006 (except for the audit committee chairman who has received payment for the six month period ended June 30, 2006).

Each unexercised, nonmanagement director warrant outstanding as of October 13, 2006 was amended to provide that such warrants may be exercised only upon the happening of the earlier to occur of the following events: death or disability of the director, termination of his service as a director, change in control of the company or the sale, license or other commercial transfer of a substantial amount of the company’s assets, all of such terms to be interpreted in accordance with the provisions of section 409A of the Internal Revenue Code of 1986 and the regulations promulgated thereunder.

[5] Shares issued for services and rent:

During 1998, the company granted 1,000 shares of common stock, valued at $3.00 per share, for services provided. During 1997, the company granted 12,000 and 2,000 shares of common stock for services provided. The company valued the shares at their fair value of $1.50 and $3.00 per share, respectively. During 2003 and 2002, 15,640 and 134,964 restricted shares were issued for services aggregating approximately $18,000 and $198,000 respectively. During 2005 and 2004, 100,000 and 35,000 restricted             shares were issued for services and rent aggregating approximately $259,500 and $194,000. During the three and nine month periods ended September 30, 2006, no restricted shares were issued.

16

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note F — Stockholders’ (Deficiency) Equity (continued)

[6] Business and Financial Consultants:

In connection with its business and financial operations for the three and nine month period ended September 30, 2006, the company issued 85,333 and 92,833 warrants exercisable at $.01 per common share, each with a ten year term, to a number of consultants. During the three month period ended September 30, 2006, 90,750 of these warrants were exercised for proceeds of $908. The company also issued 400,000 warrants to a business consultant on August 28, 2006, exercisable over a ten year term at an exercise price of $3.27 per common share. The Company valued the warrants at $1,237,000 using the Black-Scholes option/pricing model and charged operations. None of these warrants were exercised as of September 30, 2006.

[7] Warrants:

As of September 30, 2006, outstanding warrants to acquire shares of the company’s common stock are as follows:

		Number of
Exercise		Shares
Price	Expiration	Exercisable
$1.52	September 18, 2007		2,500		(Note F [1])
(a)	(a)		125,000		(a)
$.75	None		500,000		(b )
$.01	None		756,200		(c )
$.01	None		84,500		(d )
(e)	(e)		(e	)	(e)
$.01	None		3,000		(f )
$5.00	Ten Years		210,000		(g )
$.01	None		6,000		(h)
$.01	None		84,182		(i)
$1.00	None		20,500		(j)
(k)	(k)		(k	)	(k)
$.01	10 years		2,083		(l)
$3.27	10 years		400,000		(m)

(a)

Exercisable only if company has an IPO at the IPO price and exercisable five years from IPO. To date, the company has not conducted an IPO.

(b)

On April 15, 2002, the company issued 1,000,000 warrants to purchase common stock at prices ranging from $.30 to $.75 to its then chairman of the board of directors and chief executive officer. Of the total warrants, 250,000 were exercisable at $.30, and 250,000 were exercisable at $.50 on the date the then board elected the executive to the board and named the chief executive officer. During the year ended December 31, 2002, 250,000 warrants were exercised for $.30 per share, resulting in proceeds of $75,000. During the year ended December 31, 2003, 250,000 warrants were exercised for $.50 per share, resulting in proceeds of $125,000. The remaining 500,000 warrants are exercisable upon the execution of the company of a binding agreement for the sale, transfer, license or assignment for value of any and/or all of its company’s technology at $.75 per share. The company will record a charge representing the fair value of the warrants when the warrants become exercisable.

17

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note F — Stockholders’ (Deficiency) Equity (continued)

[7] Warrants:(continued)

(c)	The company has issued 1,325,000 warrants, exercisable at $.01 per share, to a management consulting firm in accordance with purported agreements between the company and the management firm. 568,800 warrants were exercised for proceeds of aggregate $5,484 in accordance with the purported agreements with the management consulting firm. In accordance with the court’s order rendered on May 8, 2006 in connection with the litigation described in Note I, the company was required to honor immediately the exercise of 40,000 common stock warrants at $.01 per common share, to issue 245,000 common stock warrants, exercisable at $.01 per common share and to honor, if and when presented for exercise, 511,200 previously issued unexercised warrants (all included in above total). The 40,000 common shares and 245,000 common stock warrants were deposited with the Monroe County, New York Treasurer and may not be accessed by the firm pending the appellate court’s disposition of the company’s appeal of the May 8, 2006 court order. The Company valued the 245,000 warrants at $415,000 using the Black-Scholes option/pricing model and charged operations. In addition, the exercise by the firm of the 511,200 unexercised warrants is also stayed pending the company appeal. (See Notes H and I)
(d)	The company has issued an aggregate 127,000 warrants to its nonmanagement directors for services rendered to the Board under its Nonmanagement Directors Stock Plan. For the three and nine month periods ended September 30, 2006, 0 and 39,750 warrants were issued under the Plan. The exercise price for each of the warrants is $.01 per share with a 10 year term. No further warrants are issuable under the Plan as modified by the board of directors on October 13, 2006 (See Note F 4).3,000 and 19,000 warrants have been exercised for the three and nine months ended September 30, 2006. The company has received proceeds of $390.
(e)	During 2005, the company issued 120,000 warrants to a consultant, exercisable at .01 per share. 48,000 warrants were exercised in 2005. The remaining 72,000 warrants were exercised on September 11, 2006. The exercise price was $.01 per common share and the company received proceeds of $720.
(f)	In June 2005, the company issued 3,000 warrants to a consultant, exercisable at .01 per share.
(g)	During 2005, the company issued 210,000 warrants to consultants, exercisable at $5.00 per share. The warrants carry a ten year term. None of these warrants have been exercised through September 30, 2006.
(h)	During 2005, the company issued 6,000 warrants to a consultant, exercisable for ten years at .01 per share. None of these warrants have been exercised through September 30, 2006.
(i)	During 2005, the company issued 62,500 common stock warrants to investors in connection with their purchase of 62,500 Class A Preferred, exercisable at $.01 per common share. 50,000 of these warrants were exercised in 2005. During the three and nine month periods ended September 30, 2006, the company issued 73,682 and 117,432 common stock warrants with a ten year term to investors along with their purchase of 78,750 and 162,000 Class A Preferred, exercisable at $.01 per common share. During the three and nine month periods ended September 30, 2006, 33,250 and 45,750 warrants were exercised for proceeds of $333 and $458, respectively.

18

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note F — Stockholders’ (Deficiency) Equity (continued)

[7] Warrants:(continued)

(j)	During the quarter ended March 31, 2006, one investor purchased 20,500 common stock warrants exercisable at $1.00 per share exercisable for ten years for a purchase price at $2,000. None of these warrants have been exercised through September 30, 2006.
(k)	On June 19,2006, the company issued 360,000 common stock warrants to a director for specific services rendered by such director as chairman of the company’s executive committee valued at $629,000 using the Black-Scholes option/pricing model. These warrants were exercised on September 1, 2006 and September 11, 2006 at $.01 per common share. The company received proceeds of $3,600 with an intrinsic value of 1,440,000.
(l)	In connection with its business and financial operations for the three and nine month periods ended September 30, 2006, the company issued 85,333 and 92,833 common stock warrants, exercisable for 10 years at $.01 per common share. During the three month period ended September 30, 2006, 90,750 of these warrants were exercised for proceeds of $908.
(m)	On August 28, 2006, the company issued 400,000 common stock warrants exercisable for ten years at an exercise price of $3.27 per common share to a business consultant.

[8]	Issuance of Stock and Warrants by Subsidiary:
	The following is a summary of warrants outstanding for the Ice Subsidiary:

	Three and Nine Months Ended
	September 30,
	2006		2005
Outstanding at the beginning of the year		103,948		103,948
Granted		—		—
Outstanding at the end of the period		103,948		103,948

The warrants have a weighted-averaged remaining life of 1.94 years and all warrants have an exercise price of $.76 per share.

19

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note F — Stockholders’ (Deficiency) Equity (continued)

[9] Shares Issued for Future Consulting Services

On September 17, 2005, certain consultants created a trust to enable them to sell business consultants shares issued to them by the company under their consultant agreements. The company issued 50,000 business consultant shares valued at $102,000 on September 27, 2005, contingent on the performance by the consultants of future services under such consultant agreements. The company fair values the shares issued to the trust using the closing market price on the date immediately prior to the date of issuance. Amounts in excess of the consulting invoices are classified as shares issued for future consulting services in Stockholders’ (Deficiency) Equity. Such services were rendered and the trustee distributed to the consultants the proceeds of sales of such shares directly to the consultants. During the quarter ended March 31, 2006, the trustee sold 38,470 shares for $77,343 and distributed the proceeds from the trust to satisfy obligations to consultants. On April 18, 2006, the company issued another 50,000 business consultant shares valued at $82,500, contingent on the performance by the consultants of future services under such consultant agreements. During the second quarter ended June 30, 2006, the trustee sold 61,600 shares for $118,205 and distributed the proceeds to satisfy obligations to consultants. On June 29, 2006, the company issued another 50,000 business consultant shares valued at $107,500, contingent on the performance by the consultants of future services under such consulting agreements. During the third quarter ended September 30, 2006, the trustee sold 64,200 business consultant shares for $154,563 and distributed the proceeds to satisfy obligations to consultants. On August 22, 2006, the company issued another 50,000 business consultant shares valued at $170,500, contingent on the performance by the consultants of future services under such consultant agreements. The company’s payment obligations with respect to the consultant agreements are met once it has issued shares to the trust in accordance with directives received from the consultants and the consultants, not the company, bear the risk of loss in the event the proceeds of stock sales by the trustee are less than the value of the stock contributed to the trust by the company on the date of contribution.

The following summarizes the activity of Stock issued under the Trust as of September 30, 2006.

	Number of Shares			Value
Outstanding at January 1, 2006		50,000		$	103,000
Shares Issued		150,000			361,000
Shares Sold to pay Consultants		(164,270	)		(304,000	)
Balance at September 30, 2006		35,730		$	160,000

Note G — Commitments and Other Matters

[1] Consulting Agreements

On June 30, 2005, the company entered into a non-exclusive two year consulting agreement for engineering design services. Under the terms of the consulting agreement, the company was required to issue annually 12,000 fully and immediately vested $.01 warrants exercisable into common stock of the company, payable on a quarterly basis. In addition, the company granted 100,000 stock options under its 1998 Stock Option Plan to acquire shares of its common stock to its engineering design consultant during the three months ended June 30, 2005. The option vested immediately and has a term of ten years. The exercise price for the option is $5.00 per share. The company valued the options at $247,000 using the Black-Scholes option/pricing model and charged operations. This agreement was terminated in the third quarter of 2005.

During 2005, the company entered into non-exclusive two year consulting agreements with various consultants. Under the terms of the consulting agreements, the company will issue payment to be made in cash, business consultants stock or a combination hereof, in the company’s sole discretion. The consultants were issued common stock warrants exercisable at $5.00 per common share. The number of warrants aggregated 210,000. Such warrants are fully vested, exercisable immediately and have a ten year term. The company valued the warrants at $377,000 using the Black-Scholes option/pricing model and charged operations in 2005.

20

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note G — Commitments and Other Matters (continued)

[2] Variable Gear, LLC

On January 1, 2008, the company is required to purchase the 51% membership interest it does not own in Variable Gear LLC at the then fair market value as defined. The company does not share in any profit or losses in this entity. At September 30, 2006 such fair market value cannot yet be reasonably estimated.

[3] Leases:

The company has leased premises for use as its executive offices. The lease is for a period of 3 years, commencing July 1, 2004 expiring on June 30, 2007 with monthly rental payments of approximately $2,200. The company is also responsible for its share of real estate taxes, certain maintenance and repair costs, and increases in utility costs associated with the premises.

On August 1, 2004, the company sublet, as a tenant, a portion of a facility for a term of six months at a rental rate of $600 per month. On December 31, 2004, the company purchased from the previous owner certain assets for approximately $68,000 and assumed the lease of the underlying tenant for the entire premises. The lease term expires on February 28, 2007 with a monthly rental payment of $2,100.

On March 1, 2005, the company entered into a one year lease with a shareholder pursuant to which the company rents an office, conference room, shop and manufacturing facility. The company is also furnished with the services of three engineers and two machine operators at the facility. The company is obligated to pay 10,000 shares of its common stock on a monthly basis for the facility and services. This lease was not renewed.

Rent expense for the three and nine month periods ended June 30, 2005 was $168,000 and $223,000, respectively. Rent expense for the three and nine month periods ended September 30, 2006 was $13,000 and $42,000, respectively.

21

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note H — Management Agreement

On February 20, 2004 the company entered into an agreement with a management-consulting firm to develop and execute a business plan to commercialize its full terrain vehicle. Upon execution of the agreement, the company granted 15,306 shares of common stock to pay a one-time fee of $75,000 charged by the firm for attendance at the company’s annual shareholders meeting. Pursuant to the February 20th agreement, the company issued 28,792 common shares in monthly fees and granted 620,000 warrants, of which 153,600 were exercised during the third quarter of 2004 and none were exercised during the third quarter of 2005. The parties terminated the February 20, 2004 agreement with respect to all its terms and intended to replace it with a new agreement to become effective on June 30, 2004 pursuant to which the management of the company was to be taken over by the management consulting firm through the provision of individuals to serve as the company’s chief executive officer, chief financial officer and chairman of its board of directors. The purported June 30th agreement was for an initial term of 24 months and could be renewed for an additional 24 month periods unless either party provided notice to the other at least sixty days prior to the end of the term. With one significant exception, it was intended that the June 30^th agreement contain compensation terms similar to those contained in the February 20th agreement. As under the February 20th agreement, the company paid the management consulting firm $50,000, plus 20,000 warrants exercisable at $.01 per share on a monthly basis. In lieu of such payment, upon the happening of a revenue producing event, the company would grant 40,000 warrants per month, exercisable at $.01 per share. Pursuant to the purported June 30th agreement, the company granted 200,000 warrants on August 20, 2004 and recorded a charge of $1,191,000 in connection with the issuance of the warrant.

The purported June 30th agreement provided for additional success and other fees payable in warrants. In connection therewith, the company may recognize significant charges in the future if and when such events occur.

Under the February 20th agreement, the company was obligated to grant warrants exercisable at $.01 per share based upon a formula if the closing bid price of the company’s common stock was equal to or greater than $5.00 per share (“equity incentive provision”). In connection with this obligation the company granted 500,000 warrants with a fair value of $2,972,000 during the second quarter of fiscal 2004 as a result of the stock price exceeding $5.00 per share. The company recorded a charge of $444,000 respectively for these warrants for the year ended December 31, 2005.

At its meeting held June 9, 2004, at which meeting approval of the June 30, 2004 agreement was supposed to be given, the Board of Directors specifically considered and rejected the equity incentive provision and, in lieu thereof, voted to increase the consulting firm’s success fee from 3% to 8%. Thus, the June 30, 2004 agreement, as approved by the Board, was not to contain the “equity incentive provision.” On August 11, 2004, the Board approved the minutes of the June 9, 2004 meeting reflecting its rejection of the equity incentive provision without objection.

22

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note H — Management Agreement (continued)

On April 12, 2005 the Board voted to terminate the June 30th agreement, which it believed did not contain any equity incentive provision, at the request of the management consulting firm due to its internal reorganization. The Board approved a new agreement with the reorganized consulting firm, conditioned upon such consulting firm’s representation that no material change would be made to the June 30th agreement as such agreement had been approved by the Board on June 9, 2004. That is, the Board’s understanding was that the purported April 12 agreement, like the purported June 30 agreement, did not contain any equity incentive provision.

Upon its creation on July 8, 2005 the Executive Committee of the Board of Directors reviewed both the June 30th and April 12th agreements in connection with its examination of the relationship between the company and the consulting firm. The text of the agreements reviewed by the Committee was as set forth in the copies of the agreements filed with the Securities and Exchange Commission as exhibits to certain of the company’s periodic reports. The Committee discovered that, despite Board rejection of the equity incentive provision, both agreements, as filed, contained such provision and as filed, were filed in error since such agreements had not been approved by the Board.

Based upon its comprehensive analysis of the circumstances surrounding the negotiation and execution of the June 30th and April 12th agreements, including the contents of a report furnished to it by an independent special counsel engaged by it, the Committee concluded that the Board of Directors had never approved either agreement as filed. Consequently, after consultation with independent special counsel, the Executive Committee has concluded that the agreements are null and void from inception and is withdrawing the June 30th and April 12th agreements from the exhibits deemed filed with the Commission as part of this report.

As stated, the company does not believe the June and/or the April agreements are valid. However, to the extent a court of applicable jurisdiction finally determines that the agreements, or any portion of them, are valid, the company has provided formal notice to the management consulting firm that, in accordance with the agreements’ terms, such agreements are terminated effective June 30, 2006.

23

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note I – Litigation

On September 30, 2005, the company filed a declaratory judgment action in the Supreme Court of the State of New York for the Seventh Judicial District seeking that Court’s determination that the company’s agreements with the management consulting firm were null and void and unenforceable as against the company, its officers and directors. (See Note H)

On February 1, 2006, the company moved for an order granting summary judgment in favor of the company and for such other and further relief as the Court deems just and proper. The company’s motion is based upon its contention that specific provisions of the purported April 12, 2005 agreement are illegal and void as a matter of law and that since the illegal provisions are central to the purported agreement’s main purpose, such provisions in the absence of a “severability” provision, vitiates the entire document. The provisions in question require that James and Keith Gleasman, as directors and majority shareholders of the company, vote their shares to perpetuate the provisions of members the firm as directors and officers of the company. Other provisions require Messrs. Gleasman to indemnify members the firm from liability for their conduct. The company’s motion was also based upon its view that the enforcement of the purported agreement would result in unjust enrichment since the company believes that the management consulting firm has not provided the services called for under the agreements and that the firm has already been paid far more than the value of the services actually rendered to it by such firm. In addition, the members of the firm have performed no services for the company since July, 2005 and no longer serve the company as officers or directors, or in any other capacities. The enforcement of the purported agreements would only compel the company and its shareholders to pay the management consulting firm substantial sums for inadequate performance.

On April 27, 2006, the Court dismissed the company’s summary judgment motion as to the illegality of the agreements and, in addition, granted the management consulting firm’s motion for summary judgment as to a limited number of counterclaims brought against the company solely with respect to the February agreement. On May 8, 2006, the Court entered a judgment and order directing the company to honor the exercise of two warrants (under both the February and June agreements) which had previously presented to the company for an aggregate 40,000 common shares and, in addition, grant a warrant to the management consulting firm for 245,000 common shares earned under the contested equity incentive provision, exercisable at $.01 per share. The Court also ordered the company to honor the approximately 511,200 additional warrants previously granted to the firm under the contested June and April agreements if and to the extent such firm exercised such warrants.

The company believes the Court has committed reversible error and on May 9, 2006, filed a notice of appeal with respect to the Court’s decision, judgment and order with the Appellate Division of the New York Supreme Court, Fourth Department. In addition, on May 15, 2006, the company filed a motion for reargument and/or renewal with the Court on the basis that such Court had overlooked significant facts supporting the company’s position and completely misstated certain facts in a manner to sustain defendants’ position. On June 28, 2006, the Court denied the company’s request for reargument and/or renewal and an order confirming such denial was entered on July 17, 2006.

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note I – Litigation (continued)

As stated, the Court’s May 8, 2006 judgment and order directed the company to issue to the management consulting firm an aggregate 40,000 common shares, grant an additional warrant for 245,000 common shares and honor the approximately 511,200 warrants previously issued to such firm upon their exercise. On June 16, 2006, the Court granted the company’s request to stay the terms of its May 8, 2006 judgment and order, conditioned upon the deposit of the 40,000 shares and 245,000 warrants with the Monroe County Clerk and upon the deposit of $250,000 in escrow with the Monroe County Treasurer, pending the Appellate Division’s decision with respect to the company’s appeal of the Court’s May 8, 2006 judgment and order. The company complied with both conditions on June 19, 2006 and, therefore, the stay became and is effective.

Compliance with the Court’s May 8, 2006 order has required the company to issue 40,000 shares of common stock and the grant of 245,000 common stock warrants. Compliance with future adverse orders, if any, rendered by the Court similarly may require the issuance of additional shares of common stock, the issuance of additional warrants and/or the payment of damages. The 40,000 shares represents the number of warrants tendered for exercise by the management consulting firm, which the company did not honor upon presentation. The company has previously recorded a charge at the date of grant.

The 245,000 common stock warrants were fair valued using the Black-Scholes option/pricing model and have recorded a compensation charge of $629,000 as of September 30, 2006.

On September 21, 2006, the company filed its brief with the Appellate Division of the New York Supreme Court to support its appeal with the appellate court. On October 23, 2006, the management consulting firm filed its answering brief with such Court to which the company replied on November 2, 2006. The company anticipates the court will set a date in the near future for oral argument on the company's appeal.

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

Notes to Condensed Consolidated Financial Statements
September 30, 2006

Note K – Subsequent Events

On October 6, 2006, an existing shareholder purchased 50,000 Class A Preferred at the stipulated purchase price of $4.00 per share for aggregate proceeds of $200,000. He also received 16,667 common stock purchase warrants exercisable at $.01 per common share over a period of ten years. On October 19, 2006, the shareholder exercised the warrant and the company received $167 in proceeds.

On October 19, 2006, a director exercised common stock warrants aggregating 15,000 common shares and paid the company $150 for such exercise.

In October 27, 2006, the Company entered into a one year agreement with a consultant who will be the Company’s government affairs consultant. The Consultant will be paid a monthly retainer of $5,000 per month and will also receive 200,000 common stock warrants, exercisable for ten years for an exercise price of $3.75 per share.

On November 3, 2006, an investor purchased 5,000 Class B Preferred shares at a stipulated purchase price of $5.00 per share for aggregate proceeds of $25,000.

On November 6, 2006, accredited investors purchased 18,750 Class A Preferred shares for the stipulated purchase price of $4.00 per share for aggregate proceeds of $75,000.

On September 19, 2006, the Compensation and Governance Committee, composed entirely of independent directors, recommended to the company’s board of directors certain changes to the existing Nonmanagement Directors Plan, adopted a new Commercializing Event Plan, an increase in the number of common shares reserved for issuance under the Business Consultants Plan and an increase in the number of common shares authorized for issuance under the company’s certificate of incorporation.

On October 13, 2006, the company’s board of directors adopted the Committee’s recommendations as follows:

A. Nonmanagement Directors Plan

     1. Each nonmanagement director shall be paid a stipulated sum solely for his or her service as a director each year and nonmanagement directors who serve as chairman of the board, chairman of the executive committee, chairman of the compensation and governance committee, chairman of the audit committee and chairman of the nominating committee shall be paid an additional stipulated sum per annum. The amount paid each year shall be determined by the board based upon such factors as risk, number of meetings, monitoring and reviewing company compliance with the Sarbanes-Oxley Act and other rules and regulations applicable to the company’s business, developing and monitoring the implementation of policies, establishing and reviewing the compensation packages of the executive officers, longevity, availability on a 24 hour basis, as well as the oversight of management’s pursuit of one or more commercializing events for the company’s technologies.

     2. Until further adjusted by the board, each nonmanagement director shall be paid the stipulated sum of $25,200 per annum for board service, payable on a quarterly basis, provided such director shall have attended 75% of the meetings of the board and of the committees of which he or she is a member on an annual basis, and, further provided, that a newly elected director shall be entitled to participate in the Plan on a prospective basis upon his or her election as a director.

     3. Until further adjusted by the board, exclusively for their services in such capacities, the chairman of the board shall be paid $7,500 per annum, the chairman of the executive committee shall be paid $12,000 per annum, the chairman of the compensation and governance committee shall be paid $5,100 per annum, the chairman of the audit committee shall be paid $12,000 per annum and the chairman of the nominating committee shall be paid $5,100 per annum.

     4. Payment of such stipulated sums is to be made in cash or in shares of common stock issued under the company’s Business Consultants’ Stock Plan and/or a combination thereof. When payment is made in common shares, the number of shares payable, when expressed as a dollar amount, shall be determined based upon the closing price of the company’s common stock on a trading date which is one day immediately prior to the date of grant.

     5. With respect to the 2006 calendar year, these modifications to the Plan shall be effective for the third quarter ending September 30, 2006, except that with respect to payments to be made to directors in their capacities as chairman of the board, chairman of the executive committee, chairman of the compensation and governance committee and chairman of the nominating committee, the effective date shall be January 1, 2006.

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B. Commercializing Event Plan

The board adopted the Committee’s recommendation with respect to the creation of a Commercializing Event Plan as follows:

     1. The company shall award 50,000 Business Consultants Stock to each of Daniel R. Bickel, Herbert H. Dobbs, David M. Flaum, James Y. Gleasman, Keith E. Gleasman, Joseph B. Rizzo, Gary A. Siconolfi, Andrew K. Gleasman and Richard B. Sullivan, in their individual capacities, in the instance of a First Commercializing Event with respect to each one of the company’s eight separate technologies. An additional 25,000 Business Consultants Shares shall be awarded to the same individuals in the event of a Second Commercializing Event with respect to each of the company’s eight separate technologies. No award shall be given to said individuals in the instance of a Third or Subsequent Commercializing Event with respect to the same technology.

     2. In the event that the company is sold and all of the company’s eight separate technologies are transferred, whether by outright sale, merger, stock-for-stock transaction, tender offer or any business combination of any kind and/or type, to a third party and/or parties, the company shall award to each of the same individuals 400,000 Business Consultants Shares.

     3. For purposes of the Plan, the term “Commercializing Event” means any agreement, arrangement or business transaction with a third party which, regardless of form and regardless of how characterized, has the potential to generate revenue to the company and/or income or capital appreciation to its shareholders. The board of directors at all times shall retain the authority to determine whether a Commercializing Event shall have occurred.

C. Increase in Number of Business Consultants Shares

     Currently, there are 5,100,000 common shares reserved for issuance under the company’s Business Consultants Plan, of which 4, 972,437 shares have been issued as of October 19, 2006. Since the company registered its common stock for trading under the Securities Exchange Act of 1934 in September, 1999, the company has utilized Business Consultants Stock to pay for services rendered to the company. The company has registered the shares issuable under the Plan with the Securities and Exchange Commission to enable such shares to be sold by service providers without regard to the “restricted stock” provisions of Rule 144 promulgated under the Securities Act of 1933.

     In view of the continuing need of the company to pay service providers in common shares rather than cash, the board authorized an increase in the number of shares available for issuance under the Business Consultants Plan by 4,900,000 so that the total number of consulting shares designated for issuance under the Plan shall be 10,000,000. By virtue of such increase, the total number of shares available for future issuance under the Plan shall be 5,127,563 (4,900,000 increase, plus 127,563 available under prior ceiling).

The authorization does not require shareholder approval.

D. Increase in Number of Authorized Common Shares

     Under the company’s certificate of incorporation, as amended, the company may not issue more than 40,000,000 common shares, $.01 par value. The company has issued, as of October 19, 2006, 31,144,843 common shares and has commitments to issue additional common shares upon the exercise of common stock warrants and potential conversions of Class A and Class B Preferred Stock.

     The board believes that events may materialize and circumstances may dictate that it would be in the best interest of the company’s shareholders for the board to declare one or more common stock dividends or common stock-splits. In addition, the board anticipates that upon the happening of a commercializing event, the company will list its common stock on a national securities exchange or NASDAQ. Upon such listing, the company will need a significant number of additional common shares in order to create greater liquidity and attract institutional investors.

     The board, therefore, voted to recommend that the company’s shareholders approve an amendment to the company’s certificate of incorporation to increase the number of authorized common shares by 360,000,000 common shares, so that, as a result of the amendment, the company’s certificate of incorporation would provide that the company has authority to issue an aggregate 400,000,000 common shares. As a result of the amendment, the total number of common shares available for future issuance would be 368,855,157 (360,000,000 increase, plus 8,855,157 available for issuance prior to the amendment).

     Under the New York Business Corporation Law, the amendment of the company’s certificate of incorporation to increase the number of common shares authorized for issuance does require shareholder approval prior to becoming effective. Consequently, the board intends to solicit the vote of the company’s shareholders to approve the amendment at the next annual meeting of shareholders.

In accordance with the Nonmanagement Directors Plan, as amended, for the third quarter, the company issued 2,048 common shares to each of its nonmanagement directors (Daniel R. Bickel, Herbert H. Dobbs, David M. Flaum, Joseph B. Rizzo and Gary A. Siconolfi) on October 19, 2006. The company also issued 1,031 common shares to Mr. Bickel for services as chairman of the audit committee rendered during the third quarter, 1,769 common shares to Joseph B. Rizzo for services as chairman of the nominating committee rendered during the company’s 2006 fiscal year through September 30, 2006 and 8,386 common shares to Gary A. Siconolfi for services as chairman of the board, chairman of the executive committee and chairman of the governance and compensation committee rendered during the company’s 2006 fiscal year through September 30, 2006.

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

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

PLAN OF OPERATION

(a)Overall Business Strategy

The company’s overall business strategy relating to the commercialization of its technologies continues to be:

o to license or sell any one or all of its technologies (i.e. the infinitely variable transmissions, 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 2006 is:

o to continue the ongoing real world testing of our infinitely variable transmission in both our GM Tahoe and a diesel-powered vehicle and to showcase the performance of such transmission to the worldwide automotive industry, local, regional and national governments and to private sector vehicle end-users, such as the U.S. military, companies with large truck fleets and school bus companies;

o to continue demonstrating the Iso-Torque differential both in the Nissan 350-Z as well in as other, strategically-targeted vehicles to the worldwide auto industry, local, regional and national governments and to private sector end-users, such as the U.S. military, companies with large truck fleets and school bus companies;

o to continue demonstrating the Full Terrain Vehicle (FTV) to the worldwide auto industry, local, regional and national governments and to private sector end users, such as the U.S. military;

o to continue ongoing discussions with such governments and private sector end-users as well as with automotive manufacturers and 1^st-Tier suppliers worldwide in order to consummate one or more joint venture or other business combinations that would lead to the commercialization of the company’s products;

o to continue ongoing discussions with glass manufacturers regarding the joint development and commercialization of the ice technology with a view to the license or sale of such technology;

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

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     Any sale, license or other commercial transfer of our technology for use in a foreign country is subject potentially to U.S. regulatory authorities which may require that the company obtain one or more export licenses.

     Information regarding the company and all of its inventions, including regular updates on technological and business developments, can be found on the company’s website,www.torvec.com.

     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 continues to seek a joint venture relationship with a glass manufacturer to finalize the development of the technology and bring it to commercialization.

     The company’s ice technology is licensed under an agreement with Dartmouth College, which 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.

(b)Current Status of Product Development

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

o the FTV^TM, including the steering drive and suspension for tracked vehicles;

o the Iso-Torque^TM differential;

o our infinitely variable transmissions;

o the hydraulic pump and motor;

o spherical gearing constant velocity mechanism;

These inventions are in the following stages of development:

o	The Full Terrain Vehicle – The FTV is production-ready and during the third quarter, 2006, was equipped with a Cummins 4-cylinder, 3.9 liter, 170 horsepower, turbo-charged diesel engine. The company’s discussions with interested parties with respect to the commercialization of this technology, including but not limited to, the Chinese, are progressing.
o	The Iso-Torque Differential – The Iso-Torque differential is production-ready. Discussions with interested parties with respect to the commercialization of this technology on a stand-alone basis are progressing. However, our FTV requires at least two Iso-Torque differentials in order to function. Thus, discussions concerning the sale and/or license of the FTV perforce include discussions concerning the commercialization of the Iso-Torque.
o	The Infinitely Variable Transmission – The IVT is nearly production-ready. We are refining the electronic controls so that the unit functions as an infinitely variable transmission, and not as a multiple step-transmission, in our 2003 diesel-fueled Dodge Ram 4x4.
o	The company has presented a detailed proposal on how its technologies, specifically its IVT and its Iso-Torque differential, can benefit New York State, especially with respect to fuel savings, enhanced safety and reduced pollution generated by retrofitting approximately 55,000 school buses statewide with a number of local and statewide representatives. Based upon discussions we have had to date, we are encouraged that New York State Legislature will act favorably on our school bus proposal in the next legislative session.
	We are continuing our testing which is designed to compare the fuel efficiently and pollution reduction capabilities of our IVT versus the fuel consumption and pollution generated by New York’s and our nation’s school buses, the majority which use the same or comparable diesel-fueled engine as our Dodge Ram 4-X-4. The comparisons are being made based upon actual school bus routes furnished to us by local school districts that are actively collaborating with us on the project. We also are continuing our testing in our diesel-fueled Dodge Ram 4-X-4 because most of the automotive markets for our products worldwide make use of and are committed to diesel-fueled engines. In addition, the United States automotive industry is awaking to the benefits of diesel.

     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 an individual who is also 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. In the light of such inactivity, the company is in discussions with the shareholder with a view to modifying and/or terminating the agreement.

     To date, the company has not earned any revenue with respect to its technology portfolio.

(c)Company Expenses

     The net loss for the three and nine month periods ended September 30, 2006 was $2,291,000 and $4,875,000 as compared to the net loss of $958,000 and $4,279,000 for the three and nine month periods ended September 30, 2005. The increase in the net loss of $1,333,000 and $596,000 is principally related to increases in general and administrative expenses, which resulted from certain stock based compensation plans.

     Research and development expenses for the three and nine month periods ended September 30, 2006 were $334,000 and $1,252,000 as compared to $782,000 and $2,266,000 for the three and nine month periods ended September 30, 2005. This decrease amounted to $448,000 and $1,014,000. This decrease is attributable to decreased costs associated with commercializing our technologies.

     General and administrative expenses for the three and nine month periods ended September 30, 2006 amounted to $1,957,000 and $3,631,000 as compared to $244,000 and $2,218,000 for the three and nine month periods ended September 30, 2005. This increase amounted to $1,713,000 and $1,413,000 and is principally due to charges for consulting expenses, which resulted from certain stock based compensation plans.

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(d)Liquidity And Capital Resources

     The company’s business activities during the three and nine months ended September 30, 2006 were funded principally through the sale of 78,750 and 162,000 shares of Class A Preferred to accredited investors for aggregate proceeds of $315,000 and $648,000.

     During the three and nine month periods ended September 30, 2006, the company issued 554,500 and 885,234 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 and litigation. As of September 30, 2006 there are 164,625 shares available for future grants under the plan.

     Through September 30, 2006, James and Keith Gleasman continued their working arrangement with the company that assures the company with continued access to the Gleasmans’ expertise without unduly burdening the company with the costs associated with the payment of consulting fees. Under this arrangement, James and Keith Gleasman 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 Gleasman serves as president and as a director and James Gleasman serves as chief executive officer, interim chief financial officer and as a director.

     At September 30, 2006, the company’s cash position was $160,000 and the company had a working capital deficiency of $1,515,000. The company’s cash position at anytime during the fiscal quarter ended September 30, 2006 was directly dependent upon its success in selling Class A Preferred since the company did not generate any revenues. The company believes that current, ongoing discussions with governmental agencies and private sector companies worldwide could very well create a revenue producing transaction during fiscal 2006. However, it can not predict when such a transaction will be consummated and therefore, the company does not know whether it will generate revenues from its business activities during fiscal 2006. The company secured a funding commitment from a stockholder and officer to fund operations, through September 30, 2007. As of September 30, 2006, there have not been any advances made under this funding commitment.

     From October 1, 2006 through November 1, 2006, the Company sold 50,000 Class A Preferred Shares for proceeds of $200,000.

     During the three and nine month periods ended September 30, 2006, the company had accounts payable and accrued expenses of $1,733,000, of which $1,653,000 is attributable to our ICE subsidiary.

     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. The company is also exploring alternatives with Variable Gear, LLC to relieve the company of this obligation.

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(e)Critical Accounting Policies

Stock Based Compensation

     Effective January 1, 2006, the company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share Based Payment.” The company elected to use the modified prospective transition method, there fore, prior period results were not restated. Prior to the adoption of SFAS 123R, stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. As a result, the recognition of stock-based compensation expense was generally limited to the expense attributed to restricted stock unit awards and stock option modifications. The adoption of SFAS 123R did not have a material effect on the company’s financial statements.

     As of September 30, 2006, there was no remaining unrecognized stock compensation related to unvested awards (net of estimated forfeitures).

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.

Impairment of Long-Lived Assets

     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.

(f)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 quarter ending September 30, 2006.

(g)Quarterly Fluctuations

     As of September 30, 2006, 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.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

At September 30, 2006, the company does not engage in investment activities and has no material, outstanding indebtedness that would subject it to commodity price and/or equity price market risk. The company does not engage in activities that would subject it to foreign currency exchange rate risk. On June 19, 2006, a shareholder advanced the company $250,000 by depositing the full amount with the Monroe County Treasurer in order to perfect a stay with respect to a court order directing the company to transfer 40,000 common shares and 245,000 common stock warrants to a management consulting firm with which the company is in litigation. The principal amount of the advance is to be repaid by the company either by the issuance of 62,500 Class A Preferred, associated warrants, cash and/or a combination thereof, with the method and timing of repayment totally within the company’s discretion. The company has agreed to reimburse the shareholder on a current basis in cash for his interest expense, currently at a rate of 8.75% per annum. The rate is variable depending upon the prime rate while the advance remains outstanding and, thus, the company is subject to market risk with respect the amount of interest payable.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements that are based on current expectations, estimates, and projections about the industries in which the company operates, as well as management’s beliefs and assumptions. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions (“Future Factors”) that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

The Future Factors that may affect the operations, performance, and results of the company’s business include the following:

a.	the company’s ability to raise significant capital to fund its plan of operation;
b.	the company’s ability to sell and/or commercialize one or more of its technologies, and/or to enter into collaborative joint working arrangements, formal joint venture arrangements with domestic and/or foreign governments, automotive industry manufacturers and suppliers to manufacture and promote the company’s inventions;
c.	industry and consumer acceptance of the company’s inventions;
d.	the level of competition and resistance to the company’s inventions in the automotive and related industries;
e.	general economic and competitive conditions in the markets and countries in which the company will operate, and the risks inherent in any future international operations;
f.	the strength of the U.S. dollar against currencies of other countries where the company may operate, as well as cross-currencies between the company’s future operations outside of the U.S. and other countries with whom it transacts business.
g.	changes in business, political and economic conditions and the threat of future terrorist activity in the U.S. and other parts of the world and related military action.

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Item 4.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported on a timely basis and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

The company’s management, including the chief executive officer and interim chief financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 30, 2006 pursuant to Rule 13a-15(b) under the Exchange Act and has concluded that our disclosure controls and procedures were effective as of September 30, 2006.

Changes in Internal Control Over Financial Reporting

The company’s management, with the participation of the company’s chief executive officer and interim chief financial officer, has concluded that there were no changes in the company’s internal control over financial reporting that occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     On September 30, 2005, the company filed a declaratory judgment action in the Supreme Court of the State of New York for the Seventh Judicial District seeking that Court’s determination that the company’s agreement with CXO of Delaware, LLC dated April 12, 2005 is null and void and unenforceable as against the company, its officers and directors.

     Management’s position is that the purported April 12, 2005 agreement was never formally presented to the company’s board of directors nor was it formally approved by the company’s board. Since board approval for such an agreement is required, the April 12, 2005 agreement is null and void. In addition, Keith E. Gleasman, the company’s president, asserts that he did not knowingly execute the purported April 12, 2005 agreement on behalf of the company.

     Management’s view is that the purported April 12, 2005 agreement is unconscionable since its enforceability would result in the company, and hence its shareholders, paying potentially enormous sums to persons who failed to live up to their promises and whose substantive contribution to the company’s financial success has been negligible at best.

     On November 8, 2005 the defendants answered the company’s complaint by asserting that the purported April 12, 2005 agreement is valid and enforceable, that the company’s alleged failure to honor the agreement has damaged defendants in amounts to be determined and seeking indemnification under the purported April 12, 2005 agreement for their expenses.

     On February 1, 2006, the company moved for an order granting summary judgment in favor of the company and for such other and further relief as the Court deems just and proper. The company’s motion is based upon its contention that specific provisions of the purported April 12, 2005 agreement are illegal and void as a matter of law and that since the illegal provisions are central to the purported agreement’s main purpose, such provisions in the absence of a “severability” provision, vitiates the entire document. The provisions in question require that James and Keith Gleasman, as directors and majority shareholders of the company, vote their shares to perpetuate the provisions of members of CXO as directors and officers of the company. Other provisions require Messrs. Gleasman to indemnify members of CXO from liability for their conduct.

     The company’s motion is also based upon its view that the enforcement of the purported agreement would result in unjust enrichment. The members of CXO have not performed services for the company since July, 2005 and no longer serve the company as officers or directors, or in any other capacities. The enforcement of the purported agreement would only compel the company and its shareholders to pay CXO for nonperformance.

     On April 27, 2006, the Court dismissed the company’s summary judgment motion as to the illegality of the agreements and, in addition, granted the management consulting firm’s motion for summary judgment as to a limited number of counterclaims brought against the company solely with respect to the February agreement. On May 8, 2006, the Court entered a judgment and order directing the company to honor the exercise of two warrants (one under the February and one under June agreement) which had previously presented to the company for an aggregate 40,000 common shares and, in addition, grant a warrant to the management consulting firm for 245,000 common shares earned under the contested equity incentive provision, exercisable at $.01 per share. The Court also ordered the company to honor the approximately 511,200 additional warrants previously granted to the firm under the contested June and April agreements.

34

     The company believes the Court has committed reversible error and, on May 9, 2006, filed a notice of appeal with respect to the Court’s decision, judgment and order with the Appellate Division of the New York Supreme Court, Fourth Department. In addition, on May 15, 2006, the company filed a motion for reargument and/or renewal with the Court on the basis that the Court had overlooked significant facts supporting the company’s position and completely misstated certain facts in a manner to sustain defendants’ position. The motion was also based upon the company’s view that the Court misapplied well settled legal principles in granting defendants summary judgment motions. On June 28, 2006, the Court denied the company’s request for reargument and/or renewal.

     As stated, the Court’s May 8, 2006 judgment and order directed the company to issue to the management consulting firm an aggregate 40,000 common shares, grant an additional warrant for 245,000 common shares and honor the approximately 511,200 warrants previously issued to such firm upon their exercise. On June 16, 2006, the Court granted the company’s request to stay the terms of its May 8, 2006 judgment and order, conditioned upon the deposit of the 40,000 shares and 245,000 warrants with the Monroe County Clerk and upon the deposit of $250,000 in escrow with the Monroe County Treasurer, pending the Appellate Division’s decision with respect to the company’s appeal of the Court’s May 8, 2006 judgment and order. The company complied with both conditions on June 19, 2006 and the stay, therefore, became and is effective.

     Compliance with the Court’s May 8, 2006 order has required the company to issue 40,000 shares of common stock and the grant of 245,000 common stock warrants. Compliance with future adverse orders, if any, rendered by the Court similarly may require the issuance of additional shares of common stock, the issuance of additional warrants and/or the payment of damages.

     The 40,000 common share issuance represents the number of warrants tendered for exercise by the management consulting firm, which the company did not honor upon presentation. The company previously recorded a charge with respect to this issuance at the date of the warrant grant.

     The 245,000 common stock warrants issued were fair valued at the date of grant and the company recorded a compensation charge for the second quarter.

     On September 21, 2006, the company filed its brief with the Appellate Division of the New York Supreme Court to support its appeal with the appellate court. On October 23, 2006, the management consulting firm filed its answering brief with such Court to which the company replied on November 2, 2006. The company anticipates the court will set a date in the near future for oral argument on the company's appeal.

     There is no other litigation involving the company. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the company.

Item 1A.Risk Factors.

There have been no significant changes to the risk factors facing the company as disclosed in the Company’s Form 10-KSB for the year ended December 31, 2005, other than those described in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operation; Item 3, Quantitative and Qualitative Discussions About Market Risk; and Part II, Item 1, Legal Proceedings, all as set forth herein.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

All sales of unregistered equity securities taking place during the quarter ended September 30, 2006 were timely reported in current reports on Form 8-K filed by the company.

Item 3.Defaults Upon Senior Securities.

None

Item 4.Submission of Matters to a Vote of Security Holders.

None

Item 5.Other Information.

On September 19, 2006, the Compensation and Governance Committee, composed entirely of independent directors, recommended to the company’s board of directors certain changes to the existing Nonmanagement Directors Plan, adopted a new Commercializing Event Plan, an increase in the number of common shares reserved for issuance under the Business Consultants Plan and an increase in the number of common shares authorized for issuance under the company’s certificate of incorporation.

35

On October 13, 2006, the company’s board of directors adopted the Committee’s recommendations as follows:

A. Nonmanagement Directors Plan

     1. Each nonmanagement director shall be paid a stipulated sum solely for his or her service as a director each year and nonmanagement directors who serve as chairman of the board, chairman of the executive committee, chairman of the compensation and governance committee, chairman of the audit committee and chairman of the nominating committee shall be paid an additional stipulated sum per annum. The amount paid each year shall be determined by the board based upon such factors as risk, number of meetings, monitoring and reviewing company compliance with the Sarbanes-Oxley Act and other rules and regulations applicable to the company’s business, developing and monitoring the implementation of policies, establishing and reviewing the compensation packages of the executive officers, longevity, availability on a 24hour basis, as well as the oversight of management’s pursuit of one or more commercializing events for the company’s technologies.

     2. Until further adjusted by the board, each nonmanagement director shall be paid the stipulated sum of $25,200 per annum for board service, payable on a quarterly basis, provided such director shall have attended 75% of the meetings of the board and of the committees of which he or she is a member on an annual basis, and, further provided, that a newly elected director shall be entitled to participate in the Plan on a prospective basis upon his or her election as a director.

     3. Until further adjusted by the board, exclusively for their services in such capacities, the chairman of the board shall be paid $7,500 per annum, the chairman of the executive committee shall be paid $12,000 per annum, the chairman of the compensation and governance committee shall be paid $5,100 per annum, the chairman of the audit committee shall be paid $12,000 per annum and the chairman of the nominating committee shall be paid $5,100 per annum.

     4. Payment of such stipulated sums is to be made in cash or in shares of common stock issued under the company’s Business Consultants’ Stock Plan and/or a combination thereof. When payment is made in common shares, the number of shares payable, when expressed as a dollar amount, shall be determined based upon the closing price of the company’s common stock on a trading date which is one day immediately prior to the date of grant.

     5. With respect to the 2006 calendar year, these modifications to the Plan shall be effective for the third quarter ending September 30, 2006, except that with respect to payments to be made to directors in their capacities as chairman of the board, chairman of the executive committee, chairman of the compensation and governance committee and chairman of the nominating committee, the effective date shall be January 1, 2006.

B. Commercializing Event Plan

The board adopted the Committee’s recommendation with respect to the creation of a Commercializing Event Plan as follows:

     1. The company shall award 50,000 Business Consultants Stock to each of Daniel R. Bickel, Herbert H. Dobbs, David M. Flaum, James Y. Gleasman, Keith E. Gleasman, Joseph B. Rizzo, Gary A. Siconolfi, Andrew K. Gleasman and Richard B. Sullivan, in their individual capacities, in the instance of a First Commercializing Event with respect to each one of the company’s eight separate technologies. An additional 25,000 Business Consultants Shares shall be awarded to the same individuals in the event of a Second Commercializing Event with respect to each of the company’s eight separate technologies. No award shall be given to said individuals in the instance of a Third or Subsequent Commercializing Event with respect to the same technology.

     2. In the event that the company is sold and all of the company’s eight separate technologies are transferred, whether by outright sale, merger, stock-for-stock transaction, tender offer or any business combination of any kind and/or type, to a third party and/or parties, the company shall award to each of the same individuals 400,000 Business Consultants Shares.

     3. For purposes of the Plan, the term “Commercializing Event” means any agreement, arrangement or business transaction with a third party which, regardless of form and regardless of how characterized, has the potential to generate revenue to the company and/or income or capital appreciation to its shareholders. The board of directors at all times shall retain the authority to determine whether a Commercializing Event shall have occurred.

36

C. Increase in Number of Business Consultants Shares

     Currently, there are 5,100,000 common shares reserved for issuance under the company’s Business Consultants Plan, of which 4, 972,437 shares have been issued as of October 19, 2006. Since the company registered its common stock for trading under the Securities Exchange Act of 1934 in September, 1999, the company has utilized Business Consultants Stock to pay for services rendered to the company. The company has registered the shares issuable under the Plan with the Securities and Exchange Commission to enable such shares to be sold by service providers without regard to the “restricted stock” provisions of Rule 144 promulgated under the Securities Act of 1933.

     In view of the continuing need of the company to pay service providers in common shares rather than cash, the board authorized an increase in the number of shares available for issuance under the Business Consultants Plan by 4,900,000 so that the total number of consulting shares designated for issuance under the Plan shall be 10,000,000. By virtue of such increase, the total number of shares available for future issuance under the Plan shall be 5,127,563 (4,900,000 increase, plus 127,563 available under prior ceiling).

The authorization does not require shareholder approval.

D. Increase in Number of Authorized Common Shares

     Under the company’s certificate of incorporation, as amended, the company may not issue more than 40,000,000 common shares, $.01 par value. The company has issued, as of October 19, 2006, 31,144,843 common shares and has commitments to issue additional common shares upon the exercise of common stock warrants and potential conversions of Class A and Class B Preferred Stock.

     The board believes that events may materialize and circumstances may dictate that it would be in the best interest of the company’s shareholders for the board to declare one or more common stock dividends or common stock-splits. In addition, the board anticipates that upon the happening of a commercializing event, the company will list its common stock on a national securities exchange or NASDAQ. Upon such listing, the company will need a significant number of additional common shares in order to create greater liquidity and attract institutional investors.

     The board, therefore, voted to recommend that the company’s shareholders approve an amendment to the company’s certificate of incorporation to increase the number of authorized common shares by 360,000,000 common shares, so that, as a result of the amendment, the company’s certificate of incorporation would provide that the company has authority to issue an aggregate 400,000,000 common shares. As a result of the amendment, the total number of common shares available for future issuance would be 368,855,157 (360,000,000 increase, plus 8,855,157 available for issuance prior to the amendment).

     Under the New York Business Corporation Law, the amendment of the company’s certificate of incorporation to increase the number of common shares authorized for issuance does require shareholder approval prior to becoming effective. Consequently, the board intends to solicit the vote of the company’s shareholders to approve the amendment at the next annual meeting of shareholders.

In accordance with the Nonmanagement Directors Plan, as amended, for the third quarter, the company issued 2,048 common shares to each of its nonmanagement directors (Daniel R. Bickel, Herbert H. Dobbs, David M. Flaum, Joseph B. Rizzo and Gary A. Siconolfi) on October 19, 2006. The company also issued 1,031 common shares to Mr. Bickel for services as chairman of the audit committee rendered during the third quarter, 1,769 common shares to Joseph B. Rizzo for services as chairman of the nominating committee rendered during the company’s 2006 fiscal year through September 30, 2006 and 8,386 common shares to Gary A. Siconolfi for services as chairman of the board, chairman of the executive committee and chairman of the governance and compensation committee rendered during the company’s 2006 fiscal year through September 30, 2006.

37

Item 6.Exhibits

Exhibits as required by Item 601 of Regulation S-K, as applicable, are attached to this quarterly report (Form 10-Q). The Exhibit Index is found on the page immediately succeeding the signature page, and the Exhibits follow on the pages immediately succeeding the Exhibit Index.

(2) Plan of acquisition, reorganization, arrangement, liquidation, or succession

2.1 Agreement and Plan of Merger, dated November 29, 2000 by and among Torvec Subsidiary Corporation, Torvec, Inc., UTEK Corporation and ICE Surface Development, Inc. incorporated by reference to Form 8-K filed November 30, 2000 and Form 8K/A filed February 12, 2001.

(3) Articles of Incorporation, By-laws

3.1	Certificate of Incorporation, incorporated by reference to Form 10-SB/A , Registration Statement, registering Company’s $.01 par value common stock under section 12(g) of the Securities Exchange Act of 1934;
3.2	Certificate of Amendment to the Certificate of Incorporation dated August 30, 2000, incorporated by reference to Form SB-2 filed October 19, 2000;
3.3	Certificate of Correction dated March 22, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2002;
3.4	By-laws, as amended by shareholders on January 24, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2002;
3.5	Certification of Amendment to the Certificate of Incorporation dated October 21, 2004 setting forth terms and conditions of Class B Preferred, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2004.

(4)	Instruments defining the rights of holders including indentures
	None

(9)	Voting Trust Agreement
	None

(10) Material Contracts

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

38

10.2	The Company’s 1998 Stock Option Plan and related Stock Options Agreements, incorporated by reference to Form S-8, Registration Statement, registering 2,000,000 shares of the Company’s $.01 par value common stock reserved for issuance thereunder, effective December 17, 1998;
10.3	The Company’s Business Consultants Stock Plan, incorporated by reference to Form S-8, Registration Statement, registering 200,000 shares of the Company’s $.01 par value common stock reserved for issuance thereunder, effective June 11, 1999, as amended by reference to Form S-8 Registration Statements registering an additional 200,000, 200,000, 100,000, 800,000, 250,000, 250,000, 350,000, 250,000, and 2,500,000 shares of the Company’s $.01 par value common stock reserved for issuance thereunder, effective October 5, 2000, November 7, 2001, December 21, 2001, February 1, 2002, November 12, 2002, January 22, 2003, May 23, 2003, November 26, 2003, and April 20, 2004 respectively;
10.4	Termination of Neri Service and Space Agreement dated August 31, 1999, incorporated by reference to Form 10-QSB filed for the quarter ended September 30, 1999;
10.5	Operating Agreement of Variable Gear, LLC dated June 28, 2000, incorporated by reference to Form 10-QSB filed for the quarter ended June 30, 2000;
10.6	License Agreement between Torvec, Inc. and Variable Gear, LLC dated June 28, 2000, incorporated by reference to Form SB-2 filed October 19, 2000;
10.7	Investment Agreement with Swartz Private Equity, LLC dated September 5, 2000, together with attachments thereto, incorporated by reference to Form 8-K filed October 2, 2000;
10.8	Extension of and Amendment to Consulting Agreement with James A. Gleasman, incorporated by reference to Form 10-KSB filed for the fiscal year ended December 31, 2000;
10.9	Extension of and Amendment to Consulting Agreement with Keith E. Gleasman, incorporated by reference to Form 10-KSB filed for the fiscal year ended December 31, 2000;
10.10	Extension of and Amendment to Consulting Agreement with Vernon E. Gleasman, incorporated by reference to Form 10-KSB filed for the fiscal year ended December 31, 2000;
10.11	Option and Consulting Agreement with Marquis Capital, LLC dated February 10, 1999, incorporated by reference to Form 10-QSB filed for quarter ended March 31, 2001;
10.12	Option and Consulting Agreement with PMC Direct Corp., dated February 10, 1999, incorporated by reference to Form 10-QSB filed for quarter ended March 31, 2001;

39

10.13	Investment Banking Services Agreement with Swartz Institutional Finance (Dunwoody Brokerage Services, Inc.) dated December 8, 2000, incorporated by reference to Form 10-QSB filed for quarter ended March 31, 2001;
10.14	Employment Agreement with Michael Martindale, Chief Executive Officer, dated August 1, 2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2001;
10.15	Employment Agreement with Jacob H. Brooks, Chief Operating Officer, dated August 1, 2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2001;
10.16	Employment Agreement with David K. Marshall, Vice-President of Manufacturing, dated September 1, 2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2001;
10.17	Investment Banking Services Agreement with Swartz Institutional Finance (Dunwoody Brokerage Services, Inc.), as amended, dated October 23, 2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2001;
10.18	Stock Option Agreement with Samuel Bronsky, Chief Financial and Accounting Officer, dated August 28, 2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2001;
10.19	Pittsford Capital Group, LLC Agreement dated January 30, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2001;
10.20	Gleasman-Steenburgh Indemnification Agreement dated April 9, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2001;
10.21	Series B Warrant dated April 10, 2002, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2001;
10.22	Billow Butler & Company, LLC investment banking engagement letter dated October 1, 2003, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2003;
10.23	Letter of Acknowledgement and Agreement with U.S. Environmental Protection Agency dated February 4, 2004, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2003;
10.24	Letter Agreement with CXO on the GO, L.L.C. dated February 20, 2004, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2003;

40

10.25	Letter Amendment with CXO on the GO, L.L.C. dated February 23, 2004, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2003;
10.26	Lease Agreement for premises at Powder Mills Office Park, 1169 Pittsford-Victor Road, Suite 125, Pittsford, New York 14534, dated July 16, 2004; incorporated by reference to Form 10-QSB filed for fiscal quarter ended June 30, 2004;
10.27	Lease Agreement for testing facility and Mustang dynamometer, dated July 21, 2004; incorporated by reference to Form 10-QSB filed for fiscal quarter ended June 30, 2004;
10.28	Advisory Agreement with PNB Consulting, LLC, 970 Peachtree Industrial Blvd., Suite 303, Suwanee, Georgia 30024; incorporated by reference to Form 10-QSB filed for fiscal quarter ended June 30, 2004;
10.29	Agreement between Torvec and ZT Technologies, Inc. dated July 21, 2004, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2004;
10.30	Assignment and Assumption of Lease between William J. Green and Ronald J. Green and Torvec, Inc. effective as of December 31, 2004, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31,2004;
10.31	Bill of Sale between Dynamx, Inc. and Torvec, Inc. for equipment and machinery, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2004;
10.32	Lease and Services Agreement between Robert C. Horton as Landlord and Torvec, Inc. as Tenant dated March 18, 2005, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2004;
10.33	Settlement Agreement and Mutual Release between Torvec, Inc. and ZT Technologies, Inc. dated March 29, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended March 31, 2005;
10.34	Advisory Agreement between Robert C. Horton and Torvec, Inc. dated February 15, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended March 31, 2005;
10.35	Lease and Services Agreement between Dennis J. Trask as Landlord and Torvec, Inc. as Tenant dated April 18, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended March 31, 2005;
10.36	Consulting Agreement with Matthew R. Wrona, dated June 30, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended June 30, 2005;
10.37	Option Agreement between Matthew R. Wrona and Torvec, Inc. dated June 30, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended June 30, 2005;

41

10.38	Trust Agreement between Matthew R. Wrona, Donald Gabel, Lawrence Clark, Steven Urbanik, Floyd G. Cady,Jr., and Michael Pomponi as Grantors and Richard B. Sullivan as Trustee, dated September 22, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
10.39	Consultant Agreement with Floyd G. Cady, Jr., dated October 1, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
10.40	Consultant Agreement with Lawrence W. Clark, dated October 1, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
10.41	Consultant Agreement with Donald W. Gabel, dated October 1, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
10.42	Consultant Agreement with Michael A. Pomponi, dated October 1, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
10.43	Consultant Agreement with Steven Urbanik, dated October 1, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
10.44	Consultant Agreement with Kiwee Johnson, dated September 30, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
10.45	Confidentiality Agreement with Joseph B. Rizzo, dated October 24, 2005,incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005.
10.46	Minutes of meeting Board of Directors Torvec, Inc., held October 19, 2004, creating the non-management directors plan, incorporated by reference to Form 10-KSB filed for the fiscal year ended December 31, 2006.
10.47	Excerpts from minutes of the meeting of Board of Directors Torvec, Inc., adopting changes to the non-management directors plan creating a commercialized event plan, approving an increase in shares to be issued under business consulting plan and adopting recommendation that shareholders increase number of authorized common shares, incorporated by reference to Form 8-K filed on October 16, 2006.
10.48	Letter agreement with American Continental Group, LLC, executed on October 22, 2006, incorporated in reference to Form 8-K filed on October 30, 2006.

(11)	Statement re computation of per share earnings (loss)
	Not applicable

(14)	Code of Ethics
(16)	Letter on change in certifying accountant
	None

(18)	Letter re change in accounting principles
	None

42

(20) Other documents or statements to security holders

None

(21) Subsidiaries of the registrant

Ice Surface Development, Inc. (New York)
Iso-Torque Corporation (New York)
IVT Diesel Corp. (New York)
Variable Gear, LLC (New York)

(22)	Published report regarding matters submitted to vote of security holders
	None
(23.1)	Consents of experts and counsel
	Eisner LLP Consent
(24)	Power of attorney
	None
(31)	Rule 13(a)-14(a)/15(d)-14(a) Certifications
(32)	Section 1350 Certifications
(99)	Additional exhibits
	None

43

SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TORVEC, INC.
Date: November 14, 2006	By:	/s/ James Y. Gleasman
		James Y. Gleasman, Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: November 14, 2006	By:	/s/ James Y. Gleasman
		James Y. Gleasman, Chief Executive Officer and
		Interim Chief Financial Officer

44

EXHIBIT INDEX

EXHIBIT			PAGE
(2)	Plan of acquisition, reorganization, arrangement, liquidation, or succession
	2.1	Agreement and Plan of Merger, dated November 29, 2000 by and among Torvec
		Subsidiary Corporation, Torvec, Inc., UTEK Corporation and ICE Surface
		Development, Inc. incorporated by reference to Form 8-K filed November 30, 2000
		and Form 8K/A filed February 12, 2001.	N/A
(3)	Articles of Incorporation, By-laws
	3.1	Certificate of Incorporation, incorporated by reference to Form 10-SB/A,
		Registration Statement, registering Company's $.01 par value common stock under
		section 12(g) of the Securities Exchange Act of 1934;	N/A
	3.2	Certificate of Amendment to the Certificate of Incorporation dated
		August 30, 2000, incorporated by reference to Form SB-2 filed
		October 19, 2000;	N/A
	3.3	Certificate of Correction dated March 22, 2002, incorporated by reference to Form
		10-KSB filed for fiscal year ended December 31, 2002;	N/A
	3.4	By-laws, as amended by shareholders on January 24, 2002, incorporated by
		reference
		to Form 10-KSB filed for fiscal year ended December 31, 2002;	N/A
	3.5	Certification of Amendment to the Certificate of Incorporation dated October 21,
		2004 setting forth terms and conditions of Class B Preferred, incorporated by
		reference to Form 10-QSB filed for fiscal quarter ended September 30, 2004.	N/A
(4)	Instruments defining the rights of holders including indentures
	None		N/A
(9)	Voting Trust Agreement
	None		N/A
(10)	Material Contracts
	10.1	Certain Employment Agreements, Consulting Agreements, certain
		assignments of patents, patent properties, technology and know-how
		to the Company, Neri Service and Space Agreement and Ford Motor
		Company Agreement and Extension of Term, all incorporated by
		reference to Form 10-SB/A, Registration Statement, registering
		Company's $.01 par value common stock under section 12(g) of the
		Securities Exchange Act of 1934;	N/A

45

EXHIBIT			PAGE
	10.2	The Company's 1998 Stock Option Plan and related Stock Options
		Agreements, incorporated by reference to Form S-8, Registration
		Statement, registering 2,000,000 shares of the Company's $.01 par
		value common stock reserved for issuance thereunder, effective
		December 17, 1998;	N/A
	10.3	The Company's Business Consultants Stock Plan, incorporated by
		reference to Form S-8, Registration Statement, registering 200,000
		shares of the Company's $.01 par value common stock reserved for
		issuance thereunder, effective June 11, 1999 as amended by reference
		to Form S-8 Registration Statement registering an additional 200,000,
		200,000, 100,000, 800,000, 250,000, 250,000, 350,000, 250,000 and 2,500,000
		shares of the Company's $.01 par value common stock reserved for issuance
		thereunder, effective October 5, 2000, November 7, 2001, December 21, 2001,
		February 1, 2002, November 12, 2002, January 22, 2003, May 23, 2003,
		November 26, 2003 and April 20, 2004 respectively;	N/A
	10.4	Termination of Neri Service and Space Agreement dated August 31,
		1999, incorporated by reference to Form 10-QSB filed for the quarter
		ended September 30, 1999;	N/A
	10.5	Operating Agreement of Variable Gear, LLC dated June 28, 2000,
		incorporated by reference to Form 10-QSB filed for the quarter ended
		June 30, 2000;	N/A
	10.6	License Agreement between Torvec, Inc. and Variable Gear, LLC
		dated June 28, 2000, incorporated by reference to Form SB-2 filed
		October 19, 2000;	N/A
	10.7	Investment Agreement with Swartz Private Equity, LLC dated September 5,
		2000, together with attachments thereto, incorporated by reference to Form
		8-K filed October 2, 2000;	N/A
	10.8	Extension of and Amendment to Consulting Agreement with James A. Gleasman,
		incorporated by reference to Form 10-KSB filed for the fiscal year ended
		December 31, 2000;	N/A
	10.9	Extension of and Amendment to Consulting Agreement with Keith E. Gleasman,
		incorporated by reference to Form 10-KSB filed for the fiscal year ended
		December 31, 2000;	N/A
	10.10	Extension of and Amendment to Consulting Agreement with Vernon E. Gleasman,
		incorporated by reference to Form 10-KSB filed for the fiscal year ended
		December 31, 2000;	N/A
	10.11	Option and Consulting Agreement with Marquis Capital, LLC dated February 10,
		1999, incorporated by reference to Form 10-QSB filed for quarter ended March
		31, 2001;	N/A

46

EXHIBIT			PAGE
	10.12	Option and Consulting Agreement with PMC Direct Corp., dated February 10,
		1999, incorporated by reference to Form 10-QSB filed for quarter ended March
		31, 2001;	N/A
	10.13	Investment Banking Services Agreement with Swartz Institutional Finance
		(Dunwoody Brokerage Services, Inc.) dated December 8, 2000, incorporated by
		reference to Form 10-QSB filed for quarter ended March 31, 2001;	N/A
	10.14	Employment Agreement with Michael Martindale, Chief Executive Officer,
		dated August 1, 2001, incorporated by reference to Form 10-QSB filed
		for fiscal quarter ended September 30, 2001;	N/A
	10.15	Employment Agreement with Jacob H. Brooks, Chief Operating Officer,
		dated August 1, 2001, incorporated by reference to Form 10-QSB filed
		for fiscal quarter ended September 30, 2001;	N/A
	10.16	Employment Agreement with David K. Marshall, Vice-President of
		Manufacturing, dated September 1, 2001, incorporated by reference to
		Form 10-QSB filed for fiscal quarter ended September 30, 2001;	N/A
	10.17	Investment Banking Services Agreement with Swartz
		Institutional Finance (Dunwoody Brokerage Services, Inc.),
		as amended, dated October 23, 2001, incorporated by reference to
		Form 10-QSB filed for fiscal quarter ended September 30, 2001;	N/A
	10.18	Stock Option Agreement with Samuel Bronsky, Chief Financial and
		Accounting Officer, dated August 28, 2001, incorporated by reference to
		Form 10-QSB filed for fiscal quarter ended September 30, 2001;	N/A
	10.19	Pittsford Capital Group, LLC Agreement dated January 30, 2002, incorporated
		by reference to Form 10-KSB filed for fiscal year ended December 31, 2001;	N/A
	10.20	Gleasman-Steenburgh Indemnification Agreement dated April 9, 2002,
		incorporated by reference to Form 10-KSB filed for fiscal year ended
		December 31, 2001;	N/A
	10.21	Series B Warrant dated April 10, 2002, incorporated by reference to Form
		10-KSB filed for fiscal year ended December 31, 2001;	N/A
	10.22	Billow Butler & Company, LLC investment banking engagement letter dated
		October 1, 2003, incorporated by reference to Form 10-QSB filed for fiscal
		quarter ended September 30, 2003;	N/A
	10.23	Letter of Acknowledgement and Agreement with U.S. Environmental Protection
		Agency dated February 4, 2004, incorporated by reference to Form 10-KSB
		filed for fiscal year ended December 31, 2003;	N/A

47

EXHIBIT			PAGE
	10.24	Letter Agreement with CXO on the GO, L.L.C. dated February 20, 2004,
		incorporated by reference to Form 10-KSB filed for fiscal year ended
		December 31, 2003;	N/A
	10.25	Letter Amendment with CXO on the GO, L.L.C. dated February 23, 2004,
		incorporated by reference to Form 10-KSB filed for fiscal year ended
		December 31, 2003;	N/A
	10.26	Lease Agreement for premises at Powder Mills Office Park, 1169
		Pittsford-Victor Road, Suite 125, Pittsford, New York 14534, dated July 16,
		2004, incorporated by reference to Form 10-QSB filed for fiscal quarter
		ended June 30, 2004;;	N/A
	10.27	Lease Agreement for testing facility and Mustang dynamometer, dated July 21,
		2004; incorporated by reference to Form 10-QSB filed for fiscal quarter
		ended June 30, 2004;	N/A
	10.28	Advisory Agreement with PNB Consulting, LLC, 970 Peachtree Industrial Blvd.,
		Suite 303, Suwanee, Georgia 30024; incorporated by reference to Form 10-QSB
		filed for fiscal quarter ended June 30, 2004;	N/A
	10.29	Agreement between Torvec and ZT Technologies, Inc. dated July 21, 2004,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2004;	N/A
	10.30	Assignment and Assumption of Lease between William J. Green and Ronald J.
		Green and Torvec, Inc. effective as of December 31, 2004, incorporated by
		reference to Form 10-KSB filed for fiscal year ended December 31, 2004;	N/A
	10.31	Bill of Sale between Dynamx, Inc. and Torvec, Inc. for equipment and
		machinery, incorporated by reference to Form 10-KSB filed for fiscal year
		ended December 31, 2004;	N/A
	10.32	Lease and Services Agreement between Robert C. Horton as Landlord and
		Torvec, Inc. as Tenant dated March 18, 2005, incorporated by reference to
		Form 10-KSB filed for fiscal year ended December 31, 2004;	N/A
	10.33	Settlement Agreement and Mutual Release between Torvec, Inc. and ZT
		Technologies, Inc. dated March 29, 2005, incorporated by reference to Form
		10-QSB filed for fiscal quarter ended March 31, 2005;	N/A
	10.34	Advisory Agreement between Robert C. Horton and Torvec, Inc. dated February
		15, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter
		ended March 31, 2005;	N/A
	10.35	Lease and Services Agreement between Dennis J. Trask as Landlord and Torvec,
		Inc. as Tenant dated April 18, 2005, incorporated by reference to Form
		10-QSB filed for fiscal quarter ended March 31, 2005;	N/A

48

EXHIBIT			PAGE
	10.36	Consulting Agreement with Matthew R. Wrona, dated June 30, 2005,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended June
		30, 2005;	N/A
	10.37	Option Agreement between Matthew R. Wrona and Torvec, Inc. dated June 30,
		2005, incorporated by reference to Form 10-QSB filed for fiscal quarter
		ended June 30, 2005;	N/A
	10.38	Trust Agreement between Matthew R. Wrona, Donald Gabel, Lawrence Clark,
		Steve Urbanik, Floyd G. Cady, Jr. and Michael Pomponi as Grantors and
		Richard B. Sullivan as Trustee, dated September 22, 2005, incorporated by
		reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;	N/A
	10.39	Consultant Agreement with Floyd G. Cady, Jr., dated October 1, 2005,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2005;	N/A
	10.40	Consultant Agreement with Lawrence W. Clark, dated October 1, 2005,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2005;	N/A
	10.41	Consultant Agreement with Donald W. Gabel, dated October 1, 2005,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2005;	N/A
	10.42	Consultant Agreement with Michael A. Pomponi, dated October 1, 2005,
		incorporated b y reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2005;	N/A
	10.43	Consultant Agreement with Steven Urbanik, dated October 1, 2005,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2005;	N/A
	10.44	Consultant Agreement with Kiwee Johnson, dated September 30, 2005,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2005;	N/A
	10.45	Confidentiality Agreement with Joseph B. Rizzo, dated October 24, 2005,
		incorporated by reference to Form 10-QSB filed for fiscal quarter ended
		September 30, 2005	N/A
	10.46	Minutes of meeting Board of Directors Torvec, Inc., held October 19, 2004,
		creating the non-management directors plan, incorporated by reference to
		Form 10-KSB for fiscal year ended December 31, 2005	N/A
	10.47	Excerpts from minutes of the meeting of Board of Directors Torvec, Inc., adopting
		changes to the non-management directors plan creating a commercializes event plan,
		approving an increase in shares to be issued under business consulting plan and
		adopting recommendation that shareholders increase number of authorized common
		shares, incorporated by reference to Form 8-K filed on October 16, 2006.	N/A
	10.48	Letter agreement with American Continental Group, LLC executed on October 22, 20,
		2006, incorporated in reference to Form 8-K filed on October 30, 2006.	N/A

49

EXHIBIT		PAGE
(11)	Statement re computation of per share earnings (loss)	N/A
	Not applicable
(14)	Code of Ethics	N/A
(16)	Letter on change in certifying accountant	N/A
	None
(18)	Letter re change in accounting principles	N/A
	None
(20)	Other documents or statements to security holders	N/A
	None
(21)	Subsidiaries of the registrant	N/A
	Ice Surface Development, Inc. (New York)
	Iso-Torque Corporation (New York)
	IVT Diesel Corp. (New York)
	Variable Gear, LLC (New York)
(22)	Published report regarding matters submitted to vote of security holders	N/A
	None
(23)	Consents of experts and counsel	N/A
(24)	Power of attorney	N/A
	None
(31.1)	Rule 13(a)-14(a)/15(d)-14(a) Certifications	51
(32)	Section 1350 Certifications	52
(99)	Additional exhibits	N/A
	None