May 10, 2005

Since my last update in April, there has been unprecedented activity at Torvec, with multiple opportunities presenting themselves across our major technology platforms, including the FTV™, IVT™ and Iso-Torque. We have appointed specific project managers for each of our technologies, and they report that interest in our key technologies has never been greater, extending well beyond the United States. Please recall what Read McNamara, Chairman of Torvec, said so clearly at our annual shareholders’ meeting: “Silence from management by no means should be interpreted as lack of progress toward our goal of one or more commercializing events.”

I would like to take this opportunity to share with you our recent progress.
 

Full Terrain Vehicle (FTV™)

Torvec continues to pursue commercialization opportunities for our FTV™. One avenue that we have been aggressively pursuing is to gain global exposure for our vehicle through the Department of Defense’s DARPA Grand Challenge. The FTV™ provides the platform for Team Autonomous Ingenuity’s entry in the 2005 DARPA Grand Challenge. Team Autonomous Ingenuity is comprised of employees from Torvec, MotoTron, Inc. (a division of Brunswick Corporation) and Telanon, Inc.

The US Department of Defense performed a site visit to review our entry during the first week of May. Two judges were sent by DARPA to meet our team, inspect our vehicle, and review our progress to date through a series of live tests. Back in March, you may recall that we had successfully driven the FTV™ by remote control to meet the last DARPA required deadline. For this month’s site visit, the challenge was much greater: run the FTV™ through a course completely autonomously (what does this mean?). The course was 200M in length and 8M wide, with left and right turns of 34 degrees and 30 degrees, respectively. The vehicle performed flawlessly, completing the course all three times with extreme repeatability. After three runs, our tread marks were a total of a few inches apart. The site we used was chosen for its real-world characteristics. While most teams were likely testing their vehicles in parking lots, we opted for an old railroad bed, with a rutted dirt and rock road, ditches filled with collected rainwater, high power lines above which interfered with our compass, and frequent railroad traffic which interfered with our GPS acquisition. Our vehicle, sensor systems and control systems were up to the task, handling this environment with ease. We continue to use this location for heavy-duty durability testing of the FTV™.

During the site visit, we were able to successfully show the judges our ability to sense obstacles, and demonstrate our algorithms for avoiding these obstacles. During the interview, we presented our plan for sensing and avoiding various types of obstacles during the race. The day included detailed presentations of the FTV™, our vehicle control systems, our sensor systems, and our sensor fusion. We also presented DARPA officials with a sensitivity analysis of last year’s Grand Challenge, along with our strategies for achieving success this year.

Testing of the FTV™ continues with one eye on the Grand Challenge and the other on global commercialization of the vehicle. We continue to gain worldwide exposure of the FTV™ through our entry in the Grand Challenge, and the value-added of the vehicle control systems and sensor systems open our vehicle to exciting new markets.

 
Infinitely Variable Transmission (IVT™)

We are pleased and excited to tell you that during the course of our ongoing testing of our IVT™, we developed what we believe is an extremely significant technological breakthrough – a modular interchangeable hydrostat/hydro-mechanical transmission, all in one. The hydrostatic mode of the transmission operates exclusively on our patented hydraulic pumps and motors, and is especially effective at low RPM’s. The hydro-mechanical mode operates by utilizing both our patented hydraulic pumps and motors combined with a conventional gear pack.

We consider this to be revolutionary because the modular design allows a vehicle to run at high efficiencies at extremely low RPM’s and infinite overdrive as opposed to a fixed overdrive found on most vehicles; uses the full amount of torque available at any engine speed at the lowest RPM based on driving conditions; significantly increases overall durability; and allows us to build smaller sized pumps and motors, thereby providing more available room for fit in a wider variety of vehicles. Accordingly, the patent process has been crucial during the last several months and has consumed a great deal of our time.

We have spent a substantial amount of time engineering and testing our IVT™ running in the hydrostatic mode with the goal of creating an inexpensive automatic transmission with favorable performance attributes. The performance of the hydrostat transmission had to be designed and tested to function under the typical driving scenarios associated with the Asian, Chinese and South American markets. Some of our tests were specifically designed around the urban driving conditions found in major cities, including those of China. Early indications are that the hydrostat will be significantly less expensive that a comparable automatic transmission, and we are in the process of refining our cost estimates at this time. The hydro-mechanical transmission is designed to provide favorable performance for both diesel and gasoline engines for SUV’s, light trucks and buses.

We developed this breakthrough technology through and as a result of our extensive testing program conducted on the GM Tahoe which we announced last fall. We now plan on conducting a series of real-world driving scenarios to confirm the benefits of our new modular technology.

It is important for our shareholders to understand that measuring fuel efficiencies obtained by actual city, suburban and highway driving scenarios is, from a strategic standpoint, an absolutely necessary supplement to the conduct of auto industry accepted tests. This is especially the case now that a number of reputable organizations, such as the American Automobile Association, have challenged the validity and practicalities of such tests. For example, please refer to the following website:
http://www.aaa-calif.com/corpinfo/05-03-03-mileage.asp.

We believe that your Company must be on as solid a footing as is possible to commercialize your modular IVT in the global marketplace, and we have every intention of accomplishing this goal.

 
Iso-Torque Differential

We are nearing completion of a demonstration Iso-Torque differential and are now concluding the plans for testing the differential in real world driving scenarios. Our differential will undergo performance, durability, reliability and safety testing utilizing state of the art test equipment that is just now being released to the market. The test equipment is the same as that used by Road & Track in their “Best All-Around Sports Car” competition, where they tested the new Corvette, Dodge Viper, Porsche Carrera and Boxster and the Nissan 350Z. Our tests will be performed utilizing a Nissan 350Z 30th Anniversary Edition that has received significant global press.

With test data, we will be in a position to aggressively market our differential. To that end, we are in direct contact with various interested parties.

Personally, I have been spending a great deal of my time working towards the commercialization of Torvec’s technology platforms. The value of having our technology platforms in vehicles that can be demonstrated on the road is extremely helpful to that end. I am very pleased with our commercialization opportunities and progress to date. I would like to thank you for your continued interest in Torvec and its development of all of your technologies.

Sincerely,

Philip A. Fain,
Chief Executive Officer