July 1, 2009

Dear shareholders,

I thought it would be appropriate to provide you with an update on some of the various programs we are currently working on at Torvec. In doing so, I am acutely aware of the decline in our stock price. In a nutshell, while we are making significant progress in commercializing our technologies, neither the value of our patented technologies nor the significant progress we are making in commercializing them is reflected in our stock price. This update is quite comprehensive but I believe it is worth the read.

FTV

The U.S. Air Force has completed its initial evaluation of the FTV and they are still excited about the vehicle’s potential military and civilian uses. As expected, and as we expressed previously, they have asked us to make certain modifications to the vehicle as the result of their evaluation. We are currently in the process of making these modifications to the FTV at our Mt. Read facility. Once these design-specific changes have been completed to our satisfaction, we will return the FTV to the Air Force for what we understand will be their final evaluation.

FTV @ Air Force Base

IVT

As mentioned at our annual meeting, Hodges Transportation, Inc. (also known as the “ Nevada Automotive Testing Center”) is evaluating our IVT technology on behalf of the Office of Naval Research for use in military vehicles. As with any governmental project, there are various stages in the review/evaluation process before a formal report can be presented. On Monday, we received a phone call informing us that we have reached the end of the initial evaluation process and that a formal report was going to be submitted shortly. We are pleased with our relationship with Hodges and look forward to working with them in the future as this or related programs develop.

We are working with a domestic automaker on the development of an IVT that would incorporate hydraulic launch for various sized vehicles. This OEM has expressed that they wish to work with Torvec and the EPA on this program and we are have recently purchased a new piece of equipment, at the manufacturer’s request, to help Torvec provide them with data from our IVT to be used in vehicle simulations software. This simulation will help all of us in making future efficiency, performance and drivability improvements to the IVT as well as testing how it would react in different driving scenarios. While this program has been temporarily slowed by the well known auto industry problems, we believe that more speedy progress will be made over the coming months.

IsoTorque®

The recent turmoil in the U.S. auto industry and the bankruptcies of GM and Chrysler have been “bumps in the road” that have hampered adoption of the IsoTorque® by one or more companies. But, progress continues to be made and, in fact, other OEMS have made new inquiries regarding the IsoTorque.

Currently, Torvec is in the process of building a version of its IsoTorque differential, in a different size, at the request of two domestic auto manufacturers, a Pacific rim OEM and a well-known electric car manufacturer in California. This new IsoTorque size will fit approximately 50 car models world-wide and improve the performance, traction, safety and overall vehicle efficiency of each of these models. With the new CAFÉ standards recently put in place by Washington, companies are more inclined to adopt new ideas. One such goal is the use of our IsoTorque differential in Front Wheel Drive (FWD) vehicles to improve traction to 85% of an All Wheel Drive (AWD) version of that vehicle while getting 2 MPG better fuel economy. The IsoTorque equipped vehicle would have improved traction, handling and safety, while not having the added expense, weight, complexity of an AWD vehicle.

The Pacific-rim company is interested in seeing the IsoTorque’s benefits in its new Rear Wheel Drive (RWD) sports car as well as other models. The electric car manufacturer has high hopes that the high efficiency and other benefits of the IsoTorque would make it ideal for use in their all-electric vehicles.

Also at the annual meeting, we spoke about the fact that one of the world’s largest commercial vehicle manufacturers approached Torvec to ascertain whether we could assist them improve upon their axles to gain greater traction and efficiency for their trucks. We proposed using our IsoTorque to improve traction and safety and, in addition, proposed a patentable concept to increase driveline efficiency. I am proud to tell you that the manufacturer is very enthusiastic with our solution and has requested that we draft a proposal outlining what Torvec requires in order to produce working models of this completely newly designed axle, including the scope, costs, and number of axles to be built for initial feasibility analysis.

These companies are extremely excited about our IsoTorque technology. A sample of comments they have recently made to us include the following:

• “Dave and I are interested in building a prototype transaxle (see attached) with an IsoTorque differential. Do you have an existing IsoTorque gear set that we could adapt. If you are interested and think you have something, please provide the gear set package that can lay into our transaxle(s). Thanks!”
  
  
• “Thanks very much for the work you put into the axle concept. You responded with a very unique approach.”
  
  
• “Sounds great, looking forward to trying out your new differential for the coupe.”
  

In other IsoTorque related news, a new patent issued on June 2, 2009 on our “IsoTorque” technology and others are pending on this and certain of our other technologies. Torvec, and thus all of you shareholders, now own more than 300 patents. Although I have said it before, I want to say it again-----the value of these patents is not reflected on our balance sheet and under applicable accounting rules, are not valued as assets. However, it is indisputable that they have value and considerable value at that. This fact is recognized by companies we are dealing with:

“I am putting together my final report and I wanted to reference the patent for further explanation of how the Torvec IVT transmission works. As you can imagine, I found quite a list when I googled “Torvec patent”… An impressive testament to you and your company, but a hard job for me! I think I picked out the correct patent…”

Finally, the Rochester Institute of Technology (using our IsoTorque technology) placed first overall in the second major Formula SAE competition this year.

1st - Overall Competition
1st - Autocross
1st - Design
1st - Cost
2nd - Acceleration
2nd - Skidpad
3rd - Endurance
3rd - Presentation
4th - Endurance/ Fuel Economy

Hoosier Tire Autocross Award
Honda R&D Americas Engineering Design Award
Honda Dynamic Event Award - 2nd place
SAE Cost Award
Spirit of Excellence Award

We are extremely happy with our relationship with RIT and the FSAE team. Many of these students become engineers and decision makers at companies such as Toyota, GM, Ford, Honda and others, and our involvement allows these future engineers to have “hands on experience” with our products and their benefits. Also, all of the judges in this competition are current automotive engineers with such companies, which further exposes them to the IsoTorque. We hope to expand our involvement with other teams when our budget permits.

Washington DC

Our friends in Washington have made great progress in establishing Torvec’s reputation and innovative products with key members of the DOE, DOD, and the White House. We have been told that a number of very important meetings will occur in the near future during which Torvec’s management and our representatives in Washington will make formal presentations concerning the significance of Torvec’s technology to the auto companies, the Rochester area and the nation as a whole, in terms of job creation and product innovation. I hope to be able to provide you with very positive results stemming from these meetings.

Torvec’s Financials

 On May 15, 2009, we filed our quarterly report for the first quarter on SEC Form 10-Q. In that report, we stated that we had cash on hand equal to $124,000, accounts receivable of $175,000 and prepaid expenses amounting to $102,000 for total current assets of $401,000. In the same report, we indicated our liabilities as $1,204,000.

There has been concern raised by some of our shareholders concerning these numbers.

First, it should be noted that of the $1,204,000 in liabilities, an aggregate $786,000 is attributable to accrued compensation owed to Keith and myself for the last two years which is not payable unless and until, in the board of directors judgment, there is sufficient cash (after requisite cash is applied to the complete funding of all our project needs, including capital requirements), to pay such compensation. If Torvec does not have the cash, this liability will not be paid.

Second, our accounts and notes payable amounted to $256,000, leaving a balance of approximately $162,000 of expenses, a significant portion of which is payable in stock.

Thus, contrary to certain rumors, we are not “out of money.”

While we are on this point, I would like to remind everyone that Keith and I have not received any compensation since January, 2004 (that’s five and one-half years). We have believed, and continue to believe, that money which otherwise would pay us was better spent to improve and commercialize our technologies for the benefit of al shareholders.We have always maintained the philosophy that the Gleasman family, members of the board of directors, our engineers and administrative personnel --- in short, the insiders---would profit only when all of our shareholders profit. We have not shrunk from the obvious implications of this philosophy, nor will we.

Secondly, over the years, Torvec has never been “cash rich.” We have always made it a practice to obtain only the funds necessary to complete the tasks at hand. We are confident that our present efforts to obtain additional funding will be just as successful as they have been in the past.

We hope that this will give you a glimpse of what is going on behind the scenes at Torvec and why we are excited in what we are doing and why we continue to hold high expectation for our future.

Sincerely,

James Gleasman
CEO