October 4, 2004

As oil prices continue to hover around the $50 level and with the potential for an even further rise, global automakers continue to step-up their efforts to improve fuel efficiency.

To that end, a major focus of the automakers’ efforts has been the “homogenous-charge compression-ignition,” otherwise referred to as the HCCI engine. As reported in the September 28, 2004 Wall Street Journal, the HCCI engine sends a finely balanced mixture of air and gasoline fuel to the cylinders. The HCCI engine compresses the air-fuel mixture until rising heat inside the chamber ignites the mixture, thereby eliminating the need for ignition via a spark plug. This process is very similar to that found in diesel-powered engines, which provide significant fuel economy advantages over gasoline-powered engines.

Automakers first began experimenting with the HCCI engine in the 1970’s. However, problems still exist in running the engine efficiently at very low and very high speeds because it is difficult to control the spontaneous combustions in those ranges. We firmly believe that Torvec’s infinitely variable transmission (IVT™), coupled with the HCCI engine, will help resolve these concerns and provide a significant boost in fuel economy. The efficiency of the Torvec infinitely variable transmission in low RPM ranges was proven during tests conducted at the EPA earlier this year.

It is well documented that diesel engines offer fuel economy advantages over their gasoline counterparts. Torvec’s infinitely variable transmission has been designed and improved to work effectively with both diesel and gasoline engines. The testing of our transmission in the diesel-powered Dodge Ram Pickup during 2003 demonstrated its ability to handle high torque at low engine speeds, resulting in a substantial improvement in fuel economy.

We are convinced more than ever that our infinitely variable transmission will be the perfect complement to gasoline-powered engines, including the HCCI engine. Our testing with the GM Tahoe is in process, and I will continue to report our progress to you. I encourage you to visit our website often for updates.

Sincerely,

Richard Ottalagana, CEO