October 26, 2004

Over the past several weeks, we have completed the baseline testing of the GM Tahoe with its factory-equipped four speed automatic transmission. We have since removed the automatic transmission and have commenced the installation of our infinitely variable transmission (IVT™). The installation of the IVT, including our custom electronic engine control unit (ECU) designed to maximize fuel efficiency across a wide variety of different driving conditions, is progressing on schedule.

The accompanying pictures demonstrate that the design of the IVT allows for a perfect fit into the vehicle. We anticipate commencing testing of the GM Tahoe with our custom designed ECU very soon.

Our ECU is designed to keep engine speed and horsepower regulated and at optimum levels. We remind you that there is more of a difference between our IVT and an automatic 4-, 5- or 6-speed transmission than the IVT running more efficiently at low RPMs. On a vehicle equipped with an automatic transmission, the tachometer (the device which displays engine speed) illustrates that engine RPMs vary significantly between the fixed gear speeds. With our IVT, the transmission takes over the role of variator from the engine, avoiding high RPM changes because there are no fixed gear ratios. Therefore, with our IVT and ECU controls, the engine will continuously provide a more efficient use of fuel.

I recently shared with you the advantages of pairing Torvec’s IVT with the HCCI engine which has been under development for quite some time by many of the global automakers. It is also important to emphasize pairing the IVT with the engines which power hybrid vehicles. Hybrid vehicles have gained recent popularity by combining the advantages of gasoline powered engines with electric technology to result in an overall improvement in MPG. Similar to our position with the HCCI engine, we are convinced more than ever that our IVT will be the perfect complement as the transmission to the hybrid engine, delivering even further improvement in MPG.

I will keep you informed of our exciting progress as our IVT installation transitions to testing.

Sincerely,

Richard Ottalagana, CEO