---

UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2008

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

For the transition period from _____to _____

COMMISSION FILE NUMBER000-50569

TERRACE VENTURES
INC.(Exact name of registrant as specified in its
charter)

|NEVADA                                                               | 91-2147101                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|Suite 202, 810 Peace Portal Drive,                                   |                                     
|Blaine, WA                                                           | 98230                               
|(Address of principal executive offices)                             | (Zip Code)                          

(360) 220-5218Issuer's telephone number

Securities registered under Section 12(b) of the Exchange Act:
NONE.

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value Per Share.

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined by Rule 405 of the Securities Act. Yes [ ] No
[X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]

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. Yes [X]No [ ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (s229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer [ ]                       | Accelerated filer [ ]          
|------------------------------------------------- | -------------------------------
|Non-accelerated filer [ ]                         | Smaller reporting company [ X ]
|(Do not check if a smaller
    reporting company) |                                

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes [X]No [ ]

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter: $2,002,684 based on a price of $0.0965, being the
average of the closing bid and ask price for the Registrants common stock as
quoted on the OTCBulletin Board on October 31,
2007.

Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest practicable date.
As of August 5, 2008, the Registrant had 36,753,200 shares of common stock
outstanding.

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|TERRACE VENTURES INC.            
|---------------------------------
|                                 
|ANNUAL REPORT ON FORM 10-K       
|FOR THE YEAR ENDED APRIL 30, 2008
|                                 
|TABLE OF CONTENTS                

|           |                                                                                                                          | PAGE
|---------- | ------------------------------------------------------------------------------------------------------------------------ | ----
|PART I     |                                                                                                                          | 3   
|ITEM 1.    | BUSINESS                                                                                                                 | 3   
|ITEM 1A.   | RISK FACTORS                                                                                                             | 5   
|ITEM 2.    | PROPERTIES                                                                                                               | 6   
|ITEM 3.    | LEGAL PROCEEDINGS                                                                                                        | 6   
|ITEM 4.    | SUBMISSION OF
      MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 7   
|PART II    |                                                                                                                          | 8   
|ITEM 5.    | MARKET FOR REGISTRANTS
      COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES | 8   
|ITEM 7.    | MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.                             | 10  
|ITEM 8.    | FINANCIAL
      STATEMENTS AND SUPLEMENTARY DATA                                                                         | 13  
|ITEM 9.    | CHANGES IN
      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 14  
|ITEM 9AT.  | CONTROLS AND
      PROCEDURES.                                                                                           | 14  
|ITEM 9B.   | OTHER INFORMATION                                                                                                        | 16  
|PART III   |                                                                                                                          | 17  
|ITEM 10.   | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.                                                                  | 17  
|ITEM 11.   | EXECUTIVE
      COMPENSATION.                                                                                            | 18  
|ITEM 12.   | SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.              | 19  
|ITEM 13.   | CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.                                         | 21  
|ITEM 14.   | PRINCIPAL ACCOUNTING FEES AND SERVICES.                                                                                  | 22  
|ITEM 15.   | EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES.                                                                           | 22  
|SIGNATURES | 24                                                                                                                      

Page 2 of 24

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PART I

The information in this discussion contains forward-looking
statements. These forward-looking statements involve risks and uncertainties,
including statements regarding the Company's capital needs, business strategy
and expectations. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "intend," "anticipate," "believe,"
"estimate, "predict," "potential" or "continue", the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks described below, and, from time to time, in other reports the Company
files with the United States Securities and Exchange Commission (the SEC).
These factors may cause the Company's actual results to differ materially from
any forward-looking statement. The Company disclaims any obligation to publicly
update these statements, or disclose any difference between its actual results
and those reflected in these statements.

As used in this Annual Report, the terms we, us, our,
Terrace, and the Company mean Terrace Ventures Inc. and its subsidiaries,
unless otherwise indicated. All dollar amounts in this Annual Report are
expressed in U.S. dollars, unless otherwise indicated.

Foreign Currency and Exchange Rates

For purposes of consistency and to express United States
dollars throughout this Annual Report on Form 10-K, Canadian dollars have been
converted into United States currency at the rate of CDN$1.00 being
approximately equal to US$0.99, which is the approximate average exchange rate
during recent months.

|ITEM 1. | BUSINESS.
|------- | ---------

Overview

We were incorporated on February 20, 2001 under the laws of the
State of Nevada. Until recently, we owned a 100% undivided interest in a mineral
claim that we referred to as the Peach Mineral Claim (the Peach Claim) located
in the Nicola, Simalkameen and Osoyoos Mining Divisions of the Province of
British Columbia, Canada. On July 31, 2008, we decided to allow our interest in
the Peach Claim to lapse in order to focus our resources on completing a
business combination with Pyro Pharmaceuticals, Inc. (Pyro). There is no
assurance that the proposed business combination will be completed as planned or
if at all.

Pyro Pharmaceuticals Interim Agreement

On July 9, 2008, we entered into an interim agreement (the
Interim Agreement) with Pyro, a privately held Delaware corporation engaged in
the business of developing therapeutics against multi-drug resistant infectious
microorganisms. Pyro currently holds two patents, under United States patent
numbers 6,852,485 and 6,955,890, in connection with its business. Pyro has also
filed 10 patent applications with the United States Patent and Trademark Office.
These patent applications are at various stages of review within the United
States Patent and Trademark Office (the USPTO).

Under the terms of the Interim Agreement, we and Pyro have
agreed to complete a business combination of the two companies such that
following completion of the business combination the shareholders of Pyro,
immediately prior to the business combination, will own 60% of our issued and
outstanding shares of common stock and our shareholders, immediately prior to
the business combination and after giving effect to a proposed $2.5 million
private placement referred to below, will hold 40%. In addition, we agreed to
pay the reasonable legal and accounting costs of Pyro in connection with the
preparation and closing of a definitive agreement. Upon execution of the Interim
Agreement, we advanced an initial $10,000 to Pyro for the above noted legal and
accounting costs.

The closing of the business combination is subject to a number
of conditions, including, among other conditions: (i) our completing a private
placement of 25,000,000 units for total proceeds of $2,500,000; (ii)

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delivery of all financial statements of Pyro required under
applicable securities rules; (iii) each party satisfactorily completing its due
diligence review; and (iv) the approval of the shareholders of Pyro. Under the
terms of the Interim Agreement, the parties are required to enter into a formal
agreement no later than October 31, 2008. There is no assurance that the
proposed transaction will be completed as planned or at all.

Pyro's current operations consist exclusively of the
development of its intellectual property and prosecution of its patent
applications on file with the USPTO. Pyro has not commenced revenue producing
operations nor has it completed the development of its initial therapeutic
device or process. Pyro currently has limited operations and nominal assets.

Pyro Pharmaceuticals is in the business of developing
therapeutics for use against multi-drug resistant infectious microorganisms.
Pyro's focus is on diseases caused by bacteria, yeast, fungi, and amitochondrial
protists in which antibiotic resistance has become a significant factor in the
treatment of the disease, and where alternative therapies are needed due to the
inadequacies of current treatments.

Pyro believes that the inhibition of unique targets within an
essential metabolic pathway renders pathogenic microorganisms, non viable and/or
non infective (pathogenic). Furthermore, these targets are found only in
pathogenic microorganisms and not in mammals. Thus, inhibitors of the pathway
that act on a specific gene or enzyme (the unique target), become a selective
therapeutic agent against these pathogenic microorganisms. The identification of
these metabolic pathways, the specific target in the pathway, and the
development of pathway inhibitors (antibiotics) against these targets is the
business proposition of Pyro.

These inhibitors represent a new and novel approach to develop
antibiotics that can kill certain pathogenic microorganisms, especially those
resistant to current antibiotics. This novel class of antibiotics is different
from conventional antibiotics because it is not based on the inhibiting of DNA,
RNA, protein, or cell wall synthesis. This novel class is based on the
disruption of a metabolic step that is required for the viability and/or
infectivity of the pathogenic organism. These proposed new antibiotics will
improve the morality and morbidity caused by a wide variety of pathogenic
microorganisms, especially those that have exhibited multiple drug
resistance.

Recent Corporate Developments

The following corporate developments occurred since our third
fiscal quarter ended January 31, 2008:

|1. | On July 9, 2008 we entered into an interim agreement (the
      Interim Agreement) with Pyro Pharmaceuticals, Inc. (Pyro), a privately
      held Delaware corporation engaged in the business of developing
      therapeutics against multi-drug resistant infectious microorganisms. See
      Pyro Pharmaceuticals Interim Agreement above.                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2. | On July 15, 2008, our Board of Directors approved a
      private placement offering of up to 12,500,000 units (the Units) at a
      price of $0.10 US per Unit (the U.S. Private Placement), with each Unit
      consisting of one share of our common stock and one share purchase
      warrant. Each whole warrant entitles the holder to purchase an additional
      share of common stock exercisable for a period of 12 months at a price of
      $0.15 US per share. The offering will be made in the United States to
      persons who are accredited investors as defined in Regulation D of the
      Securities Act of 1933 (the Securities Act).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Also on July 15, 2008, our Board of Directors also
      approved a concurrent private placement offering of up to 12,500,000 Units
      to persons who are not U.S. Persons as defined in Regulation S of the
      Securities Act (the Foreign Private Placement). The Units will be
      identical to those to be offered under the U.S. Private Placement as
      described above.                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The proceeds of the U.S. Private Placement and the
      Foreign Private Placement offerings will be used to meet the closing
      conditions of the proposed business combination between us and Pyro. There
      is no assurance that the U.S. Private Placement or the Foreign Private
      Placement offerings or any part of them will be
  completed.                                                                                                                                                                                                                                                                                                          

4

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|3. | On August 8, 2008, Gordon F. Burley entered into a share
      transfer agreement (the Share Transfer Agreement) with Howard Thomson,
      our sole executive officer and director. Under the terms of the Share
      Transfer Agreement, Mr. Burley sold 15,800,000 shares of our common stock
      to Mr. Thomson in consideration of the payment of $15,800 (the Share
      Transfer).
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                  
|   | As a result of the closing of the Share Transfer, Mr.
      Thomson now owns approximately 43.0% of our common stock. As a result,
      there has been a change in control of the Company.                                                                                                                                                                                                      

Employees

We have no employees as of the date of this Annual Report on
Form 10-K other than our sole executive officer and director. We conduct our
business largely through agreements with consultants and arms-length third
parties.

Research And Development Expenditures

We have not incurred any research expenditures since our
incorporation.

Patents And Trademarks

We do not own, either legally or beneficially, any patent or
trademark.

|ITEM 1A. | RISK FACTORS.
|-------- | -------------

The following are some of the important factors that could
affect our financial performance or could cause actual results to differ
materially from estimates contained in our forward-looking statements. We may
encounter risks in addition to those described below. Additional risks and
uncertainties not currently known to us, or that we currently deem to be
immaterial, may also impair or adversely affect our business, financial
condition or results of operation.

If we do not obtain additional financing, our business will
fail.

As at April 30, 2008, we had cash in the amount of $100. In
order to meet the closing conditions of the Interim Agreement with Pyro, we will
be required to raise an additional $2,500,000. As such, our Board of Directors
approved two concurrent private placement offerings for the sale of an aggregate
of 25,000,000 for gross proceeds of $2,500,000. There is no assurance that the
private placement offerings or any part of them will be completed. If we are
unable to complete the private placement offerings, we will be unable to
complete the proposed transactions with Pyro.

We have yet to attain profitable operations and because we
will need additional financing to continue our business operations, our
accountants believe that there is substantial doubt about our ability to
continue as a going concern.

We have incurred a net loss of $1,523,621 for the period from
February 20, 2001 (inception) to April 30, 2008, and have no revenues to date.
Our future is dependent upon our ability to obtain financing and upon future
profitable operations from the development of our mineral claim. These factors
raise substantial doubt that we will be able to continue as a going concern.

We may conduct further offerings in the future in which case
investors shareholdings will be diluted.

Since our inception, we have relied on equity sales of our
common stock to fund our operations. We may conduct additional equity offerings
in the future to finance any future business projects that we decide to
undertake. If common stock is issued in return for additional funds, the price
per share could be lower than that paid by our current stockholders. We
anticipate continuing to rely on equity sales of our common stock in

5

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order to fund our business operations. If we issue additional
stock, investors percentage interest in us will be diluted. The result of this
could reduce the value of their stock.

Because our stock is a penny stock, stockholders will be
more limited in their ability to sell their stock.

The shares of our common stock constitute penny stocks under
the Exchange Act. The shares will remain classified as a penny stock for the
foreseeable future. The classification as a penny stock makes it more difficult
for a broker/dealer to sell the stock into a secondary market, which makes it
more difficult for a purchaser to liquidate his or her investment. Any
broker/dealer engaged by the purchaser for the purpose of selling his or her
shares will be subject to rules 15g-1 through 15g-10 of the Exchange Act. Rather
than having to comply with these rules, some broker-dealers will refuse to
attempt to sell a penny stock.

The "penny stock" rules adopted by the SEC under the Exchange
Act subjects the sale of the shares of our common stock to certain regulations
which impose sales practice requirements on broker/dealers. For example,
brokers/dealers selling such securities must, prior to effecting the
transaction, provide their customers with a document that discloses the risks of
investing in such securities.

Legal remedies, which may be available to an investor in "penny
stocks, are as follows:

|(a) | if "penny stock" is sold to an investor in violation of
      his or her rights listed above, or other federal or states securities
      laws, the investor may be able to cancel his or her purchase and get his
      or her money back.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                            
|(b) | if the stocks are sold in a fraudulent manner, the
      investor may be able to sue the persons and firms that caused the fraud
      for damages.                                                                                        
|    |                                                                                                                                                                                                                                            
|(c) | if the investor has signed an arbitration agreement,
      however, he or she may have to pursue his or her claim through
      arbitration.                                                                                               

If the person purchasing the securities is someone other than
an accredited investor or an established customer of the broker/dealer, the
broker/dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker/dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the SEC's rules may limit the number of potential
purchasers of the shares of our common stock.

|ITEM 2. | PROPERTIES.
|------- | -----------

We rent office space at Suite 202, 810 Peace Portal Drive,
Blaine, WA 98230, consisting of approximately 1,124 square feet, at a cost of
$250 per month. This rental is on a month-to-month basis without a formal
contract. We pay a fee of $500 per month for office related services provided in
connection with our office rental.

Until recently, we owned a 100% interest in the Peach Claim. On
July 31, 2008, we allowed our interest in the Peach Claim to lapse in order to
focus our resources on the proposed business combination with Pyro. A
description of the proposed business combination is set out under the heading
Item 1. Business  Pyro Pharmaceuticals Interim Agreement above.

|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------

We are not a party to any other legal proceedings and, to our
knowledge, no other legal proceedings are pending, threatened or
contemplated.

6

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|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS.
|------- | ----------------------------------------------------------

No matters were submitted to our security holders during the
fourth quarter of our fiscal year ended April 30, 2008.

7

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PART II

|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY,
      RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
      EQUITY SECURITIES.
|------- | -------------------------------------------------------------------------------------------------------------------------

MARKET INFORMATION

Our shares of common stock commenced trading on the OTC
Bulletin Board under the symbol TVNT on July 19, 2005. As a result of a
four-for-one forward split of our issued and outstanding common stock, the
symbol under which our shares traded on the OTC Bulletin Board changed from
TVNT to TVEN, effective December 19, 2005.

The high and the low prices for our shares for each quarter of
our last two fiscal years of actual trading were:

Quarter
      Ended
    
    High
    
    
    LowFiscal Year 2008April 30, 2008
    $
    0.065
    
    $
    0.02January 31, 2008
    $
    0.095
    
    $
    0.03October 31, 2007
    $
    0.148
    
    $
    0.05July 31, 2007
    $
    0.296
    
    $
    0.11Fiscal Year 2007April 30, 2007
    $
    0.185
    
    $
    0.10January 31, 2007
    $
    0.15
    
    $
    0.06October 31, 2006
    $
    0.25
    
    $
    0.08July 31, 2006
    $
    0.44
    
    $
    0.14


The high and low bid price information provided above was
obtained from the OTC Bulletin Board. The market quotations provided reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.

PENNY STOCK RULES

The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk disclosure
document prepared by the SEC, which: (a) contains a description of the nature
and level of risk in the market for penny stocks in both public offerings and
secondary trading; (b) contains a description of the broker's or dealer's duties
to the customer and of the rights and remedies available to the customer with
respect to a violation of such duties or other requirements of securities laws;
(c) contains a brief, clear, narrative description of a dealer market, including
bid and ask prices for penny stocks and significance of the spread between the
bid and ask price; (d) contains a toll-free telephone number for inquiries on
disciplinary actions; (e) defines significant terms in the disclosure document
or in the conduct of trading in penny stocks; and (f) contains such other
information and in such form as the SEC shall require by rule or regulation. The
broker-dealer also must, prior to effecting any transaction in a penny stock,
provide the customer with: (a) bid and offer quotations for the penny stock; (b)
the compensation of the broker-dealer and its salesperson in the transaction;
(c) the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market for
such stock; and (d) monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that, prior to a transaction in a penny stock that is not otherwise
exempt from those rules, the broker-dealer must: (a) make a special written
determination that the penny stock is a suitable investment for the purchaser
and (b) receive from the

8

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purchaser his or her written acknowledgement of receipt of the
determination and a written agreement to the transaction.

These disclosure requirements may have the effect of reducing
the trading activity in the secondary market for our stock and therefore
stockholders may have difficulty selling those securities.

REGISTERED HOLDERS OF OUR COMMON STOCK

Our authorized capital consists of 400,000,000 shares of common
stock, par value $0.001 per share. As of August 5, 2008, there were ninety-one
(91) registered holders of our common stock. We believe that a large number of
stockholders hold stock on deposit with their brokers or investment bankers
registered in the name of stock depositories.

DIVIDENDS

We have not declared any dividends on our common stock since
our inception. There are no dividend restrictions that limit our ability to pay
dividends on our common stock in our Articles of Incorporation or bylaws.
Chapter 78 of the Nevada Revised Statutes (the NRS), does provide certain
limitations on our ability to declare dividends. Section 78.288 of Chapter 78 of
the NRS prohibits us from declaring dividends where, after giving effect to the
distribution of the dividend:

|(a) | we would not be able to pay our debts as they become due
      in the usual course of business; or                                                                                                                                                                                                                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(b) | except as may be allowed by our Articles of
      Incorporation, our total assets would be less than the sum of our total
      liabilities plus the amount that would be needed, if we were to be
      dissolved at the time of the distribution, to satisfy the preferential
      rights upon dissolution of stockholders who may have preferential rights
      and whose preferential rights are superior to those receiving the
      distribution.

We have neither declared nor paid any cash dividends on our
capital stock and do not anticipate paying cash dividends in the foreseeable
future. Our current policy is to retain any earnings in order to finance the
expansion of our operations. Our board of directors will determine future
declaration and payment of dividends, if any, in light of the then-current
conditions they deem relevant and in accordance with the Nevada Revised
Statutes.

RECENT SALES OF UNREGISTERED SECURITIES

On July 12, 2007, we completed the sale of 2,570,000 shares of
our common stock at a price of $0.10 per share for total proceeds of $257,000.
The shares were issued to non-US persons as contemplated by Regulation S
promulgated under the Securities Act. The proceeds of the private placement were
used to fund $200,000 of loans to our former merger candidate, Solara
Technologies Inc., to retire corporate debt and for general corporate
purposes.

9

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|ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS
      OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.
|------- | --------------------------------------------------------------------------------------------------

PLAN OF OPERATION

Our plan of operation is to complete the proposed business
combination with Pyro by October 31, 2008. As a condition to completing the
business combination with Pyro, we will be required to raise $2,500,000 in
equity financing. There are no assurances that we will be able to complete the
proposed business combination with Pyro as planned or if at all.

Until recently, our plan of operation was to conduct mineral
exploration activities on the Peach Claim. However, on July 31, 2008, we decided
to allow our interest in the Peach Claim to lapse in order to focus our
financial resources on the completing the proposed business combination with
Pyro. As a result, we are unable to provide an estimate of our exact financial
needs for the next twelve months.

Due to the lack of our operating history and our present
inability to generate revenues, our auditors have stated in their audit report
included in our audited financial statements for the year ended April 30, 2008
that there currently exists substantial doubt about our ability to continue as a
going concern.

RESULTS OF OPERATIONS

|Summary of Year End Results |   |                      |   |   |            |   |  |                       | 
|--------------------------- | - | -------------------- | - | - | ---------- | - |  | --------------------- | 
|                            |   |                      |   |   |            |   |  |                       | 
|                            |   | Year Ended April 30, |   |   | Percentage |  
|                            |   | 2008                 |   |   | 2007       |   |  | Increase / (Decrease) | 
|Revenue                     | $ | --                   |   | $ | --         |   |  | N/A                   | 
|Expenses                    |   | (114,941             | ) |   | (200,560   | ) |  | (42.7)%               | 
|Other Income                |   | 14,491               |   |   | --         |   |  | N/A                   | 
|Other Expense               |   | --                   |   |   | (100,500   | ) |  | N/A                   | 
|Net Loss                    | $ | (100,450             | ) | $ | (301,060   | ) |  | (66.6)%               | 

Revenues

We have not earned any revenues since our inception and we do
not anticipate earning revenues in the near future. We are an exploration stage
company and are presently seeking other business opportunities.

Operating Expenses

The major components of our expenses for the year ended April
30, 2008 and 2007 are outlined in the table below:

|                         |   | Year Ended April 30 |  |   | Percentage | 
|------------------------ | - | ------------------- |  | - | ---------- | 
|                         |   | 2008                |  |   | 2007       | 
|Accounting               | $ | 30,600              |  | $ | 16,320     | 
|Bank Charges             |   | 120                 |  |   | 223        | 
|Consulting               |   | 5,900               |  |   | 108,250    | 
|Legal                    |   | 40,063              |  |   | 33,485     | 
|Office Administration    |   | 30,000              |  |   | 28,100     | 
|Office Expenses          |   | 250                 |  |   | 912        | 
|Regulatory Expenses/Fees |   | 2,651               |  |   | 9,491      | 
|Rent                     |   | 3,000               |  |   | 3,000      | 
|Telephone                |   | 2,117               |  |   | --         | 
|Travel & Entertainment   |   | 240                 |  |   | 779        | 
|Total Operating Expenses | $ | 114,941             |  | $ | 200,560    | 

10

---

During the year ended April 30, 2008, our operating expenses
primarily consisted of accounting expenses, legal expenses and office
administration expenses. The decrease in our expenses for the year ended April
30, 2008 as compared to the comparative period in 2007 is primarily due to a
substantial decrease in our consulting expenses.

Expenses incurred for accounting and legal are in connection
with meeting our ongoing reporting obligations under the Exchange Act.

Office administration expenses consist of amounts incurred to
our sole executive officer and director for his management consulting
services.

Our consulting expenses decreased substantially during the
period due to the fact that we ceased payment of consulting fees to two of our
former officers.

LIQUIDITY AND CAPITAL RESOURCES

|Cash Flows                                    |   |                     |   |   |          |  
|--------------------------------------------- | - | ------------------- | - | - | -------- | -
|                                              |   | Year Ended April 30 |  
|                                              |   | 2008                |   |   | 2007     |  
|Net Cash used in Operating Activities         | $ | (287,380            | ) | $ | (266,806 | )
|Net Cash used in Investing Activities         |   | --                  |   |   | (100,500 | )
|Net Cash from Financing Activities            |   | 195,205             |   |   | 459,410  |  
|Net Increase (Decrease) in Cash During Period | $ | (92,175             | ) | $ | 92,104   |  

|Working Capital                   |   |                   |   |   |                   |   |  |                       | 
|--------------------------------- | - | ----------------- | - | - | ----------------- | - |  | --------------------- | 
|                                  |   |                   |   |   |                   |   |  | Percentage            | 
|                                  |   | At April 30, 2008 |   |   | At April 30, 2007 |   |  | Increase / (Decrease) | 
|Current Assets                    | $ | 228,767           |   | $ | 115,742           |   |  | 97.7%                 | 
|Current Liabilities               |   | (143,493          | ) |   | (187,343          | ) |  | (23.4)%               | 
|Working Capital Surplus (Deficit) | $ | 85,274            |   | $ | (71,601           | ) |  | (219.1)%              | 

We had cash on hand of $100 and a working capital surplus of
$85,274 as of April 30, 2008 compared to a working capital deficit of $71,601 as
of April 30, 2007. The increase in our working capital is primarily due to the
fact that we have recorded our loan of $200,000 plus accrued interest to Solara
as a Notes Receivable.

During the year ended April 30, 2008, we completed the sale of
2,570,000 shares of our common stock at a price of $0.10 per share for total
proceeds of $257,000. The shares were issued to non-US persons as contemplated
by Regulation S promulgated under the Securities Act. The proceeds of the
private placement were used to fund $200,000 of loans to our former merger
candidate, Solara Technologies Inc., to retire corporate debt and for general
corporate purposes. We have not issued any additional shares under this
offering.

Loan Agreement with Solara Technologies Inc.

On May 18, 2007, we entered into a loan agreement with Solara
Technologies, Inc. (Solara). Under the terms of the Loan Agreement, we loaned
a total of $200,000 to Solara. The loan matured on May 25, 2008, and accrues
interest at a rate of 8% per annum payable on maturity. The loan was made
pursuant to the terms of the letter of intent dated February 28, 2007 between
the Company and Solara. The loan was secured by an assignment of certain tax
credits which Solara represents that it is entitled to claim and receive and
have a value of not less than $200,000. Under the terms of the Loan Agreement,
Solara was required to:

11

---

(i) enter into a formal merger agreement within 60 days of the
date of the Loan Agreement; (ii) obtain shareholder approval of the proposed
merger within 90 days of the date of the Loan Agreement; (iii) provide required
financial statements within 90 days of the Loan Agreement; and (iv) complete the
proposed merger within 120 days of the Loan Agreement. The formal merger
agreement was not entered into by the parties as required under the terms of the
Loan Agreement, and as a result, we have requested that Solara repay the Loan.
We are currently in discussions with Solara to determine a plan for the
repayment of the loan. Substantial doubt exists with respect to the ability of
Solara to repay the loan.

Financing Requirements

Currently, we do not have sufficient financial resources to
complete our plan of operation for the next twelve months. As such, our ability
to complete our plan of operation is dependent upon our ability to obtain
additional financing in the near term.

Our board of directors has approved a private placement
offering of up to 12,500,000 units at a price of $0.10 per unit to U.S.
residents who are accredited investors as such term is defined in Regulation D
of the Securities Act and a concurrent private placement of 12,500,000 units on
the same terms to persons who are not U.S. persons as such term is defined
under Regulation S of the Securities Act (together the Private Placements).
Each unit shall consist of one (1) share of common stock and one-half share
purchase warrant, with each warrant entitling the holder to purchase an
additional share of our common stock at a price of $0.15 share for a period of
one year from the closing of the Private Placements. The proceeds of the Private
Placements will be used to meet the closing conditions of the proposed business
combination with Pyro. There is no assurance that the Private Placements will be
completed as planned or at all.

We anticipate continuing to rely on equity sales of our common
shares in order to continue to fund our business operations. Issuances of
additional shares will result in dilution to our existing shareholders. There is
no assurance that we will achieve any additional sales of our equity securities
or arrange for debt or other financing to fund our business operations.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with
United States generally accepted accounting principles requires our management
to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain.

Our significant accounting policies are disclosed in Note 1 to
the audited financial statements included in this Annual Report.

12

---

|ITEM 8. | FINANCIAL STATEMENTS AND SUPLEMENTARY
      DATA.
|------- | -------------------------------------------------

Audited Financial Statements for the Years Ended April 30, 2008
and 2007, including:

|1. | Report of Independent
        Registered Public Accounting Firm;                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                   
|2. | Balance Sheets as
        at April 30, 2008 and 2007;                                                                                                                             
|   |                                                                                                                                                                                   
|3. | Statements of Operations
        and Accumulated Deficit for the years ended April 30, 2008 and 2007 and
        the period from inception on February 20, 2001 to April 30, 2008;
|   |                                                                                                                                                                                   
|4. | Statements of Changes
        in Stockholders Equity/Deficit for the period from inception through
        April 30, 2008;                                                       
|   |                                                                                                                                                                                   
|5. | Statements of Cash
        Flows for the years ended April 30, 2008 and 2007 and the period from
        inception to April 30, 2008;                                             
|   |                                                                                                                                                                                   
|6. | Notes to the Financial
        Statements; and                                                                                                                                    
|   |                                                                                                                                                                                   
|7. | Supplemental Statement:
        Statements of Operating Expenses for the years ended April 30, 2008 and
    2007 and the period from inception to April 30, 2008.                 

13

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors 
  Terrace Ventures Inc. 
  Blaine, Washington

We have audited the accompanying balance sheets of Terrace Ventures
  Inc., an exploration stage company, as of April 30, 2008 and April 30, 2007,
  and the related statements of operations and accumulated deficit, changes in
  stockholders equity (deficit), and cash flows for the years then ended,
  and for the period February 20, 2001 (date of inception) to April 30, 2008.
  These financial statements are the responsibility of Terrace Ventures Inc.s
  management. Our responsibility is to express an opinion on these financial statements
  based on our audits.

We conducted our audits in accordance with standards of the Public
  Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audits provide
  a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
  fairly, in all material respects, the financial position of Terrace Ventures
  Inc., an exploration stage company, as of April 30, 2008 and April 30, 2007,
  and the results of its operations, changes in stockholders equity (deficit)
  and cash flows for the years then ended, and for the period February 20, 2001
  (date of inception) to April 30, 2008, in conformity with accounting principles
  generally accepted in The United States of America.

Our audit was made for the purpose of forming an opinion on the
  basic financial statements taken as a whole. The supplemental statement of operating
  expenses is presented for the purposes of additional analysis and is not a required
  part of the basic financial statements, and in our opinion, is fairly stated
  in all material respects in relation to the basic financial statements taken
  as a whole.

The accompanying financial statements have been prepared assuming
  that the Company will continue as a going concern. As discussed in Note 5 to
  the financial statements, the Company has suffered recurring losses from operations,
  which raise substantial doubt about its ability to continue as a going concern.
  The financial statements do not include any adjustments that might result from
  the outcome of this uncertainty.

/s/*Sarna & Company*
  Sarna & Company,
  Certified Public Accountants 
  Westlake Village, California 
August 11, 2008

---

|TERRACE VENTURES INC.         
|------------------------------
|(AN EXPLORATION STAGE COMPANY)
|BALANCE SHEET                 

|ASSETS                                               |  
|---------------------------------------------------- | -
|                                                     |  
|                                                     |  
|                                                     |  
|                                                     |  
|Current Assets:                                      |  
|Cash                                                 | $
|Receivable 
      Trust                             |  
|Notes Receivable                                     |  
|                                                     |  
|Total Current Assets                                 |  
|                                                     |  
|Other Asset  Investment                             |  
|                                                     |  
|TOTAL ASSETS                                         | $
|                                                     |  
|                                                     |  
|LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT) |  
|                                                     |  
|Current Liabilities:                                 |  
|Accounts Payable and                                 |  
|Accrued Expenses                                     | $
|Due to Shareholder                                   |  
|Common Stock Payable                                 |  
|                                                     |  
|Total Current Liabilities                            |  
|                                                     |  
|Stockholders' Equity:                                |  
|Common Stock, $0.001 par value                       |  
|400,000,000 shares authorized,                       |  
|36,753,200
      and 34,183,200 shares               |  
|issued                                               |  
|Additional Paid in Capital                           |  
|Deficit Accumulated
      During                     |  
|the Exploration Stage                                |  
|                                                     |  
|Total Stockholders' Equity (Deficit)                 |  
|                                                     |  
|TOTAL LIABILITIES AND                                |  
|STOCKHOLDERS' EQUITY (DEFICIT)                       | $

See Notes to Financial Statements.

2

---

|TERRACE VENTURES INC.                           
|------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                  
|STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT

|                           |   | YEAR ENDED     |   |   | YEAR ENDED     |   |   | INCEPTION to   |  
|-------------------------- | - | -------------- | - | - | -------------- | - | - | -------------- | -
|                           |   | APRIL 30, 2008 |   |   | APRIL 30, 2007 |   |   | APRIL 30, 2008 |  
|Revenues                   | $ | -0-            |   | $ | -0-            |   | $ | -0-            |  
|Operating Expenses         |   | (114,941       | ) |   | (200,560       | ) |   | (509,132       | )
|Loss Before Other Income   |   |                |   |   |                |   |   |                |  
|And Expenses               |   | (114,941       | ) |   | (200,560       | ) |   | (509,132       | )
|Other Income               |   |                |   |   |                |   |   |                |  
|Interest Income            |   | 14,491         |   |   | -0-            |   |   | 14,491         |  
|Other Expense              |   |                |   |   |                |   |   |                |  
|Unrealized Loss            |   |                |   |   |                |   |   |                |  
|on Investment              |   | -0-            |   |   | (100,500       | ) |   | (1,028,980     | )
|Loss Before Provision for  |   |                |   |   |                |   |   |                |  
|Income Taxes               |   | (100,450       | ) |   | (301,060       | ) |   | (1,523,621     | )
|Provision for Income Taxes |   | -0-            |   |   | -0-            |   |   | -0-            |  
|Net Loss                   |   | (100,450       | ) |   | (301,060       | ) |   | (1,523,621     | )
|Accumulated Deficit,       |   |                |   |   |                |   |   |                |  
|Beginning of Period        |   | (1,423,171     | ) |   | (1,122,111     | ) |   | -0-            |  
|Accumulated Deficit,       |   |                |   |   |                |   |   |                |  
|End of Period              | $ | (1,523,621     | ) | $ | (1,423,171     | ) | $ | (1,523,621     | )
|                           |   |                |   |   |                |   |   |                |  
|Net Loss per Share         | $ | (0.00          | ) | $ | (0.01          | ) | $ | (0.05          | )
|Weighted Average           |   |                |   |   |                |   |   |                |  
|Shares Outstanding         |   | 36,753,200     |   |   | 33,064,940     |   |   | 28,230,202     |  

See Notes to Financial Statements.

3

---

|TERRACE VENTURES INC.                                        
|-------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                               
|STATEMENTS OF CHANGES IN STOCKHOLDERS'
      EQUITY (DEFICIT)

|                         |  |              |  |   |            |  |   |            |  |   | Deficit     |   |   |                  |  
|------------------------ |  | ------------ |  | - | ---------- |  | - | ---------- |  | - | ----------- | - | - | ---------------- | -
|                         |  |              |  |   |            |  |   |            |  |   | Accumulated |   |   |                  |  
|                         |  | Common Stock |  |   | Additional |  |   | During the |  |   | Total       |  
|                         |  |              |  |   | Dollar     |  |   | Paid in    |  |   | Exploration |   |   | Stockholders'    |  
|                         |  | Shares       |  |   | Amount     |  |   | Capital    |  |   | Stage       |   |   | Equity (Deficit) |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Inception,               |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|February 20, 2001        |  | ----         |  | $ | ----       |  | $ | ----       |  | $ | ----        |   | $ | ----             |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|$0.001 per share         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 9, 2001            |  | 4,000,000    |  |   | 400        |  |   | 3,600      |  |   | ----        |   |   | 4,000            |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Net Loss, Period Ended   |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2001           |  | ----         |  |   | ----       |  |   | ----       |  |   | (1,410      | ) |   | (1,410           | )
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Balances, April 30, 2001 |  | 4,000,000    |  |   | 400        |  |   | 3,600      |  |   | (1,410      | ) |   | 2,590            |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|$0.01 per share          |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|August 15, 2001          |  | 2,500,000    |  |   | 250        |  |   | 24,750     |  |   | ----        |   |   | 25,000           |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Net Loss, Period Ended   |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2002           |  | ----         |  |   | ----       |  |   | ----       |  |   | (19,196     | ) |   | (19,196          | )
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Balances, April 30, 2002 |  | 6,500,000    |  |   | 650        |  |   | 28,350     |  |   | (20,606     | ) |   | 8,394            |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|$0.10 per share          |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|September 30, 2002       |  | 142,500      |  |   | 14         |  |   | 14,236     |  |   | ----        |   |   | 14,250           |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Net Loss, Period Ended   |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2003           |  | ----         |  |   | ----       |  |   | ----       |  |   | (17,632     | ) |   | (17,632          | )
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Balances, April 30, 2003 |  | 6,642,500    |  |   | 664        |  |   | 42,586     |  |   | (38,238     | ) |   | 5,012            |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|$0.10 per share          |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|November 6, 2003         |  | 400,000      |  |   | 40         |  |   | 39,960     |  |   | ----        |   |   | 40,000           |  
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Net Loss, Period Ended   |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2004           |  | ----         |  |   | ----       |  |   | ----       |  |   | (58,708     | ) |   | (58,708          | )
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Balances, April 30, 2004 |  | 7,042,500    |  |   | 704        |  |   | 82,546     |  |   | (96,946     | ) |   | (13,696          | )
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Net Loss, Period Ended   |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2005           |  | ----         |  |   | ----       |  |   | ----       |  |   | (37,532     | ) |   | (37,532          | )
|                         |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Balances, April 30, 2005 |  | 7,042,500    |  |   | 704        |  |   | 82,546     |  |   | (134,478    | ) |   | (51,228          | )

See Notes to Financial Statements.

4

---

|TERRACE VENTURES INC.                                                    
|-------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                           
|STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
      (DEFICIT) - CONTINUED

|                         |  |              |  |   |            |  |   |            |   |   | Deficit     |   |   |                  |  
|------------------------ |  | ------------ |  | - | ---------- |  | - | ---------- | - | - | ----------- | - | - | ---------------- | -
|                         |  |              |  |   |            |  |   |            |   |   | Accumulated |   |   |                  |  
|                         |  | Common Stock |  |   | Additional |  |   | During the |   |   | Total       |  
|                         |  |              |  |   | Dollar     |  |   | Paid in    |   |   | Exploration |   |   | Stockholders'    |  
|                         |  | Shares       |  |   | Amount     |  |   | Capital    |   |   | Stage       |   |   | Equity (Deficit) |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Balances, April 30, 2005 |  | 7,042,500    |  |   | 704        |  |   | 82,546     |   |   | (134,478    | ) |   | (51,228          | )
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|$1.00 per share          |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|November 23,2005         |  | 500,000      |  |   | 50         |  |   | 499,950    |   |   | ----        |   |   | 500,000          |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|4-for-1 Stock Split,     |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|December 19, 2005        |  | 22,627,500   |  |   | 29,416     |  |   | (29,416    | ) |   | ----        |   |   | ----             |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|$0.25 per share          |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|February 3, 2006         |  | 400,000      |  |   | 400        |  |   | 99,600     |   |   | ----        |   |   | 100,000          |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|$0.25 per share          |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|March 13, 2006           |  | 380,000      |  |   | 380        |  |   | 94,620     |   |   | ----        |   |   | 95,000           |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|$0.25 per share          |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|March 31, 2006           |  | 999,920      |  |   | 1,000      |  |   | 248,980    |   |   | ----        |   |   | 249,980          |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Net Loss, Period Ended   |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|April 30, 2006           |  | ----         |  |   | ----       |  |   | ----       |   |   | (987,633    | ) |   | (987,633         | )
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Balances                 |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|April 30, 2006           |  | 31,949,920   |  |   | 31,950     |  |   | 996,280    |   |   | (1,122,111  | ) |   | (93,881          | )
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|$0.25 per share          |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|May 24, 2006             |  | 220,080      |  |   | 220        |  |   | 54,800     |   |   | ----        |   |   | 55,020           |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|$0.30 per share          |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|June 5, 2006             |  | 335,000      |  |   | 335        |  |   | 100,165    |   |   | ----        |   |   | 100,500          |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Common Stock Issued      |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|$0.10 per share          |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|January 23, 2007         |  | 1,678,200    |  |   | 1,678      |  |   | 166,142    |   |   | ----        |   |   | 167,820          |  
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Net Loss, Period Ended   |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|April 30, 2007           |  | ----         |  |   | ----       |  |   | ----       |   |   | (301,060    | ) |   | (301,060         | )
|                         |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|Balances                 |  |              |  |   |            |  |   |            |   |   |             |   |   |                  |  
|April 30, 2007           |  | 34,183,200   |  | $ | 34,183     |  | $ | 1,317,387  |   | $ | (1,423,171  | ) | $ | (71,601          | )

See Notes to Financial Statements.

5

---

|TERRACE VENTURES INC.                                                    
|-------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                           
|STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
      (DEFICIT) - CONTINUED

|                       |  |              |  |   |            |  |   |            |  |   | Deficit     |   |   |                  |  
|---------------------- |  | ------------ |  | - | ---------- |  | - | ---------- |  | - | ----------- | - | - | ---------------- | -
|                       |  |              |  |   |            |  |   |            |  |   | Accumulated |   |   |                  |  
|                       |  | Common Stock |  |   | Additional |  |   | During the |  |   | Total       |  
|                       |  |              |  |   | Dollar     |  |   | Paid in    |  |   | Exploration |   |   | Stockholders'    |  
|                       |  | Shares       |  |   | Amount     |  |   | Capital    |  |   | Stage       |   |   | Equity (Deficit) |  
|                       |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|                       |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Balances               |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2007         |  | 34,183,200   |  | $ | 34,183     |  | $ | 1,317,387  |  | $ | (1,423,171  | ) | $ | (71,601          | )
|                       |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Common Stock Issued    |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|$0.10 per share        |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|July 12, 2007          |  | 2,570,000    |  |   | 2,570      |  |   | 254,755    |  |   | ----        |   |   | 257,325          |  
|                       |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Net Loss, Period Ended |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2008         |  | ----         |  |   | ----       |  |   | ----       |  |   | (100,450    | ) |   | (100,450         | )
|                       |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|Balances               |  |              |  |   |            |  |   |            |  |   |             |   |   |                  |  
|April 30, 2008         |  | 36,753,200   |  | $ | 36,753     |  | $ | 1,572,142  |  | $ | (1,523,621  | ) | $ | 85,274           |  

See Notes to Financial Statements.

6

---

|TERRACE VENTURES INC.         
|------------------------------
|(AN EXPLORATION STAGE COMPANY)
|STATEMENTS OF CASH FLOWS      

|                                  |   | YEAR ENDED     |   |   | YEAR ENDED     |   |   | INCEPTION to   |  
|--------------------------------- | - | -------------- | - | - | -------------- | - | - | -------------- | -
|                                  |   | APRIL 30, 2008 |   |   | APRIL 30, 2007 |   |   | APRIL 30, 2008 |  
|Cash Flows from                   |   |                |   |   |                |   |   |                |  
|Operating Activities:             |   |                |   |   |                |   |   |                |  
|                                  |   |                |   |   |                |   |   |                |  
|Net Loss                          | $ | (100,450       | ) | $ | (301,060       | ) | $ | (1,523,621     | )
|Adjustments to Reconcile Net Loss |   |                |   |   |                |   |   |                |  
|To Net Cash Provided/<Used> by    |   |                |   |   |                |   |   |                |  
|Operating Activities:             |   |                |   |   |                |   |   |                |  
|Unrealized Loss on Investment     |   | -0-            |   |   | 100,500        |   |   | 1,028,980      |  
|<Increase>/Decrease
      in:     |   |                |   |   |                |   |   |                |  
|Trust Account Receivable          |   | (10,308        | ) |   | (2,891         | ) |   | (13,775        | )
|Notes
      Receivable            |   | (194,892       | ) |   | (20,000        | ) |   | (214,892       | )
|Increase/<Decrease> in:           |   |                |   |   |                |   |   |                |  
|Accounts
      Payable            |   | 18,270         |   |   | (43,355        | ) |   | 48,393         |  
|                                  |   |                |   |   |                |   |   |                |  
|Net Cash Used by                  |   |                |   |   |                |   |   |                |  
|Operating Activities              |   | (287,380       | ) |   | (266,806       | ) |   | (674,915       | )
|                                  |   |                |   |   |                |   |   |                |  
|Cash Flows from                   |   |                |   |   |                |   |   |                |  
|Investing Activities:             |   |                |   |   |                |   |   |                |  
|                                  |   |                |   |   |                |   |   |                |  
|Investment in Stock               |   | -0-            |   |   | (100,500       | ) |   | (1,028,980     | )
|                                  |   |                |   |   |                |   |   |                |  
|Net Cash Used by                  |   |                |   |   |                |   |   |                |  
|Investing Activities              |   | -0-            |   |   | (100,500       | ) |   | (1,028,980     | )
|                                  |   |                |   |   |                |   |   |                |  
|Cash Flows from                   |   |                |   |   |                |   |   |                |  
|Financing Activities:             |   |                |   |   |                |   |   |                |  
|                                  |   |                |   |   |                |   |   |                |  
|Loans from Shareholders           |   | 95,100         |   |   | 145            |   |   | 116,395        |  
|Payments on Loans                 |   | (11,295        | ) |   | (10,000        | ) |   | (21,295        | )
|Proceeds from Issuance of         |   |                |   |   |                |   |   |                |  
|Common Stock                      |   | 111,400        |   |   | 469,265        |   |   | 1,608,895      |  
|                                  |   |                |   |   |                |   |   |                |  
|Net Cash Provided by              |   |                |   |   |                |   |   |                |  
|Financing
      Activities        |   | 195,205        |   |   | 459,410        |   |   | 1,703,995      |  
|                                  |   |                |   |   |                |   |   |                |  
|Net Increase (Decrease) in Cash   |   | (92,175        | ) |   | 92,104         |   |   | 100            |  
|                                  |   |                |   |   |                |   |   |                |  
|Cash at Beginning of Period       |   | 92,275         |   |   | 171            |   |   | -0-            |  
|                                  |   |                |   |   |                |   |   |                |  
|Cash at End of Period             | $ | 100            |   | $ | 92,275         |   | $ | 100            |  

See Notes to Financial Statements.

7

---

|TERRACE VENTURES INC.         
|------------------------------
|(AN EXPLORATION STAGE COMPANY)
|NOTES TO FINANCIAL STATEMENTS 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Terrace Ventures Inc. was incorporated on February 20, 2001 in
  the state of Nevada. The Company acquires and develops certain mineral rights
  in Canada.

Basis of Presentation

The Company reports revenue and expenses using the accrual method
  of accounting for financial and tax reporting purposes.

Use of Estimates

Management uses estimates and assumptions in preparing these
  financial statements in accordance with generally accepted accounting principles.
  Those estimates and assumptions affect the reported amounts of assets and liabilities,
  the disclosure of contingent assets and liabilities, and the reported revenues
  and expenses.

Exploration Stage Company

The Company has been in the exploration stage since its formation
  and has not yet realized any revenues from its planned operations. The Company
  is primarily engaged in the acquisition and exploration of mining properties.
  Upon the location of commercially minable reserves, the Company plans to prepare
  for mineral extraction and enter the development stage.

Pro Forma Compensation Expense

The Company accounts for options and restricted stock granted
  to employees and directors in accordance with the fair value method of SFAS
  No. 123, Accounting for Stock-Based Compensation (SFAS No. 123),
  as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition
  and Disclosure an amendment of FASB Statement No. 123 and related interpretations.
  As such, compensation expense is recorded on stock option and restricted stock
  grants based on the fair value of the options or restricted stock granted, which
  is estimated on the date of grant using the Black-Scholes option-pricing model
  for stock options granted, and is recognized on a straight-line basis over the
  vesting period.

8

---

|TERRACE VENTURES INC.                    
|-----------------------------------------
|(AN EXPLORATION STAGE COMPANY)           
|NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Mineral Property Acquisition and Exploration Costs

The Company expenses all costs related to the acquisition and
  exploration of mineral properties in which it has secured exploration rights
  prior to establishment of proven and probable reserves. To date, the Company
  has not established the commercial feasibility of any exploration prospects,
  therefore, all costs are being expensed.

Depreciation, Amortization and Capitalization

The Company records depreciation and amortization when appropriate
  using both straight-line and declining balance methods over the estimated useful
  life of the assets (five to seven years).

Expenditures for maintenance and repairs are charged to expense
  as incurred. Additions, major renewals and replacements that increase the property's
  useful life are capitalized. Property sold or retired, together with the related
  accumulated depreciation, is removed from the appropriate accounts and the resultant
  gain or loss is included in net income.

Income Taxes

The Company accounts for its income taxes in accordance with
  Statement of Financial Accounting Standards No. 109, "Accounting for Income
  Taxes". Under Statement 109, a liability method is used whereby deferred tax
  assets and liabilities are determined based on temporary differences between
  basis used for financial reporting and income tax reporting purposes. Income
  taxes are provided based on tax rates in effect at the time such temporary differences
  are expected to reverse. A valuation allowance is provided for certain deferred
  tax assets if it is more likely than not, that the Company will not realize
  the tax assets through future operations.

Fair Value of Financial Instruments

Financial accounting Standards Statement No. 107, "Disclosures
  About Fair Value of Financial Instruments", requires the Company to disclose,
  when reasonably attainable, the fair market values of its assets and liabilities
  which are deemed to be financial instruments. The Company's financial instruments
  consist primarily of cash and certain investments.

9

---

|TERRACE VENTURES INC.                    
|-----------------------------------------
|(AN EXPLORATION STAGE COMPANY)           
|NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Investments

Investments that are purchased in other companies are valued
  at cost less any impairment in the value that is other than temporary in nature.

Per Share Information

The Company computes per share information by dividing the net
  loss for the period presented by the weighted average number of shares outstanding
  during such period.

NOTE 2 - PROVISION FOR INCOME TAXES

The provision for income taxes for the periods ended April 30,
  2008 and April 30, 2007 represents the minimum state income tax expense of the
  Company, which is not considered significant.

NOTE 3 - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company currently rents administrative office space under
  a monthly renewable contract.

Litigation

The Company is not presently involved in any litigation.

NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently issued accounting pronouncements will have no significant
  impact on the Company and its reporting methods.

NOTE 5  GOING CONCERN

Future issuances of the Companys equity or debt securities
  will be required in order for the Company to continue to finance its operations
  and continue as a going concern. The Companys present revenues are insufficient
  to meet operating expenses.

10

---

|TERRACE VENTURES INC.                    
|-----------------------------------------
|(AN EXPLORATION STAGE COMPANY)           
|NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5  GOING CONCERN - CONTINUED

The consolidated financial statements of the Company have been
  prepared assuming that the Company will continue as a going concern, which contemplates,
  among other things, the realization of assets and the satisfaction of liabilities
  in the normal course of business. The Company has incurred cumulative net losses
  of $1,523,621 since its inception and requires capital for its contemplated
  operational and marketing activities to take place. The Company's ability to
  raise additional capital through the future issuances of common stock is unknown.
  The obtainment of additional financing, the successful development of the Company's
  contemplated plan of operations, and its transition, ultimately, to the attainment
  of profitable operations are necessary for the Company to continue operations.
  The ability to successfully resolve these factors raise substantial doubt about
  the Company's ability to continue as a going concern. The consolidated financial
  statements of the Company do not include any adjustments that may result from
  the outcome of these aforementioned uncertainties.

NOTE 6  INVESTMENT IN CLOSELY HELD STOCK

During the year ended April 30, 2006, the Company acquired a
  5.9% interest in Sporg Corporation, a Nevada Corporation located in Vancouver,
  Canada, with the intention of executing an Agreement and Plan of Merger. This
  investment was recorded under the cost method of accounting, as there is no
  available market for these shares. The cost of these 1,428,429 shares, totaling
  $928,480, was reduced for a permanent decline in value to zero, with the resulting
  unrealized loss of $928,480 reported in the year ended April 30, 2006.

To fund this acquisition, on November 23, 2005 the Companys
  director authorized a private placement of 4,000,000 post-split shares of the
  Companys common stock, at a price of $0.25 per share. As of April 30,
  2007, all 4,000,000 shares of the Companys common stock were issued at
  a price of $0.25 per share, for a total of $1,000,000 in accordance with this
  private placement offering.

11

---

|TERRACE VENTURES INC.                    
|-----------------------------------------
|(AN EXPLORATION STAGE COMPANY)           
|NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6  INVESTMENT IN CLOSELY HELD STOCK  CONTINUED

On June 5, 2006, the Company acquired additional shares of Sporg
  Corporation at a cost of $100,500, bringing the Companys total interest
  in Sporg to 6.5% . The cost of these shares was reduced for a permanent decline
  in value to zero, resulting in an unrealized loss of $100,500 reported in the
  year ended April 30, 2007.

NOTE 7  MERGER AGREEMENT/STOCK ISSUANCES

On May 26, 2006, the Company entered into a merger agreement
  with Sporg Corporation. In connection with this agreement, the Company approved
  a private placement of its common stock of up to 2,000,000 shares at a price
  of $0.30 per share to permit it to provide up to $525,000 of interim financing
  to Sporg pending completion of the merger. On June 5, 2006, the Company issued
  335,000 shares of its common stock at a price of $0.30 per share for a total
  of $100,500 in connection with this private placement. The proceeds were paid
  to Sporg Corporation as part of the interim financing agreement. On July 10,
  2006, the merger agreement expired and was not extended by the parties. The
  $100,500 paid as part of the financing agreement has been reflected in the financial
  statements as an unrealized loss, as the recoverability of this investment is
  uncertain.

On May 24, 2006, the Company issued 60,000 shares of its common
  stock at a price of $0.25 per share for a total of $15,000. This issuance represents
  part of a private placement of 4,000,000 shares of common stock approved by
  the Companys director on November 23, 2005.

On June 6, 2006, the Company issued 160,080 shares of its common
  stock at a price of $0.25 per share, for a total of $40,020. This issuance represents
  the balance of a private placement of 4,000,000 shares of common stock approved
  by the Companys director on November 23, 2005.

On August 28, 2006, the Companys board of directors authorized
  an offering on a private placement basis, of up to 5,000,000 units at a price
  of $0.10 per unit. Each unit consists of one common share of the Companys
  stock and one share purchase warrant, with each warrant entitling the holder
  to purchase an additional common share at a price of $0.10 per share, for a
  period ending one year from closing. The proceeds of this offering are to be
  used for mineral exploration and general corporate expenses. On January 23,
  2007, 1,678,200 shares and 1,678,200 warrants were issued under this private
  placement, for a total contribution of $167,820.

12

---

|TERRACE VENTURES INC.                    
|-----------------------------------------
|(AN EXPLORATION STAGE COMPANY)           
|NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7  MERGER AGREEMENT/STOCK ISSUANCES - CONTINUED

On February 28, 2007, the Company entered into a letter of intent
  with Solara Technologies, Inc. (Solara), a private British Columbia
  company engaged in the development of both hardware and software for the self
  service vending industry. Under the terms of the letter of intent the closing
  of the merger was subject to a number of conditions, including delivery of all
  financial statements of Solara required under applicable securities rules, the
  Company providing Solara with a loan of $200,000 (the Solara Loan)
  prior to closing of the merger, the parties entering into a formal agreement
  outlining the terms of the merger no later than March 15, 2007, and each of
  the parties satisfactorily completing their respective due diligence review.

On March 7, 2007, the Company approved a private placement of
  up to 5,000,000 shares of the Companys common stock at a price of $0.10
  per share to fund the Solara Loan and for working capital purposes. This offering
  was made to non-US investors pursuant to Regulation S of the United States Securities
  Act of 1933. As of April 30, 2007, $145,925 representing advances on 1,460,000
  shares was received and is reflected in the financial statements as Common Stock
  Payable. Subsequent to April 30, 2007, an additional $111,400 was received,
  for a total stock liability of 2,570,000 shares, all of which were issued on
  July 12, 2007 for a total contribution of $257,325.

On August 10, 2007 the Companys board of directors determined
  not to proceed with the proposed merger with Solara based on the results of
  its review of the due diligence materials provided by Solara to the Company.
  As a result of this, the Company has requested that Solara repay all monies
  advanced to Solara by the Company. Management believes that advances made in
  accordance with this loan agreement are still recoverable.

As of April 30, 2008, a total of $200,000 was loaned to Solara,
  and is reflected in the financial statements, along with accrued interest receivable
  in the amount of $14,892, as Notes Receivable.

13

---

|TERRACE VENTURES INC.                    
|-----------------------------------------
|(AN EXPLORATION STAGE COMPANY)           
|NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 8  STOCK OPTIONS

On March 21, 2006, the Company entered into a stock option agreement
  with a director of the Company. The options provided for the purchase of 200,000
  shares of Company common stock at $0.27 per share. Compensation cost for stock
  options is measured as the excess, if any, of the estimated fair market value
  of the Companys stock at the date of grant over the amount the recipient
  must pay to acquire the stock. At the date of grant, fair market value approximated
  the strike price. The options expired on March 21, 2008.

NOTE 9  SUBSEQUENT EVENTS

On July 9, 2008, the Company entered into an interim agreement
  with Pyro Pharmaceuticals, Inc., a privately held Delaware corporation engaged
  in the business of developing therapeutics against multi-drug resistant infectious
  microorganisms.

Under the terms of the Interim Agreement, the Company and Pyro
  have agreed to complete a business combination of the two companies such that
  following completion of the business combination the shareholders of Pyro, immediately
  prior to the business combination, will own 60% of the issued and outstanding
  shares of the Company and the shareholders of Company, immediately prior to
  the business combination and after giving effect to a proposed $2.5 million
  private placement referred to below, will hold 40% of the Company. In addition,
  the Company agreed to pay the reasonable legal and accounting costs of Pyro
  in connection with the preparation and closing of a definitive agreement. Upon
  execution of the Interim Agreement, the Company advanced an initial $10,000
  to Pyro for the above noted legal and accounting costs.

The closing of the business combination is subject to a number
  of conditions, including, among other conditions: (i) the Company completing
  a private placement of 25,000,000 units for total proceeds of $2,500,000; (ii)
  delivery of all financial statements of Pyro required under applicable securities
  rules; (iii) each party satisfactorily completing its due diligence review of
  Pyro; and (iv) the approval of the shareholders of Pyro. Under the terms of
  the Interim Agreement, the parties are required to enter into a formal agreement
  no later than October 31, 2008.

14

---

|TERRACE VENTURES INC.                    
|-----------------------------------------
|(AN EXPLORATION STAGE COMPANY)           
|NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 9  SUBSEQUENT EVENTS - CONTINUED

On July 15, 2008, the Companys Board of Directors approved
  a private placement offering of up to 12,500,000 units at a price of $0.10 per
  Unit, with each Unit consisting of one share of the Companys common stock
  and one share purchase warrant. Each whole warrant entitles the holder to purchase
  an additional share of common stock exercisable for a period of 12 months at
  a price of $0.15 per share. The offering will be made in the United States to
  persons who are accredited investors as defined in Regulation D of the Securities
  Act of 1933.

The Companys Board of Directors have also approved a concurrent
  private placement offering of up to 12,500,000 Units to persons who are not
  U.S. Persons as defined in Regulation S of the Securities Act of
  1933. The Units will be identical to those to be offered under the U.S. Private
  Placement as described above.

The proceeds of the U.S. Private Placement and the Foreign Private
  Placement offerings are to be used to meet the closing conditions of the proposed
  business combination between the Company and Pyro.

15

---

SUPPLEMENTAL STATEMENT

********************************1******************************6**

---

|TERRACE VENTURES INC.          
|-------------------------------
|(AN EXPLORATION STAGE COMPANY) 
|STATEMENT OF OPERATING EXPENSES

|                               |   | YEAR ENDED    |  |   | YEAR ENDED    |  |   | INCEPTION to   | 
|------------------------------ | - | ------------- |  | - | ------------- |  | - | -------------- | 
|                               |   | APRIL 30,2008 |  |   | APRIL 30,2007 |  |   | APRIL 30, 2008 | 
|                               |   |               |  |   |               |  |   |                | 
|Operating Expenses:            |   |               |  |   |               |  |   |                | 
|Accounting                     | $ | 30,600        |  | $ | 16,320        |  | $ | 82,660         | 
|Bank Charges                   |   | 120           |  |   | 223           |  |   | 343            | 
|Consulting                     |   | 5,900         |  |   | 108,250       |  |   | 114,150        | 
|Exploration Expense            |   | -0-           |  |   | -0-           |  |   | 24,266         | 
|Legal                          |   | 40,063        |  |   | 33,485        |  |   | 149,686        | 
|Office Administration          |   | 30,000        |  |   | 28,100        |  |   | 84,600         | 
|Office Expenses                |   | 250           |  |   | 912           |  |   | 3,931          | 
|Regulatory Expenses/Fees       |   | 2,651         |  |   | 9,491         |  |   | 22,065         | 
|Rent                           |   | 3,000         |  |   | 3,000         |  |   | 19,950         | 
|Telephone                      |   | 2,117         |  |   | -0-           |  |   | 3,461          | 
|Travel & Entertainment         |   | 240           |  |   | 779           |  |   | 4,020          | 
|                               |   |               |  |   |               |  |   |                | 
|                               |   |               |  |   |               |  |   |                | 
|Total
      Operating Expenses | $ | 114,941       |  | $ | 200,560       |  | $ | 509,132        | 

See Notes to Financial Statements.

17

---

|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- | -------------------------------------------------------------------------------------------

None.

|ITEM 9AT. | CONTROLS AND PROCEDURES.
|--------- | ------------------------

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of April 30, 2008 (the Evaluation Date). This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of the Evaluation Date
as a result of the material weaknesses in internal control over financial
reporting discussed below.

Disclosure controls and procedures are those controls and
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.

Notwithstanding the assessment that our internal control over
financial reporting was not effective and that there were material weaknesses as
identified in this report, we believe that our financial statements contained in
our Annual Report on Form 10-K for the year ended April 30, 2008 fairly present
our financial condition, results of operations and cash flows in all material
respects.

Management's Annual Report on Internal Control Over
Financial Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.

Internal control over financial reporting includes those
policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of its
management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

Management recognizes that there are inherent limitations in
the effectiveness of any system of internal control, and accordingly, even
effective internal control can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect material
misstatements. In addition, effective internal control at a point in time may
become ineffective in future periods because of changes in conditions or due to
deterioration in the degree of compliance with our established policies and
procedures.

A material weakness is a significant deficiency, or combination
of significant deficiencies, that results in there being a more than remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.

Under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, management conducted an
evaluation of the effectiveness of our internal control over financial
reporting, as of the Evaluation Date, based on the framework set forth in
Internal Control-Integrated Framework issued by

14

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the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on its evaluation under this framework, management
concluded that our internal control over financial reporting was not effective
as of the Evaluation Date.

Management assessed the effectiveness of the Companys internal
control over financial reporting as of Evaluation Date and identified the
following material weaknesses:

Insufficient Resources:We have an inadequate number of
personnel with requisite expertise in the key functional areas of finance and
accounting.

Inadequate Segregation of Duties: We have an inadequate
number of personnel to properly implement control procedures.

Insufficient Written Policies & Procedures:We have
insufficient written policies and procedures for accounting and financial
reporting.

Inadequate Financial Statement Closing Process:We have
an inadequate financial statement closing process.

Lack of Audit Committee & Outside Directors on the
Companys Board of Directors:We do not have a functioning audit committee
and outside directors on the Companys Board of Directors, resulting in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures.

Management is committed to improving its internal controls and
will (1) continue to use third party specialists to address shortfalls in
staffing and to assist the Company with accounting and finance responsibilities,
(2) increase the frequency of independent reconciliations of significant
accounts which will mitigate the lack of segregation of duties until there are
sufficient personnel and (3) prepare and implement sufficient written policies
and checklists for financial reporting and closing processes and (4) may
consider appointing outside directors and audit committee members in the
future.

Management, including our Chief Executive Officer and the Chief
Financial Officer, has discussed the material weakness noted above with our
independent registered public accounting firm. Due to the nature of this
material weakness, there is a more than remote likelihood that misstatements
which could be material to the annual or interim financial statements could
occur that would not be prevented or detected.

This Annual Report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management's report in this Annual Report.

Changes in Internal Control over Financial Reporting

As of the Evaluation Date, there were no changes in our
internal control over financial reporting that occurred during the fiscal year
ended April 30, 2008 that have materially affected, or that are reasonably
likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls and
Procedures

Our management, including our Chief Executive Officer and the
Chief Financial Officer, do not expect that the our controls and procedures will
prevent all potential errors or fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.

15

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|ITEM 9B. | OTHER INFORMATION.
|-------- | ------------------

Change in Control

On August 8, 2008, Gordon F. Burley entered into a share
transfer agreement (the Share Transfer Agreement) with Howard Thomson, our
sole executive officer and director. Under the terms of the Share Transfer
Agreement, Mr. Burley sold 15,800,000 shares of our common stock to Mr. Thomson
in consideration of the payment of $15,800 (the Share Transfer).

As a result of the closing of the Share Transfer, Mr. Thomson
now owns approximately 43.0% of our common stock. As a result, there has been a
change in control of the Company.

16

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PART III

|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE.
|-------- | -------------------------------------------------------------

The following table sets forth the name and positions of our
sole executive officer and director as of the date hereof.

Name
    Age
    PositionsHoward Thomson
    62
    President, Secretary, Treasurer,
      CEO, CFO, and Sole Director


Set forth below is a brief description of the background and
business experience of our sole executive officer and director:

Howard Thomsonis our President, Secretary, Treasurer,
Chief Executive Officer, Chief Financial Officer, and the sole member of our
Board of Directors. Mr. Thomson was appointed a director on January 16, 2006 and
has served as our President, Secretary, Treasurer, Chief Executive Officer and
Chief Financial Officer since January 16, 2006. Mr. Thomson was employed from
1981 to 1998 in senior management positions with the Bank of Montreal, including
five years as Branch Manager, four years as Regional Marketing Manager and five
years as Senior Private Banker. Mr. Thomson retired from the Bank of Montreal in
1998. From February 1999 to August 2006, Mr. Thomson served as a director and
officer of Royalite Petroleum Company Inc. (formerly Worldbid Corporation), a
public company quoted on the OTC Bulletin Board, engaged in the acquisition and
exploration of oil and gas properties. Since February 16, 2008, Mr. Thomson has
served as the sole executive officer and sole director of Greenlite Ventures
Inc., a public company quoted on the OTC Bulletin Board, engaged in the
exploration of mineral properties.

Mr. Thomson provides his services on a part-time basis as
required for our business. Mr. Thomson presently commits approximately 6 to 8
hours a week of his business time to our business. On March 21, 2006, we entered
into a management agreement with Howard Thomson. See Employment Contracts
below.

Terms of Office

Our directors are appointed for one year terms to hold office
until the next annual general meeting of the holders of the our common stock, as
provided by Article 330 of Chapter 78 Private Corporations of the Nevada
Revised Statutes, or until removed from office in accordance with our by-laws.
Our officers are appointed by our board of directors and hold office until
removed by our board.

We do not pay to our directors any compensation for each
director serving as a director on our board of directors. We anticipate that
compensation may be paid to officers in the event that we determine to proceed
with additional exploration programs beyond the fourth phase of our exploration
program.

Significant Employees

We have no significant employees other than our sole officer
and director. We conduct our business through agreements with consultants and
arms-length third parties.

Committees of the Board Of Directors

Our audit committee presently consists of our sole director. We
do not have a compensation committee, nominating committee, an executive
committee of our board of directors, stock plan committee or any other
committees. Our sole director performs the functions of a nominating committee
and oversees the process by which individuals may be nominated to our board of
directors. The current size of our board of directors does not facilitate the
establishment of a separate committee. We hope to establish a separate
nominating committee consisting of independent directors, if the number of our
directors is expanded.

17

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Audit Committee Financial Expert

We have no audit committee financial expert serving on our
audit committee. We believe the cost related to retaining a financial expert at
this time is prohibitive. Further, because of our stage of development, we
believe the services of a financial expert are not warranted.

Code Of Ethics

We adopted a Code of Ethics applicable to our Chief Executive
Officer, Chief Financial Officer, Corporate Controller and certain other finance
executives, which is a "code of ethics" as defined by applicable rules of the
SEC. Our Code of Ethics was attached as an exhibit to our Annual Report on Form
10-KSB for the year ended April 30, 2004. If we make any amendments to our Code
of Ethics other than technical, administrative, or other non-substantive
amendments, or grant any waivers, including implicit waivers, from a provision
of our Code of Ethics to our Chief Executive Officer, Chief Financial Officer,
or certain other finance executives, we will disclose the nature of the
amendment or waiver, its effective date and to whom it applies in a Current
Report on Form 8-K filed with the SEC.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT

Section 16(a) of the Exchange Act requires our executive
officers and directors, and persons who beneficially own more than 10% of our
equity securities (collectively, the Reporting Persons), to file reports of
ownership and changes in ownership with the SEC. Reporting Persons are required
by SEC regulations to furnish us with copies of all forms they file pursuant to
Section 16(a). Based on our review of the copies of such forms received by us,
no other reports were required for those persons, and we believe that during the
year ended April 30, 2008, all Reporting Persons complied with all Section 16(a)
filing requirements applicable to them.

|ITEM 11. | EXECUTIVE COMPENSATION.
|-------- | -----------------------

SUMMARY COMPENSATION TABLE

The following table sets forth total compensation paid to or
earned by our named executive officers, as that term is defined in Item
402(m)(2) of Regulation S-K during the fiscal years ended April 30, 2008 and
2007.

SUMMARY COMPENSATION TABLEName & Principal Position
    Year End April 30,
    Salary ($)
    Bonus ($)
    Stock Awards ($)
    Option Awards ($)
    Non-Equity Incentive Plan
      Compen- sation ($)
    Nonqualified Deferred Compen-
      sation Earnings ($)
    All Other Compen- sation
      ($)
    Total ($)Howard Thomson President, Secretary, 
         Treasurer, CEO
      & 
         CFO(1)
    2008 2007
    $30,000 $28,100
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $30,000 $28,100Ian Brodie Former Executive VP(2)
    2008 2007
    $0 $54,125
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $54,125Frank Anderson Former VP - Finance(3)
    2008 2007
    $0 $54,125
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $0
    $0 $54,125


|Notes: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)    | Effective March 21, 2006, Mr. Thomson entered into a
      consulting agreement with Terrace for an annual salary of $2,500 per
      month. See Employment Contracts, below.                                                                                                                                                                                                                                                                                            
|(2)    | On October 5, 2006, we entered into a management
      consulting agreement with Ian Brodie. Pursuant to the terms of the
      agreement, Mr. Brodie was paid consulting fees of $10,000 per month, in
      consideration of which Mr. Brodie agreed to act as our Executive Vice
      President. We ceased making payments to Mr. Brodie under the consulting
      agreement in March, 2007 and Mr. Brodie resigned as Executive Vice
      President on June 4, 2007.

18

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|(3) | On October 5, 2006, we entered into a management
      consulting agreement with Frank Anderson. Pursuant to the terms of the
      agreement, Mr. Anderson was paid consulting fees of $10,000 per month, in
      consideration of which Mr. Anderson agreed to act as our Vice President of
      Finance. We ceased making payments to Mr. Anderson under the consulting
      agreement in March, 2007 and Mr. Anderson resigned as Vice President of
      Finance on June 4, 2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

As at April 30, 2008, we had no outstanding equity awards.

EMPLOYMENT CONTRACTS

Other than as described below, we are not party to any
employment contracts.

On March 21, 2006, we entered into a management consulting
agreement with Mr. Thomson, pursuant to which he agreed to act as our President,
Secretary, Treasurer, Chief Executive Officer and Chief Financial Officer and
provide certain management consulting services in consideration of which we
agreed to pay a fee of $2,500 per month and make a payment of $2,500 for prior
services provided in the month of February, 2006. Pursuant to the terms of the
agreement, Mr. Thomson may also be granted incentive stock options from time to
time as the board of Terrace may determine in their discretion. The agreement
may be terminated by Terrace at any time on three months notice to Mr. Thomson
and Mr. Thomson may terminate on 30 days notice. The management consulting
agreement with Mr. Thomson expired effective March 21, 2008. Although this
agreement has expired, we have agreed to continue to pay Mr. Thomson $2,500 for
his management services.

|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.
|-------- | -----------------------------------------------------------------------------------------------------------

EQUITY COMPENSATION PLANS

On March 21, 2006, our Board of Directors approved the 2006
Stock Incentive Plan (the "2006 Option Plan"). The 2006 Option Plan provides
that the option price be the fair market value of the stock at the date of grant
as determined by our Board of Directors. Options granted become exercisable and
expire as determined by our Board of Directors, see 2006 Stock Incentive Plan,
below.

The following table sets forth certain information concerning
all equity compensation plans previously approved by stockholders and all
previous equity compensation plans not previously approved by stockholders, as
of the most recently completed fiscal year.

Number of Securities to be Issued
      Upon Exercise of Outstanding Options, Warrants and Rights
    Weighted-Average Exercise Price
      of Outstanding Options, Warrants and Rights
    Number of Securities Remaining Available
      for Future Issuance Under Equity Compensation Plans (Excluding
      Securities Reflected in column (a))Plan Category
    (a)
    (b)
    (c)Equity Compensation Plans Approved By Security Holders
    Nil
    N/A
    N/AEquity Compensation Plans Not Approved By Security
      Holders
    Nil
    N/A
    5,534,992


19

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2006 Stock Incentive Plan

On March 21, 2006, we established our 2006 Stock Incentive
Plan. The purpose of the 2006 Option Plan is to enhance the long-term
stockholder value of Terrace by offering opportunities to our directors,
officers, employees and eligible consultants and any entity that directly or
indirectly is in control of or is controlled by Terrace (a Related Company) to
acquire and maintain stock ownership in Terrace in order to give these persons
the opportunity to participate in our growth and success, and to encourage them
to remain in our service or a Related Company.

The 2006 Option Plan is administered by our Board of Directors
or by a committee of two or more non-employee directors appointed by our Board
of Directors (the "Plan Administrator"). Subject to the provisions of the 2006
Option Plan, the Plan Administrator has full and final authority to grant the
awards of stock options and to determine the terms and conditions of the awards
and the number of shares to be issued pursuant thereto. Options granted under
the 2006 Option Plan may be either "incentive stock options," which qualify for
special tax treatment under the Internal Revenue Code of 1986, as amended, (the
"Code"), non-qualified stock options or restricted shares.

All of our employees and members of our Board of Directors are
eligible to be granted options. Individuals who have rendered or are expected to
render advisory or consulting services to us are also eligible to receive
options. The maximum number of shares of our Common Stock with respect to which
options or rights may be granted under the 2006 Option Plan to any participant
is 5,000,000 shares with the number of authorized shares under the 2006 Option
Plan increasing on the first day of each quarter beginning with the fiscal
quarter commencing May 1, 2006 by the lesser of the following amounts: (1) 15%
of the total increase in the number of shares of Common Stock outstanding during
the previous fiscal quarter; or (2) a lesser number of shares of Common Stock as
may be determined by the Board, subject to certain adjustments to prevent
dilution.

The exact terms of the option granted are contained in an
option agreement between us and the person to whom such option is granted.
Eligible employees are not required to pay anything to receive options. The
exercise price for incentive stock options must be no less than 75% of the fair
market value of the Common Stock on the date of grant. The exercise price for
non-qualified stock options is determined by the Plan Administrator in its sole
and complete discretion. An option holder may exercise options from time to
time, subject to vesting. Options will vest immediately upon death or disability
of a participant and upon certain change of control events.

The Plan Administrator may amend the 2006 Option Plan at any
time and in any manner, subject to the following: (1) no recipient of any award
may, without his or her consent, be deprived thereof or of any of his or her
rights thereunder or with respect thereto as a result of such amendment or
termination; and (2) any outstanding incentive stock option that is modified,
extended, renewed, or otherwise altered must be treated in accordance with
Section 424(h) of the Code.

The 2006 Option Plan terminates on March 21, 2016 unless sooner
terminated by action of our Board of Directors. All awards granted under the
2006 Option Plan expire ten years from the date of grant, or such shorter period
as is determined by the Plan Administrator. No option is exercisable by any
person after such expiration. If an award expires, terminates or is canceled,
the shares of our Common Stock not purchased thereunder may again be available
for issuance under the 2006 Option Plan.

We have not yet filed a registration statement under the
Securities Act to register the shares of our Common Stock reserved for issuance
under the 2006 Option Plan.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially as of August 5, 2008
by: (i) each person (including any group) known to us to own more than five
percent (5%) of any class of our voting securities, (ii) each of our directors
and each of our named executive officers (as defined under Item 402(m)(2) of
Regulation S-K), and (iii) officers and directors as a

20

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group. Unless otherwise indicated, the shareholders listed
possess sole voting and investment power with respect to the shares shown.

Title of Class
    Name and Address of
      Beneficial Owner
    Number of Shares of Common
      Stock(1)
    Percentage of Common
      Stock(1)DIRECTORS AND OFFICERSCommon Stock
    Howard Thomson CEO, CFO, President,
      Secretary, Treasurer & Director
    16,000,000 Shares (direct)
    43.5%Common Stock
    All Officers and Directors as a Group (1
      person)
    16,000,000 Shares
    43.5%5%
      SHAREHOLDERSCommon Stock
    Howard Thomson CEO, CFO, President,
      Secretary, Treasurer & Director Brookside, Ballymabin
      Dunmore East, County Waterford Ireland
    16,000,000 Shares (direct)
    43.5%


|(1) | Under Rule 13d-3, a beneficial owner of a security
      includes any person who, directly or indirectly, through any contract,
      arrangement, understanding, relationship, or otherwise has or shares: (i)
      voting power, which includes the power to vote, or to direct the voting of
      shares; and (ii) investment power, which includes the power to dispose or
      direct the disposition of shares. Certain shares may be deemed to be
      beneficially owned by more than one person (if, for example, persons share
      the power to vote or the power to dispose of the shares). In addition,
      shares are deemed to be beneficially owned by a person if the person has
      the right to acquire the shares (for example, upon exercise of an option)
      within 60 days of the date as of which the information is provided. In
      computing the percentage ownership of any person, the amount of shares
      outstanding is deemed to include the amount of shares beneficially owned
      by such person (and only such person) by reason of these acquisition
      rights. As a result, the percentage of outstanding shares of any person as
      shown in this table does not necessarily reflect the persons actual
      ownership or voting power with respect to the number of shares of common
      stock actually outstanding on August 5, 2008. As of August 5, 2008, there
      were 36,753,200 shares of our common stock issued and
  outstanding.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CHANGES IN CONTROL

We are not aware of any arrangement that might result in a
change in control in the future.

|ITEM 13. | CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.
|-------- | --------------------------------------------------------------------------------------

RELATED TRANSACTIONS

None of the following parties has, during our last two fiscal
years, had any material interest, direct or indirect, in any transaction with us
or in any presently proposed transaction that has or will materially affect us,
in which the Company is a participant and the amount involved exceeds the lesser
of $120,000 or 1% of the average of the Companys total assets for the last
three completed fiscal years:

| | (i)   | Any of our directors or officers;                                                                                                                                           
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | Any person proposed as a nominee for election as a
      director;                                                                                                          
| | (iii) | Any person who beneficially owns, directly or indirectly,
      shares carrying more than 10% of the voting rights attached to our
      outstanding shares of common stock;
| | (iv)  | Any of our promoters; and                                                                                                                                                   

21

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| | (v) | Any relative or spouse of any of the foregoing persons
      who has the same house as such person.
| | --- | ---------------------------------------------------------------------------------------------------

DIRECTOR INDEPENDENCE

Our common stock is quoted on the OTC Bulletin Board
inter-dealer quotation system, which does not have director independence
requirements. Under NASDAQ Rule 4200(a)(15), a director is not considered to be
independent if he or she is also an executive officer or employee of the
corporation. Our sole director, Howard Thomson, is also our sole executive
officer. As a result, we do not have any independent directors.

As a result of our limited operating history and minimal
resources, our management believes that it will have difficulty in attracting
independent directors. In addition, we would likely be required to obtain
directors and officers insurance coverage in order to attract and retain
independent directors. Our management believes that the costs associated with
maintaining such insurance is prohibitive at this time.

|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES.
|-------- | ---------------------------------------

During the fiscal years ended April 30, 2008 and 2007, we
retained our independent auditor, Sarna & Company, Certified Public
Accountants, to provide services in the following categories and amounts:

|                   |  | Year Ended April 30, 2008 |  |  | Year Ended April 30, 2007 | 
|------------------ |  | ------------------------- |  |  | ------------------------- | 
|                   |  |                           |  |  |                           | 
|Audit Fees         |  | $12,920                   |  |  | $16,320                   | 
|Audit-Related Fees |  | $NIL                      |  |  | -                         | 
|Tax Fees           |  | $NIL                      |  |  | -                         | 
|All Other Fees     |  | $NIL                      |  |  | -                         | 
|Total              |  | $12,920                   |  |  | $16,320                   | 

Our Audit Committee has considered whether the provision of
non-audit services is compatible with maintaining the independence of Sarna
& Company, and has concluded that it is.

Policy on Pre-Approval by Audit Committee of Services
Performed by Independent Auditors

The policy of our Audit Committee is to pre-approve all audit
and permissible non-audit services to be performed by our independent auditors
during the fiscal year.

No services related to Audit-Related Fees, Tax
Fees or All Other Fees described above that were approved by the
Audit Committee pursuant to the waiver of pre-approval provisions set forth in
the applicable rules of the SEC.

|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
|-------- | ----------------------------------------

|Exhibit |                                                                                                       
|------- | ------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                
|        |                                                                                                       
|3.1     | Articles of Incorporation.(1)                                                                         
|3.2     | Certificate of Change to Authorized Capital effective
      December 19, 2005.(2)                     
|3.3     | Bylaws.(1)                                                                                            
|10.1    | Mineral Claim Purchase Agreement dated August 15, 2001
      between the Company and Don Archibald.(1)
|10.2    | 2006 Stock Incentive Plan.(4)                                                                         
|10.3    | Stock Option Agreement between the Company and Howard
      Thomson dated March 31, 2006.(4)          

22

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|Exhibit |                                                                                                                                                                                                                   
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                                                                            
|10.4    | Management Consulting
        Agreement dated March 21, 2006 between the Company and Howard Thomson.(4)                                                                                                           
|10.5    | Management Consulting Agreement
        with Ian Brodie.(5)                                                                                                                                                       
|10.6    | Management Consulting
        Agreement with Frank Anderson.(5)                                                                                                                                                   
|10.7    | Letter of Intent dated February
        28, 2007 between the Company and Dorn Beattie.(6)                                                                                                                         
|10.8    | Loan Agreement
        dated May 18, 2007 between the Company and Solara Technologies Inc.(7)                                                                                                                     
|10.9    | Interim Agreement dated July
        9, 2008 between the Company and Pyro Pharmaceuticals, Inc.(8)                                                                                                                
|14.1    | Code of Ethics.(3)                                                                                                                                                                                                
|31.1    | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                                                                   
|32.1    | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to pursuant
        to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.

|Notes:
|------
|(1)   
|(2)   
|(3)   
|(4)   
|(5)   
|(6)   
|(7)   
|(8)   

23

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

|      |                 |  |     | TERRACE VENTURES INC.                                             
|----- | --------------- |  | --- | ------------------------------------------------------------------
|      |                 |  |     |                                                                   
|      |                 |  |     |                                                                   
|      |                 |  |     |                                                                   
|Date: | August 13, 2008 |  | By: | /s/
      Howard Thomson                                          
|      |                 |  |     | HOWARD THOMSON                                                    
|      |                 |  |     | Chief Executive Officer, Chief Financial
      Officer ,          
|      |                 |  |     | President, Secretary and Treasurer                                
|      |                 |  |     | (Principal Executive Officer & Principal
      Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

|Date: | August 13, 2008 |  | By: | /s/
      Howard Thomson                                
|----- | --------------- |  | --- | --------------------------------------------------------
|      |                 |  |     | HOWARD THOMSON                                          
|      |                 |  |     | Chief Executive Officer, Chief Financial
      Officer ,
|      |                 |  |     | President, Secretary, Treasurer and                     
|      |                 |  |     | Director                                                

---