Terrace Ventures (TVER) 10-Q 2009 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedOctober 31, 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	(I.R.S. Employer Identification No.)
organization)
Suite 202, 810 Peace Portal Drive,
Blaine, WA	98230
(Address of principal executive offices)	(Zip Code)

(360) 220-5218
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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 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   [   ]	(Do not check if a smaller reporting company)	Smaller reporting company [X]

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date:As of December 18, 2008, the Registrant had 46,753,200 shares of
common stock outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the six months ended October 31, 2008 are not necessarily indicative of the results that can be expected for the year ending April 30, 2009.

As used in this Quarterly Report, the terms “we,” “us,” “our,” “Terrace,” and the “Company” mean Terrace Ventures Inc. unless otherwise indicated. All dollar amounts in this Quarterly Report are expressed in U.S. dollars, unless otherwise indicated.

2

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

ASSETS
		(Unaudited)			(Audited)
		October 31, 2008			April 30, 2008
Current Assets:
Cash	$	1,326		$	100
Trust Account Receivable		19,747			13,775
Notes Receivable		222,958			214,892
Receivable from Shareholders		9,900			-0-
Total Current Assets		253,931			228,767
Other Asset - Investment		-0-			-0-
TOTAL ASSETS	$	253,931		$	228,767
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities:
Accounts Payable and
Accrued Expenses	$	25,968		$	48,393
Due to Shareholders		-0-			95,100
Total Current Liabilities		25,968			143,393
Stockholders' Deficit:
Common Stock, $0.001 par value
400,000,000 shares authorized,
46,753,200 and 36,753,200
shares issued		46,753			36,753
Additional Paid in Capital		1,762,142			1,572,142
Deficit Accumulated During
the Exploration Stage		(1,580,932	)		(1,523,621	)
Total Stockholders' Equity/(Deficit)		227,963			85,274
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY/(DEFICIT)	$	253,931		$	228,767

See Notes to Financial Statements

F-2

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

		THREE MONTHS ENDED						SIX MONTHS ENDED						INCEPTION to
		OCTOBER 31,						OCTOBER 31,						OCTOBER 31,
		2008			2007			2008			2007			2008
Revenues	$	-0-		$	-0-		$	-0-		$	-0-		$	-0-
Operating Expenses		(29,856	)		(29,957	)		(65,377	)		(77,267	)		(574,509	)
Loss Before Other
Income and Expenses		(29,856	)		(29,957	)		(65,377	)		(77,267	)		(574,509	)
Other Income:
Interest Income		4,033			4,032			8,066			6,914			22,557
Other Expense:
Unrealized Loss
On Investment		-0-			-0-			-0-			-0-			(1,028,980	)
Loss Before Provision
for Income Taxes		(25,823	)		(25,925	)		(57,311	)		(70,353	)		(1,580,932	)
Provision for
Income Taxes		-0-			-0-			-0-			-0-			-0-
Net Loss		(25,823	)		(25,925	)		(57,311	)		(70,353	)		(1,580,932	)
Accumulated Deficit,
Beginning of Period		(1,555,109	)		(1,467,599	)		(1,523,621	)		(1,423,171	)		-0-
Accumulated Deficit,
End of Period	$	(1,580,932	)	$	(1,493,524	)	$	(1,580,932	)	$	(1,493,524	)	$	(1,580,932	)
Net Loss per Share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.05	)
Weighted Average
Shares Outstanding		41,753,200			36,753,200			39,253,200			36,110,700			28,930,610

See Notes to Financial Statements

F-3

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

							Deficit
							Accumulated			Total
	Common Stock				Additional		During the			Stockholders'
			Dollar		Paid in		Exploration			Equity
	Shares		Amount		Capital		Stage			(Deficit)
Inception
February 20, 2001	----	$	----	$	----	$	----		$	-----
Common Stock Issued
$0.001 per share
April 9, 2001	4,000,000		4,000		----		----			4,000
Net Loss,
April 30, 2001	----		----		----		(1,410	)		(1,410	)
Balances
April 30, 2001	4,000,000		4,000		----		(1,410	)		2,590
Common Stock Issued
$0.01 per share
August 15, 2001	2,500,000		2,500		22,500		----			25,000
Net Loss,
April 30, 2002	----		----		----		(19,196	)		(19,196	)
Balances
April 30, 2002	6,500,000		6,500		22,500		(20,606	)		8,394
Common Stock Issued
$0.10 per share
September 30, 2002	142,500		143		14,107		----			14,250
Net Loss,
April 30, 2003	----		----		----		(17,632	)		(17,632	)
Balances
April 30, 2003	6,642,500		6,643		36,607		(38,238	)		5,012
Common Stock Issued
$0.10 per share
November 6, 2003	400,000		400		39,600		----			40,000
Net Loss,
April 30, 2004	----		----		----		(58,708	)		(58,708	)
Balances
April 30, 2004	7,042,500		7,043		76,207		(96,946	)		(13,696	)
Net Loss,
April 30, 2005	----		----		----		(37,532	)		(37,532	)
Balances
April 30, 2005	7,042,500		7,043		76,207		(134,478	)		(51,228	)

See Notes to Financial Statements

F-4

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

					Deficit
					Accumulated		Total
	Common Stock		Additional		During the		Stockholders'
		Dollar	Paid in		Exploration		Equity
	Shares	Amount	Capital		Stage		(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

F-5

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

							Deficit
							Accumulated			Total
	Common Stock				Additional		During the			Stockholders'
			Dollar		Paid in		Exploration			Equity
	Shares		Amount		Capital		Stage			(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
Common Stock Issued
$0.10 per share
October 10, 2008	10,000,000		10,000		190,000		----			200,000
Net Loss, Period Ended
October 31, 2008	----		----		----		(57,311	)		(57,311	)
Balances
October 31, 2008	44,753,200	$	46,753	$	1,762,142	$	(1,580,932	)	$	227,963

See Notes to Financial Statements.

F-6

TERRACE VENTURES INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF CASH FLOWS
(Unaudited)

		SIX MONTHS ENDED						INCEPTION to
		OCTOBER 31,						OCTOBER 31,
		2008			2007			2008
Cash Flows from
Operating Activities:
Net Loss	$	(57,311	)	$	(70,353	)	$	(1,580,932	)
Adjustments to Reconcile Net
Income to Net Cash Provided/(Used)
by Operating Activities:
Unrealized Loss on Investment		-0-			-0-			1,028,980
(Increase)/Decrease in:
Trust Account Receivable		(5,972	)		2,288			(19,747	)
Notes Receivable		(8,066	)		(186,914	)		(222,958	)
Prepaid Expenses		-0-			-0-			-0-
Increase(Decrease) in:
Accounts Payable		(22,425	)		23,198			25,968
Net Cash Provided/(Used)
by Operating Activities		(93,774	)		(231,781	)		(768,689	)
Cash Flows from
Investing Activities:
Stock Investment		-0-			-0-			(1,028,980	)
Net Cash Used
by Investing Activities		-0-			-0-			(1,028,980	)
Cash Flows from
Financing Activities:
Loans from Shareholders		41,000			-0-			157,395
Payments on Loans		(146,000	)		(11,295	)		(167,295	)
Proceeds Related to
Issuance of Common Stock		200,000			151,000			1,808,895
Net Cash Provided by
Financing Activities		95,000			139,705			1,798,995
Net Increase (Decrease) in Cash	$	1,226		$	(92,076	)	$	1,326
Cash at Beginning of Period		100			92,275			-0-
Cash at End of Period	$	1,326		$	199		$	1,326

See Notes to Financial Statements

F-7

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

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.

F-8

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

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.

F-9

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

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 October 31, 2008 and October 31, 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.

F-10

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

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 $1,580,932 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 – MERGER AGREEMENT/STOCK ISSUANCES

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.

F-11

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

NOTE 6 – MERGER AGREEMENT/STOCK ISSUANCES - CONTINUED

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 October 31, 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 $22,958, as Notes Receivable.

On February 13, 2008, the Company’s Board of Directors approved an offering to be completed pursuant to the provisions of Regulation S of the Securities Act of up to 10,000,000 Units, with each Unit consisting of one share of common stock of the Company and one share purchase warrant. Each warrant will be exercisable at a price of $0.03 per share for a period up to two years from closing. On September 22, 2008, the Company completed this private placement of 10,000,000 Units, for total proceeds of $200,000.

On July 9, 2008, the Company entered into an 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.

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.

F-12

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

NOTE 6 – MERGER AGREEMENT/STOCK ISSUANCES – CONTINUED

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 December 31, 2008.

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.

NOTE 7 – 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.

F-13

SUPPLEMENTAL STATEMENT

TERRACE VENTURES INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATING EXPENSES
(Unaudited)

		THREE MONTHS ENDED				SIX MONTHS ENDED
		OCTOBER 31,				OCTOBER 31,				INCEPTION to
		2008		2007		2008		2007		OCTOBER 31, 2008
Operating Expenses:
Accounting & Audit	$	3,960	$	6,920	$	15,960	$	22,800	$	98,620
Bank Charges		10		30		56		47		399
Consulting		-0-		-0-		-0-		5,900		114,150
Exploration and Development		-0-		-0-		-0-		-0-		24,266
Legal		15,095		13,040		29,380		28,736		179,066
Office Administration		7,500		7,500		15,000		15,000		99,600
Office Expenses		39		-0-		247		250		4,178
Regulatory Expenses/Fees		1,834		836		1,953		1,219		24,018
Rent		750		750		1,500		1,500		21,450
Telephone		593		881		593		1,815		4,054
Travel & Entertainment		75		-0-		688		-0-		4,708
Total Operating Expenses	$	29,856	$	29,957	$	65,377	$	77,267	$	574,509

See Notes to Financial Statements

F-15

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report constitute "forward-looking statements.” These statements, identified by words such as “plan,” "anticipate," "believe," "estimate," "should," "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under the caption "Part II – Item 1A. Risk Factors" and elsewhere in this Quarterly Report. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents, particularly our Annual Reports, Quarterly Reports and Current Reports, that we file from time to time with the United States Securities and Exchange Commission (the “SEC”).

OVERVIEW

We were incorporated on February 20, 2001 under the laws of the State of Nevada. We previously 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, Similkameen 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”), the details of which are set out under the heading “Pyro Pharmaceuticals Interim Agreement.” Our ability to complete the business combination with Pyro is contingent upon our raising $2,500,000 in equity financing. However, due to current economic conditions, it is unlikely that we will be able to raise such financing by December 31, 2008. As a result, it is unlikely that we will be able to complete the business combination with Pyro.

RECENT CORPORATE DEVELOPMENTS

The following corporate developments occurred since our first fiscal quarter ended July 31, 2008:

1.

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 Share Transfer, Mr. Thomson now owns approximately 43.0% of our common stock, resulting in a change in control of the Company.

2.

On September 22, 2008, we completed a private placement of 10,000,000 units at a price of $0.02 per unit for total proceeds of $200,000. Each unit is comprised of one share of our common stock and one share purchase warrant. Each share purchase warrant will entitle the holder to purchase one additional share of our common stock at a price of $0.03 per share for a period ending September 21, 2010. This private placement was completed pursuant to the provisions of Regulation S promulgated under the Securities Act of 1933 (the “Securities Act”). We did not engage in a distribution of this offering in the United States. The investors represented that they were not US persons as defined in Regulation S, and have provided

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	representations indicating that they were acquiring our securities for investment purposes only and not with a view towards distribution.
3.	On September 26, 2008, we and Pyro, agreed to amend the terms of the interim agreement dated July 9, 2008 (the “Interim Agreement”) between the Company and Pyro. Under the terms of the amendment agreement dated September 26, 2008 between us and Pyro, the Interim Agreement was amended as follows:
	(a)	The closing date was extended from October 31, 2008 to December 31, 2008; and
	(b)	In consideration of the extension, Pyro is entitled to enter into negotiations or seek alternative sources of funding. If Pyro wishes to pursue an alternative source of funding, Pyro may give us ten business days notice to close the purchase of Pyro. Pyro will be entitled to accept the alternative source of funding in the event that we are unable to close the purchase of Pyro within the 10-day notice period.

PYRO PHARMACEUTICALS INTERIM AGREEMENT

On July 9, 2008, we entered into an interim agreement, as amended on September 26, 2008, (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 ten 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 above, 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) 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 December 31, 2008. Our ability to complete the business combination with Pyro is contingent upon our raising $2,500,000 in equity financing. However, due to current economic conditions, it is unlikely that we will be able to raise such financing by December 31, 2008. As a result, it is unlikely that we will be able to complete the business combination with Pyro.

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

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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.

PLAN OF OPERATION

Our plan of operation is to complete the proposed business combination. Under the terms of the Interim Agreement, we will be required to enter into a formal agreement with Pyro by December 31, 2008. The closing of the business combination with Pyro is subject to the condition that we raise $2,500,000 in equity financing. However, due to current economic conditions, it is unlikely that we will be able to raise such financing by December 31, 2008. As a result, it is unlikely that we will be able to complete the business combination with Pyro.

RESULTS OF OPERATIONS

Three Months and Six Months Summary

		Three Months Ended					Percentage		Six Months Ended					Percentage
		October 31,			October 31,		Increase /		October 31,			October 31,		Increase /
		2008			2007		(Decrease)		2008			2007		(Decrease)
Revenue	$	-		$	-		n/a	$	-		$	-		n/a
Expenses		(29,856	)		(29,957	)	(0.3)%		(65,377	)		(77,267	)	(15.4)%
Other		4,033			4,032		0.0%		8,066			6,914		16.7%
Income
Net Loss	$	(25,823	)	$	(25,925	)	(0.4)%	$	(57,311	)	$	(70,353	)	(18.5)%

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 to complete the proposed business combination with Pyro.

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Expenses

The major components of our expenses for the three and six months ended October 31, 2008 and 2007 are outlined in the table below:

		Three Months Ended			Percentage		Six Months Ended			Percentage
		October 31,		October 31,	Increase /		October 31,		October 31,	Increase /
		2008		2007	(Decrease)		2008		2007	(Decrease)
Accounting	$	3,960	$	6,920	(42.8)%	$	15,960	$	22,800	(30.0)%
Bank Charges		10		30	(66.7)%		56		47	19.1%
Consulting		-		-	n/a		-		5,900	(100)%
Legal		15,095		13,040	15.8%		29,380		28,736	(2.2)%
Office		7,500		7,500	0.0%		15,000		15,000	0.0%
Administration
Office Expenses		39		-	n/a		247		250	(1.2)%
Regulatory		1,834		836	119.4%		1,953		1,219	60.2%
Expenses/Fees
Rent		750		750	0.0%		1,500		1,500	0.0%
Telephone		593		881	(32.7)%		593		1,815	(67.3)%
Travel &		75		-	n/a		688		-	n/a
Entertainment
Total Operating Expenses	$	29,856	$	29,957	(0.3)%	$	65,377	$	77,267	(15.4)%

.

During the three months ended October 31, 2008, our operating expenses primarily consisted of accounting expenses, legal expenses and office administration 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.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital
							Percentage
		At October 31, 2008			At April 30, 2008		Increase / (Decrease)
Current Assets	$	253,931		$	228,767		11.0%
Current Liabilities		(25,968	)		(143,493	)	(81.9)%
Working Capital Surplus (Deficit)	$	227,963		$	85,274		167.3%

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Cash Flows
		Six Months Ended
		October 31, 2008			October 31, 2007
Net Cash Used by Operating Activities	$	(93,774	)	$	(231,781	)
Net Cash From Investing Activities		-			-
Net Cash Provided By Financing Activities		95,000			139,705
Net Increase (Decrease) in Cash During Period	$	1,226		$	(92,076	)

We had cash on hand of $1,326 and a working capital surplus of $227,963 as of October 31, 2008 compared to a working capital surplus of $85,274 as of April 30, 2008. During the period ended October 31, 2008, we completed the sale of 10,000,000 units at a price of $0.02 per unit for gross proceeds of $200,000.

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: (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.

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, on July 15, 2008, our Board of Directors approved a private placement offering of up to 12,500,000 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 U.S. Private Placement offering will be made in the United States to persons who are accredited investors as defined in Regulation D of 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. There is no assurance that the U.S. Private Placement or the Foreign Private Placement offerings or any part of them will be completed

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.

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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 interim financial statements included in this Quarterly Report.

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4T.         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 October 31, 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

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statements contained in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 fairly present our financial condition, results of operations and cash flows in all material respects.

Material Weaknesses

Management assessed the effectiveness of our 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.

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 our Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.

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 quarter ended October 31, 2008 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.           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.

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 October 31, 2008, we had cash in the amount of $1,326. 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. However, due to current economic conditions, it is unlikely that we will be able to raise such financing by December 31, 2008. As a result, it is unlikely that we will be able to complete the business combination 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 $1,580,932 for the period from February 20, 2001 (inception) to October 31, 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 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

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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.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On September 22, 2008, we completed a private placement of 10,000,000 units at a price of $0.02 per unit for total proceeds of $200,000. Each unit is comprised of one share of our common stock and one share purchase warrant. Each share purchase warrant will entitle the holder to purchase one additional share of our common stock at a price of $0.03 per share for a period ending September 21, 2010. This private placement was completed pursuant to the provisions of Regulation S promulgated under the Securities Act. We did not engage in a distribution of this offering in the United States. The investors represented that they were not US persons as defined in Regulation S, and have provided representations indicating that they were acquiring our securities for investment purposes only and not with a view towards distribution.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

None.

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

No matters were submitted to our security holders during our fiscal quarter ended October 31, 2008.

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ITEM 5.           OTHER INFORMATION.

None.

ITEM 6.           EXHIBITS.

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)
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)
10.10	Amendment Agreement dated September 26, 2008 to the Interim Agreement dated July 9, 2008 between the Company and Pyro Pharmaceuticals, Inc.(9)
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)	Filed with the SEC as an exhibit to our Registration Statement on Form 10-SB originally filed on February 2, 2004.
(2)	Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on December 27, 2005.
(3)	Filed with the SEC as an exhibit to our Annual Report on Form 10-KSB filed on September 8, 2004.
(4)	Filed with the SEC as an exhibit to our Quarterly Report on Form 10-QSB filed on March 22, 2006.
(5)	Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on October 11, 2006.
(6)	Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on March 7, 2007.
(7)	Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on May 24, 2007.
(8)	Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on July 15, 2008.
(9)	Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on October 2, 2008.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			TERRACE VENTURES INC.
Date:	December 19, 2008	By:	/s/ Howard Thomson
			HOWARD THOMSON
			Chief Executive Officer, Chief Financial Officer,
			President, Secretary and Treasurer
			(Principal Executive Officer & Principal Accounting
			Officer)