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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

(Mark One)

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

For the fiscal year ended April 30, 2012

 

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

For the transition period from _____ to _____

 

COMMISSION FILE NUMBER 000-50569

 

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 201, 810 Peace Portal Drive,    
Blaine, WA   98230
(Address of principal executive offices)   (Zip Code)
     
Registrant's telephone number, including area code   (360) 220-5218
     
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (s. 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  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. ¨

 

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 Act). Yes ¨ No x

 

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: $3,882,830 based on a price of $0.125, being the price at which our common equity was last sold as of the last business day of our second fiscal quarter.

 

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 13, 2012, the Registrant had 33,160,660 shares of common stock outstanding.

 

 
 

  

TERRACE VENTURES INC.

 

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED APRIL 30, 2012

 

TABLE OF CONTENTS

 

    PAGE
     
PART I   3
     
ITEM 1. BUSINESS 3
ITEM 1A. RISK FACTORS 11
ITEM 2. PROPERTIES 14
ITEM 3. LEGAL PROCEEDINGS 14
     
PART II   15
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 38
ITEM 9AT. CONTROLS AND PROCEDURES 38
ITEM 9B. OTHER INFORMATION 39
     
PART III   40
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 40
ITEM 11. EXECUTIVE COMPENSATION 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 44
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 46
     
PART IV   46
     
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 46
     
SIGNATURES   48

 

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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.

 

ITEM 1.BUSINESS.

 

Overview

 

We were incorporated on February 20, 2001 under the laws of the State of Nevada.

 

Our business plan is to assemble a portfolio of mineral properties with gold potential and to engage in the exploration and development of these properties. We currently have an earn-in agreement to acquire 75% interest in Pengram Corporation's agreement with Scoonover Exploration LLC and JR Exploration LLC (the “Underlying Agreement”) to acquire the Golden Snow Property (as described below).

 

Golden Snow Project

 

Earn-in Agreement

 

On April 26, 2011, we entered into an agreement with Pengram Corporation ("Pengram") as amended on June 29, 2011 and July 31, 2012 (the "Earn-In Agreement") whereby we will earn up to a 75% interest in Pengram's agreement with Scoonover Exploration LLC and JR Exploration LLC (the “Underlying Agreement”) to acquire the Golden Snow Property by issuing a promissory note to Pengram of $25,000, paying to Pengram up to $150,000 and expending up to $1,750,000 of exploration work on the Golden Snow Property. Under the terms of the Earn-In Agreement, we will exercise our interest in the Underlying Agreement as follows:

 

(i)The first 25% interest in the Underlying Agreement upon us:

 

a.issuing Pengram a $25,000 promissory note, bearing interest at a rate of 10% per annum, due on September 27, 2011 (which was issued); and

 

b.completing cumulative exploration expenditures on the Golden Snow Property totalling $250,000 by December 31, 2012.

 

(ii)An additional 25% interest in the Underlying Agreement upon us:

 

a.paying Pengram $50,000 on or before May 31, 2013; and

 

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b.completing cumulative exploration expenditures on the Golden Snow Property totalling $500,000 by December 31, 2013;

 

(iii)An additional 25% interest in the Underlying Agreement upon us:

 

a.paying Pengram $100,000 on or before May 31, 2014; and

 

b.completing cumulative exploration expenditures on the Golden Snow Property totalling $1,000,000 by December 31, 2014.

 

We are also obligated to pay all advance royalties, county and BLM claim fees and Nevada state taxes during the currency of the Earn-In Agreement. There is no assurance that we be able to perform our obligations under the Earn-In Agreement.

 

On December 31, 2011, Pengram, in consideration of $5,000 (which has been paid), agreed to accept, in substitution for the $25,000 promissory note set out above, a series of non-interest bearing promissory notes totaling $30,000 payable on the following dates:

 

Payment Due Date  Amount 
     
March 31, 2012  $5,000.00 
June 30, 2012   5,000.00 
September 30, 2012   10,000.00 
December 31, 2012   10,000.00 
Total  $30,000.00 

 

Description of Property

 

The Golden Snow Project consists of 111 unpatented mining claims covering approximately 3.5 square miles. The titles to the property will expire on September 1, 2012 if we do not renew the claims.

 

Location, Access, and Physiography

 

The Golden Snow Project is contiguous to the southern end of Staccato Gold’s Lookout Mountain property, which has identified several mineralized areas. The Golden Snow Project is located in the Battle Mountain-Eureka Trend, approximately eight miles south of the East Archimedes gold deposit where Barrick Gold Corporation is currently mining a Carlin- type sediment hosted gold deposit. The Eureka district is at the south end of a northerly trending series of intrusives.

 

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Figure 2

Location of Golden Snow Project

 

 

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Property History

 

Exploration in the Eureka District commenced in the 1860s. The Company does not have any records of exploration work conducted on the Golden Snow Project prior to 2006.

 

In 2006, Minterra Resources acquired the Golden Snow Project. After its acquisition, Minterra Resources commenced a gravity survey and a 95 line kilometer ground magnetic survey across the Golden Snow Project. The gravity data identified two up-thrown (horst) blocks and the magnetic data indicate a prominent circular high that is approximately 2,782 feet in diameter and has a similar signature to Eocene age intrusive and extrusive rocks throughout the Eureka District. Processing of the gravity data by Wright Geophysics identified a number of geophysical linears and Wright also interpreted the magnetic data which shows a prominent circular high that is approximately 2,800 feet in diameter; this has a signature similar to Eocene age intrusive and extrusive rocks associated with mineralization throughout the Eureka District.

 

In 2007, Minterra Resources completed a 932 sample soil geochemistry program designed to further refine and evaluate the prominent horst-bounding faults. Analysis of the data produced numerous large, coherent, multipoint clusters of anomalous gold, arsenic, antimony, mercury, lead, zinc and barite. Anomalous gold, silver and trace element values from the 2006 soil geochemical program coincided with fault zones outlined by the geophysical-gravity data.

 

Geology

 

Many of the sediment-hosted gold deposits in Nevada appear to have developed at or near platform margin/basin margin sites where mineralization is found to be disseminated along the “low-stands” or karsted zone separated different stratigraphic units. The Golden Snow Project is positioned along this major platform margin that extends northwards to Cortez Hills, Pipeline and beyond. Future study of the location of these platform margins may result in the discovery of additional world-class gold deposits in Nevada.

 

Gold mineralization has come up along the host margin where Devonian age rocks are in contract with the Cambrian age rocks. The mineralization is not only found within the feeder fault, but it is also disseminated out along these “low-stand zones” which are commonly the break between different rock formations. Another example of the same host margin mineralization can be seen in a cross section of the mineralization at Lone Tree. Mineralization has also been discovered along the Wayne Zone Fault, which forms the western edge of the horst, and spreads out along favorable host rocks. Both styles of mineralization appear to potentially exist at the Golden Snow Project.

 

The geology of the Golden Snow Project has been interpreted to consist of Devonian age rocks striking north/south and trending southward under pediment cover. It has also been interpreted that the Cambrian section is possibly in fault contact with the Devonian section. Both rock types are favorable host rocks for Carlin-style mineralization throughout Nevada, especially in the Eureka Area.

 

The following sets out the geological units exposed on the Golden Snow Project:

 

Bay State Dolomite – The Bay State Dolomite is a massive dark grey to black to purplish dolomite which is reported to be 600-850 feet thick in the Eureka Area. The lower portion of this unit is made up of irregular bedded light-grey, dolomite sandstone. The upper portion is in gradational contact with the overlying Devils Gate Limestone.

 

Sentinel Mountain Dolomite – The Sentinel Mountain Dolomite gradationally overlies Oxyoke Canyon. It is composed of alternating, thick-bedded, coarse-grained, light-gray dolomite and motted, finely laminated, chocolate brown dolomites with a strong petroliferous odor when broken. It ranges in thickness from 410 feet to 600 feet.

 

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Oxyoke Canyon – The Oxyoke is predominantly light gray to brown weathering, fine to medium-grained, quartz sandstone with a dolomatic matrix. It ranges in thickness of less than 20 feet up to 400 feet thick throughout the Eureka Area.

 

Sadler Ranch – The Sadler Ranch locally has been divided up into an upper and lower dolomite and a middle crinoidal dolomite. The lower dolomite is a medium to thick-bedded, very finely grained, light gray to yellowish-gray dolomite. The middle crinoidal dolomite is a light to medium-gray, poorly bedded, laminated to cross-laminated, crinoidal packstone with thin lenses of mudstone and packstone. The upper dolomite is a medium to thick-bedded, very fine-grained, light-gray laminated dolomite. The thickness of this unit varies from 90 feet to 450 feet.

 

McColley Canyon/Bartine Member – The McColley Canyon is dominantly a medium to thick bedded gray limestone with interbedded light brown-gray fossiliferous and organic-rich dolomite. The Bartine is composed of thin to medium-bedded, medium-gray, fine grained limestone and yellowish argillaceous limestone with abundant brachiopods. Some people combine these units whereas others map them as separate units. These rocks vary from 330 feet to 650 feet thick.

 

Beacon Peak Dolomite – This unit is a massive, light gray to brown, finely laminated dolomite, with local thin beds of finely laminated dolomite and thin lenses of well rounded, quartz-rich sandstones with a dolomitic matrix. The average thickness is 328 feet.

 

Mineralization

 

Two major target zones exist on the Golden Snow Project. These primary targets would be eastern and western boundary of the horst block. Both the eastern and western edge extends for over 15,000 feet as shown by gravity geophysics. Only drill hole ELP-8 drilled close enough to the eastern edge of the gravity high to test for possible mineralization. The remaining holes were either far to east and out into the abyss, or too far west of the eastern horst fault and on top of the gravity high.

 

A magnetic survey run over the eastern portion of the claim block shows a magnetic high and has been interpreted to be an intrusive as opposed to volcanics. This area is also a potential favorable target area for gold and base-metal mineralization.

 

Numerous anomalous zones with large, coherent clusters of anomalous gold, arsenic, antimony, mercury, lead and barite have been identified on the Golden Snow Project. The majority of the anomalies appear to be located in the northeastern and eastern and eastern portion of the claim block because of surface or near surface bedrock. These values are probably related to mineralization associated with the buried intrusive. Anomalous arsenic, antimony and mercury are present in the area of the Ratto Fault. Since these minerals are usually formed distal to gold in Carlin-style systems the geochemistry may indicate gold mineralization at depth.

 

Soil and Rock Geochemistry

 

Soil and Rock Geochemistry
Previous lessors completed a widespread soil geochemical sampling program on the Golden Snow Project (Minterra Resource Corp./Britannia Gold). The 2006 program was designed as a follow-up to their gravity and ground magnetic geophysical programs.

 

932 soils were collected on the west half of the property on lines spaced 800 feet apart with samples taken every 200 feet along each line. The lines were located to bracket the gravity linears; interpreted by Wright as bounding features of north-south trending “horst” and “graben” blocks. The linears are also interpreted as southward continuation(s) of the Ratto Ridge Fault zone which localized the mineralization drilled by Timberline Resources in the Lookout Pit and South Adit areas.

 

Reconnaissance geology and rock chip sampling during late 2011 and early 2012 identified “collapse breccia” features within the central portion of the claim block where it wraps around the Timberline claims. These contact and fault zones are located in areas not previously sampled and project under colluvial cover into areas targeted for exploration by the geophysical and 2006 geochemistry.

 

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Seventy-two follow up soils were collected using the same layout as the 2006 samples to fill in the un-sampled prospective gap where the collapse brecciation was note. The samples were analyzed using the same protocol as the 2006 sample program.

 

Key data was contoured and incorporated with the previous property- wide dataset. The most significant results are shown by arsenic and gold. These are significant because the NE trends are parallel to both the favorable Bay State Dolomite (Dbp)/Oxyoke (Doc) contact along which distinct collapse zones were mapped.

 

Additionally, the NE trending faults appear to control these collapse zones as well as disrupt and offset the favorable host rocks.

 

There is a narrow zone of detectable gold which also parallels that trend and is similar to other gold- bearing contour zones in the north.

 

Barium shows a distinct anomalous zone in the new data that lies along the east side of the arsenic values and suggests zoning. This is what would be expected due to the barite associated with the gold deposits at Archimedes (Barrick-Ruby Hill) and the Lookout Pit (Timberline).

 

Silver and antimony do not appear to be significant relative to the collapse breccia features. However, recontouring the silver and antimony did indicate some distinct zoning peripheral to the magnetic high which Wright interpreted as a shallow intrusive on the east side of the project.

 

Gold in rock chip sampling also is correlative with the magnetically indicated intrusive margin. Although not spectacular in their magnitude, the data are very encouraging because all of the samples had detectable gold with a high value of 0.052 ppm Au. Most of the samples were collected from areas with a preponderance of jasperoid as subcrop or large boulders. These data are interpreted as representative of nearby bedrock rather than transported boulders or colluvium.

 

Current Exploration Activities

 

Mapping and reconnaissance work was conducted in late 2011 and early 2012 and identified collapse breccia features which have been recently identified in association with major Carlin-type sediment hosted gold deposits at Cortez Hills. Previous work by Timberline Resources mineralization was within collapse breccia zones. Gold is also associated with collapse breccia at the:

 

·Meikle Mine
·Rain Mine
·Railroad district in the southern Carlin Trend

 

An additional 72 soil samples were collected to help delineate the possible extension of the collapse breccia zones on the Golden Snow Project. Fourteen rock samples were collected to help characterize the area around the magnetically indicated intrusive.

 

Our consulting geologist recommends three reverse circulation drill holes for a total of 3,000 feet are proposed based on the compilation and evaluation of the data. Two of these holes will test likely locations for gold-bearing collapse breccias. The third hole will test adjacent to the probable intrusive indicated by the ground magnetic data.

 

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The proposed drill program would cost approximately $175,000, summarized as follows:

 

Exploration Program Costs  Estimate   Rate ($)   Cost ($) 
             
Geology-Senior   10   $650.00   $6,500 
Geology-Junior   10   $350.00   $4,000 
Travel and Related Expenses (includes mileage)            $2,700 
Subtotal            $13,200 
                
Drilling            $115,472 
Drill Sample Assaying            $27,030 
Drill Supervision (Senior)   2   $650   $1,300 
Drill Geologist   13   $400   $5,200 
Review of Results            $0 
Travel and Related Expenses (includes mileage)            $2,700 
Drill Site Preparation and Reclamation            $10,200 
Subtotal            $161,902 
                
Total            $175,102 

 

Compliance with Government Regulations

 

Exploration and development activities are all subject to stringent national, state and local regulations. All permits for exploration and testing must be obtained through the local Bureau of Land Management (“BLM”) offices of the Department of Interior in the State of Nevada. The granting of permits requires detailed applications and filing of a bond to cover the reclamation of areas of exploration. From time to time, an archaeological clearance may need to be obtained prior to proceeding with any exploration programs.We plan to secure all necessary permits for any future exploration.

 

We have to apply for and receive permits from the BLM to conduct drilling activities on BLM administered lands. Mining operations are regulated by the Mine and Safety Health Administration (“MSHA”). MSHA inspectors periodically visit projects to monitor health and safety for the workers, and to inspect equipment and installations for code requirements. Workers must have completed MSHA safety training and must take refresher courses annually when working on a project. A safety officer for the project should also on site.

Other regulatory requirements monitor the following:

 

(i)Explosives and explosives handling.

 

(ii)Use and occupancy of site structures associated with mining.

 

(iii)Hazardous materials and waste disposal.

 

(iv)State Historic site preservation.

 

(v)Archaeological and paleontological finds associated with mining.

 

We believe that we are in compliance with all laws and plan to continue to comply with the laws in the future. We believe that compliance with the laws will not adversely affect its business operations. There is however no assurance that any change in government regulation in the future will not adversely affect our business operations.

 

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Each year we must pay a maintenance fee of $140 per claim to the Nevada State Office of the Bureau of Land Management and on September 1 of each year we must file an affidavit and Notice of Intent to Hold the claims in Mineral County. With respect to the Golden Snow Project, we have paid the required maintenance fees and filed the affidavits required in order to extend the claims to August 31, 2012.

 

Compliance with Environmental Regulation

 

We will have to sustain the cost of reclamation and environmental remediation for all exploration work undertaken. Both reclamation and environmental remediation refer to putting disturbed ground back as close to its original state as possible. Other potential pollution or damage must be cleaned up and renewed along standard guidelines outlined in the usual permits. Reclamation is the process of bringing the land back to its natural state after completion of exploration activities. Environmental remediation refers to the physical activity of taking steps to remediate, or remedy, any environmental damage caused. The amount of these costs is not known at this time as we do not know the extent of the exploration program that will be undertaken beyond completion of the recommended work program. Because there is presently no information on the size, tenor, or quality of any resource or reserve at this time, it is impossible to assess the impact of any capital expenditures on earnings, our competitive position or us in the event that a potentially economic deposit is discovered.

 

Prior to undertaking mineral exploration activities, we must make application for a permit, if we anticipate disturbing land. A permit is issued after review of a complete and satisfactory application. We do not anticipate any difficulties in obtaining a permit, if needed. If we enter the production phase, the cost of complying with permit and regulatory environment laws will be greater because the impact on the project area is greater. Permits and regulations will control all aspects of the production program if the project continues to that stage. Examples of regulatory requirements include:

 

(i)Water discharge will have to meet drinking water standards;
(ii)Dust generation will have to be minimal or otherwise re-mediated;
(iii)Dumping of material on the surface will have to be re-contoured and re-vegetated with natural vegetation;
(iv)An assessment of all material to be left on the surface will need to be environmentally benign;
(v)Ground water will have to be monitored for any potential contaminants;
(vi)The socio-economic impact of the project will have to be evaluated and if deemed negative, will have to be re-mediated; and
(vii)There will have to be an impact report of the work on the local fauna and flora including a study of potentially endangered species.

 

Competition

 

We are an exploration stage company. We compete with other mineral resource exploration and development companies for financing and for the acquisition of new mineral properties. Many of the mineral resource exploration and development companies with whom we compete have greater financial and technical resources than we do. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford greater geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties.

 

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.

 

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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 of April 30, 2012, we had $69,157 cash on hand and a working capital deficit of $223,480. Our plan of operation calls for significant expenses in order to meet our obligations under the Earn-In Agreement. There is no guarantee that we will exercise our option.

 

We do not have other financing arrangements in place. We will require additional financing to meet out our obligations under the Earn-in Agreement. Obtaining financing would be subject to a number of factors outside of our control, including market conditions and additional costs and expenses that might exceed current estimates. These factors may make the timing, amount, terms or conditions of financing unavailable to us in which case we will be unable to complete our plan of operation on our mineral property and to meet our obligations under our Earn-In Agreement

 

We have yet to earn revenue and our ability to sustain our operations is dependent on our ability to raise financing. As a result, our accountants believe there is substantial doubt about our ability to continue as a going concern.

 

We have a cumulative net loss of $2,221,875 for the period from our inception to April 30, 2012, and have no revenues to date. Our future is dependent upon our ability to obtain financing. Our auditors have expressed substantial doubt about our ability to continue as a going concern given our accumulated losses. This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise. If we fail to raise sufficient capital, we will not be able to complete our business plan. As a result, we may have to liquidate our business and investors may lose their investment. Investors should consider our former auditor's comments when determining if an investment in us is suitable.

 

Because of the unique difficulties and uncertainties inherent in mineral exploration ventures, we face a high risk of business failure.

 

Investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.

 

We have no known mineral reserves and if we cannot find any, we will have to cease operations.

 

We have no mineral reserves. If we do not find a mineral reserve containing gold or if we cannot explore the mineral reserve, either because we do not have the money to do it or because it will not be economically feasible to do it, we will have to cease operations and you will lose your investment. Mineral exploration, particularly for gold, is highly speculative. It involves many risks and is often non-productive. Even if we are able to find mineral reserves on our properties, our production capability is subject to further risks including:

 

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-Costs of bringing the property into production including exploration work, preparation of production feasibility studies, and construction of production facilities, all of which we have not budgeted for;
-Availability and costs of financing;
-Ongoing costs of production; and
-Environmental compliance regulations and restraints.

 

The marketability of any minerals acquired or discovered may be affected by numerous factors which are beyond our control and which cannot be accurately predicted, such as market fluctuations, the lack of milling facilities and processing equipment near our mineral properties, and such other factors as government regulations, including regulations relating to allowable production, importing and exporting of minerals, and environmental protection.

 

Given the above noted risks, the chances of finding reserves on our mineral properties are remote and funds expended on exploration will likely be lost.

 

Even if we discover proven reserves of precious metals on our mineral properties, we may not be able to successfully commence commercial production.

 

Our mineral properties do not contain any known bodies of ore. If our exploration programs are successful in discovering proven reserves on our mineral properties, we will require additional funds in order to place the mineral properties into commercial production. The expenditures to be made by us in the exploration of mineral properties in all probability will be lost as it is an extremely remote possibility that the mineral claims will contain proven reserves. If our exploration programs are successful in discovering proven reserves, we will require additional funds in order to place the mineral properties into commercial production. The funds required for commercial mineral production can range from several millions to hundreds of millions. We currently do not have sufficient funds to place our mineral claims into commercial production. Obtaining additional financing would be subject to a number of factors, including the market price for gold and the costs of exploring for or mining these materials. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. Because we will need additional financing to fund our exploration activities there is substantial doubt about our ability to continue as a going concern. At this time, there is a risk that we will not be able to obtain such financing as and when needed.

 

We face significant competition in the mineral exploration industry.

 

We compete with other mining and exploration companies possessing greater financial resources and technical facilities than we do in connection with the acquisition of mineral exploration claims and leases on precious metal prospects and in connection with the recruitment and retention of qualified personnel. There is significant competition for precious metals and, as a result, we may be unable to acquire an interest in attractive mineral exploration properties on terms we consider acceptable on a continuing basis.

 

There is no assurance that we will be able to comply with our obligations under the Earn-In Agreement.

 

In order comply with our obligations under the Earn-In Agreement we are required to make a series of cash payments and meet the annual claim maintenance fees. In order to meet these payments we will need to obtain substantial financing. If we are unable to meet these payments, we will lose our options to acquire these properties.

 

Because our sole director and executive officer does not have formal training specific to the technicalities of mineral exploration, there is a higher risk that our business will fail.

 

Howard Thomson, our sole director and executive officer, does not have any formal training as a geologist or in the technical aspects of managing a mineral exploration company. Mr. Thomson’s lack of expertise could cause irreparable harm to our operations, earnings, and ultimate financial success could suffer irreparable harm due to management's lack of experience in this industry.

12
 

 

Because the prices of metals fluctuate, if the price of metals for which we are exploring decreases below a specified level, it may no longer be profitable to explore for those metals and we will cease operations.

 

Prices of metals are determined by such factors as expectations for inflation, the strength of the United States dollar, global and regional supply and demand, and political and economic conditions and production costs in metals producing regions of the world. The aggregate effect of these factors on metal prices is impossible for us to predict. In addition, the prices of precious metals are sometimes subject to rapid short-term and/or prolonged changes because of speculative activities. The current demand for and supply of these metals affect the metal prices, but not necessarily in the same manner as current supply and demand affect the prices of other commodities. The supply of these metals primarily consists of new production from mining. If the prices of the metals are, for a substantial period, below our foreseeable cost of production, we could cease operations and investors could lose their entire investment.

 

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 further equity offerings in the future to finance our current projects or to finance subsequent 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, the interests of existing shareholders will be diluted.

 

The quotation price of our common stock may be volatile, with the result that an investor may not be able to sell any shares acquired at a price equal to or greater than the price paid by the investor.

 

Our common shares are quoted on the OTCBB under the symbol "TVER”. Companies quoted on the OTCBB have traditionally experienced extreme price and volume fluctuations. In addition, our stock price may be adversely affected by factors that are unrelated or disproportionate to our operating performance. Market fluctuations, as well as general economic, political and market conditions such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. As a result of this potential volatility and potential lack of a trading market, an investor may not be able to sell any of our common stock that they acquire at a price equal or greater than the price paid by the investor.

 

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

 

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 quotation system. Because our securities constitute “penny stocks” within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the trading price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:

 

1.contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

 

2.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 to such duties or other requirements of securities laws;

 

13
 

 

3.contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;

 

4.contains a toll-free telephone number for inquiries on disciplinary actions;

 

5.defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and

 

6.contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, 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) a 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 not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

 

ITEM 2.PROPERTIES.

 

We rent office space at Suite 201, 810 Peace Portal Drive, Blaine, WA 98230, at a cost of $1,500 per year. This rental is on a month-to-month basis without a formal contract.

 

Our mineral property is discussed in detail above under the heading “ITEM 1. BUSINESS”.

 

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.

 

14
 

 

PART II

 

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

 

MARKET INFORMATION

 

Our shares are quoted on the OTC Bulletin Board under the symbol “TVER”. 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   Low 
         
Fiscal Year 2012          
April 30, 2012  $0.02   $0.02 
January 31, 2012  $0.06   $0.023 
October 31, 2011  $0.125   $0.03 
July 31, 2011  $0.09   $0.04 
           
Fiscal Year 2011          
April 30, 2011  $0.13   $0.0142 
January 31, 2011  $0.02   $0.013 
October 31, 2010  $0.015   $0.015 
July 31, 2010  $0.05   $0.021 

 

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

 

REGISTERED HOLDERS OF OUR COMMON STOCK

 

As of August 13, 2012, there were one hundred and forty one (141) 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.

 

15
 

 

RECENT SALES OF UNREGISTERED SECURITIES

 

Other than as disclosed in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, we did not complete any sales of unregistered securities during the year ended April 30, 2012.

 

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

 

PLAN OF OPERATION

 

Over the next twelve months, our plan of operation is to focus our resources on the exploration of the Gold Snow Property. Subject to obtaining sufficient financing, we plan to conduct a drill program on the Golden Snow Property. The proposed drill program would cost approximately $175,000, summarized as follows:

 

Exploration Program Costs  Estimate   Rate ($)   Cost ($) 
             
Geology-Senior   10   $650.00   $6,500 
Geology-Junior   10   $350.00   $4,000 
Travel and Related Expenses (includes mileage)            $2,700 
Subtotal            $13,200 
                
Drilling            $115,472 
Drill Sample Assaying            $27,030 
Drill Supervision (Senior)   2   $650   $1,300 
Drill Geologist   13   $400   $5,200 
Review of Results            $0 
Travel and Related Expenses (includes mileage)            $2,700 
Drill Site Preparation and Reclamation            $10,200 
Subtotal            $161,902 
                
Total            $175,102 

 

During the next twelve months, we must complete the following in order to maintain our interest under the Earn-In Agreement and keep the Golden Snow Property in good standing:

 

(a)complete cumulative exploration expenditures on the Golden Snow Property totaling $250,000 by December 31, 2012; and

 

(b)pay the Bureau of Land Management maintenance and claim fees of approximately $17,165 by September 1, 2012.

 

As the agreement is an option, we may decide at any time not to proceed in which case we would not be liable to pay any funds beyond the amounts due at the time we provide notice that we are not proceeding. There is no assurance that we will exercise the option.

 

16
 

 

As at April 30, 2012, we had $69,157 cash on hand. Accordingly, we have insufficient cash on hand to satisfy the exploration expenditure requirements under the Earn-In Agreement and meet our ongoing operating costs. As such, we will require substantial financing in order to meet our obligations. There is no assurance that we will be able to acquire such financing on terms that are acceptable to us, or at all.

 

RESULTS OF OPERATIONS

 

Summary of Year End Results

   Year Ended April 30,   Percentage 
   2012   2011   Increase / (Decrease) 
Revenue  $   $    n/a 
Expenses   (145,622)   (97,195)   49.8%
Net Loss  $(145,622)  $(97,195)   49.8%

 

Revenues

 

We have not earned any revenues since our inception. We do not anticipate earning revenues until such time as we enter into commercial production of our mineral properties. We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources on our properties or if such deposits are discovered, that we will enter into further substantial exploration programs.

 

Operating Expenses

 

The major components of our expenses for the year ended April 30, 2012 and 2011 are outlined in the table below:

 

   Year Ended April 30   Percentage 
   2012   2011   Increase / (Decrease)  
Accounting  $24,830   $24,570    1.1%
Amortization   1,481    -    100.0%
Bank Charges   220    456    (51.8)%
Consulting   1,500    5,500    (72.7)%
Exploration Expense   3,850    -    100.0%
Foreign Exchange Loss   905    -    100.0%
Impairment Expense   2,500    -    100.0%
Interest Expense   2,656    -    100.0%
Legal   36,917    27,597    33.8%
Office Administration   30,000    30,000    0.0%
Property Maintenance   29,572    -    100.0%
Regulatory Expenses/Fees   8,598    6,672    28.9%
Rent   1,500    1,500    0.0%
Telephone   900    900    0.0%
Travel and Entertainment   193    -    100.0%
Total Operating Expenses  $145,622   $97,195    49.8%

 

Our operating expenses increased from $97,195, during the year ended April 30, 2011, to $145,622, during the year ended April 30, 2012. The increase in our operating expenses is due to increases in accounting expenses, amortization, exploration expense, impairment expense, interest expense, legal fees, property maintenance expenses, regulatory expenses, travel and entertainment expenses, and the recording of a foreign exchange loss. The increase in our operating expenses was partially offset by decreases in bank charges, and consulting.

 

17
 

 

Accounting and legal expenses primarily relate to expenses incurred in connection with meeting our ongoing reporting obligations under the Exchange Act.

 

Amortization, exploration, impairment and property maintenance expenses primarily relate to expenses incurred in connection with the Earn-In Agreement with Pengram.

 

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

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flows

   Year Ended April 30 
   2012   2011 
Net Cash used in Operating Activities  $(117,802)  $(198,710)
Net Cash used in Investing Activities   -    (25,000)
Net Cash from Financing Activities   184,500    225,000 
Net Increase in Cash During Period  $66,698   $1,290 

 

Working Capital

   At April 30, 2012   At April 30, 2011   Percentage
Increase / (Decrease)
 
Current Assets  $77,676   $2,459    3,058.8%
Current Liabilities   (301,156)   (82,817)   263.6%
Working Capital Deficit  $(223,480)  $(80,358)   178.1%

 

We had cash on hand of $69,157 and a working capital deficit of $223,480 as of April 30, 2012 compared to a working capital deficit of $80,350 as of April 30, 2011. The increase in our working capital deficit is due to: (i) an increase in accounts payable and accrued expenses as a result of our lack of capital to meet ongoing costs; and (ii) the fact that we recorded stock subscriptions payable of $184,500.

 

Financing Requirements

 

Currently, we do not have sufficient financial resources to meet our ongoing operating expenditures. As such, our ability to complete our plan of operation is dependent upon our ability to obtain additional financing in the near term.

 

On May 22, 2012, we issued 3,290,000 shares of our common stock at a price of $0.05 per share for proceeds of $164,500 pursuant to Regulation S of the Securities Act. Each subscriber represented that they were not a “U.S. Person” as that term is defined in Regulation S of the Act.

 

On May 22, 2012, we issued 400,000 shares of our common stock a price of $0.05 per share for proceeds of $20,000 pursuant to Regulation D of the Securities Act. The subscriber represented that it was an “accredited investor” as defined in Regulation D of the Securities Act.

 

The proceeds of the private placement offerings will be used to retire corporate indebtedness, complete work on our mineral properties and for general corporate purposes.

 

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.

 

18
 

 

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.

 

19
 

 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Audited Financial Statements for the Years Ended April 30, 2012 and 2011, including:

 

1. Report of Independent Registered Public Accounting Firm;
   
2. Balance Sheets as at April 30, 2012 and 2011;
   
3. Statements of Operations and Accumulated Deficit for the years ended April 30, 2012 and 2011 and the period from inception on February 20, 2001 to April 30, 2012;
   
4. Statements of Changes in Stockholders’ Equity/Deficit for the period from inception through April 30, 2012;
   
5. Statements of Cash Flows for the years ended April 30, 2012 and 2011 and the period from inception to April 30, 2012;
   
6. Notes to the Financial Statements; and
   
7. Supplemental Statement: Statements of Operating Expenses for the years ended April 30, 2012 and 2011 and the period from inception to April 30, 2012.

 

20
 

 

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, 2012 and April 30, 2011, and the related statements of operations and accumulated deficit, changes in stockholders’ deficit, and cash flows for the years then ended, and for the period February 20, 2001 (date of inception) to April 30, 2012. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, 2012 and April 30, 2011, and the results of its operations, changes in stockholders’ deficit and cash flows for the years then ended, and for the period February 20, 2001 (date of inception) to April 30, 2012, 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 10 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.

 

 

Sarna & Company,

Certified Public Accountants

Westlake Village, California

August 10, 2012

 

21
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

BALANCE SHEET

  

   APRIL 30,   APRIL 30, 
   2012   2011 
         
ASSETS          
           
Current Assets:          
Cash  $69,157   $2,459 
Prepaid Expense   8,519    -0- 
           
Total Current Assets   77,676    2,459 
           
Investment in Mineral Rights   22,500    25,000 
           
TOTAL ASSETS  $100,176   $27,459 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
           
Current Liabilities:          
Accounts Payable and          
Accrued Expenses  $84,656   $50,817 
Loans Payable   7,000    6,000 
Loans Payable – Related Parties   -0-    1,000 
Note Payable   25,000    25,000 
Stock Subscriptions Outstanding   184,500    -0- 
           
           
Total Current Liabilities   301,156    82,817 
           
Stockholders' Equity:          
Common Stock, $0.001 par value 400,000,000 shares authorized, 29,470,660 shares issued   29,471    29,471 
Additional Paid in Capital   1,991,424    1,991,424 
Deficit Accumulated During the Exploration Stage   (2,221,875)   (2,076,253)
           
Total Stockholders' (Deficit)   (200,980)   (55,358)
           
TOTAL LIABILITIES AND STOCKHOLDERS'(DEFICIT)  $100,176   $27,459 

 

See Notes to Financial Statements.

 

22
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT

 

   YEAR ENDED   YEAR ENDED   INCEPTION to 
   APRIL 30, 2012   APRIL 30, 2011   APRIL 30, 2012 
             
Revenues  $-0-   $-0-   $-0- 
                
Operating Expenses   (145,622)   (97,195)   (1,207,386)
                
Loss Before Other Income And Expenses   (145,622)   (97,195)   (1,207,386)
                
Other Income               
Interest Income   -0-    -0-    14,491 
                
Other Expense               
Loss on Investment   -0-    -0-    (1,028,980)
                
Loss Before Provision for Income Taxes   (145,622)   (97,195)   (2,221,875)
                
Provision for Income Taxes   -0-    -0-    -0- 
                
Net Loss   (145,622)   (97,195)   (2,221,875)
                
Accumulated Deficit, Beginning of Period   (2,076,253)   (1,979,058)   -0- 
                
Accumulated Deficit,End of Period  $(2,221,875)  (2,076,253)  (2,221,875)
                
Net Loss per Share  (0.01)  (0.01)  (0.24)
                
Weighted Average Shares Outstanding   32,106,374    11,970,660    9,614,845 

 

See Notes to Financial Statements.

 

23
 

 

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.

 

24
 

 

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.

 

25
 

 

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 
                          
Common Stock Issued  $0.10 per share October 10, 2008   10,000,000    10,000    190,000        200,000 
                          
Common Stock Issued $0.20 per share April 8, 2009   600,000    600    11,400        12,000 
                          
Net Loss, Period Ended April 30, 2009               (355,923)   (355,923)
                          
Balances April 30, 2009   47,353,200    47,353    1,773,542    (1,879,544)   (58,649)
                          
1-for-5 Reverse Stock Split, October 1, 2009   (37,882,540)   (37,882)   37,882         
                          
Net Loss, Period Ended April 30, 2010               (99,514)   (99,514)
                          
Balances April 30, 2010   9,470,660    9,471    1,811,424    (1,979,058)   (158,163)
                          
Common Stock Issued $0.01 per share March 24, 2011   20,000,000    20,000    180,000        200,000 
                          
Net Loss, Period Ended April 30, 2011               (97,195)   (97,195)
                          
Balances April 30, 2011   29,470,660    29,471    1,991,424    (2,076,253)   (55,358)
                          
Net Loss, Period Ended April 30, 2012               (145,622)   (145,622)
                          
Balances April 30, 2012   29,470,660    29,471    1,991,424    (2,221,875)   (200,980)

 

See Notes to Financial Statements.

 

26
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

STATEMENTS OF CASH FLOWS

 

   YEAR ENDED   YEAR ENDED   INCEPTION to 
   APRIL 30, 2012   APRIL 30, 2011   APRIL 30, 2012 
Cash Flows from Operating Activities:               
                
Net Loss  (145,622)  (97,195)  (2,221,875)
Adjustments to Reconcile Net Loss  To Net Cash Provided/<Used> by Operating Activities:               
Amortization Expense   1,481    -0-    1,481 
Impairment Expense   2,500    -0-    2,500 
Prepaid Expense   (10,000)   -0-    (10,000)
Unrealized Loss on Investment   -0-    -0-    1,028,980 
<Increase>/Decrease in:               
Notes Receivable   -0-    -0-    -0- 
Increase/<Decrease> in:               
Accounts Payable   33,839    (67,315)   84,656 
Loans Payable   1,000    (21,000)   7,000 
Loans Payable – Related Parties   (1,000)   (13,200)   -0- 
                
Net Cash Used by Operating Activities   (117,802)   (198,710)   (1,107,258)
                
Cash Flows from Investing Activities:               
                
Investment in Stock   -0-    -0-    (1,028,980)
Investment in Mineral Rights   -0-    (25,000)   (25,000)
                
Net Cash Used by Investing Activities   -0-    (25,000)   (1,053,980)
                
Cash Flows from Financing Activities:               
                
Note Payable   -0-    25,000    25,000 
Loans from Shareholders   -0-    -0-    157,395 
Payments on Loans   -0-    -0-    (157,395)
Stock Subscriptions Outstanding   184,500    -0-    184,500 
Proceeds from Issuance of Common Stock   -0-    200,000    2,020,895 
                
Net Cash Provided by Financing Activities   184,500    225,000    2,230,395 
                
Net Increase (Decrease) in Cash   66,698    1,290    69,157 
Cash at Beginning of Period   2,459    1,169    -0- 
                
Cash at End of Period  $69,157   $2,459   $69,157 

 

See Notes to Financial Statements.

 

27
 

 

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

 

In accordance with FASB ASC 915, the Company has been in the exploration stage since its formation and has not yet realized any revenues from its planned operations.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for using the Equity-Based Payments to Non-Employees Topic of the FASB ASC (FASB ASC Topic 718), which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company determines the value of stock issued at the date of grant. It also determines at the date of grant, the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

 

Shares issued to employees are expensed upon issuance.

 

28
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

 

Stock-Based Compensation - CONTINUED

 

The Company uses the fair value method for equity instruments granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

No stock options have been issued by Terrace Ventures, Inc.

 

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 FASB ASC 740, “Accounting for Income Taxes". Under this statement, 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

 

FASB ASC 825, “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.

 

29
 

  

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 follows FASB ASC 260 “Earnings Per Share” which establishes standards for the computation, presentation and disclosure requirements for basic and diluted earnings per share for entities with publicly-held common shares and potential common stock issuances. Basic earnings (loss) per share are computed by dividing net income by the weighted average number of common shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities, such as convertible notes, stock options, and warrants. Common stock equivalent shares are excluded from the computation if their effect is antidilutive.

 

NOTE 2 – PREPAID EXPENSE

 

Prepaid expense at April 30, 2012 consists of the remainder of the unamortized amount of the original $10,000 paid to renegotiate the Pengram notes. These prepaid fees are fully amortized at December 31, 2012.

 

NOTE 3 – INVESTMENT IN MINERAL RIGHTS

 

On April 26, 2011, we entered into an agreement with Pengram Corporation (“Pengram”) dated April 26, 2011, as amended on June 29, 2011, (the “Earn-In Agreement”). Under the terms of the Earn-In Agreement, the Company will earn up to a 75% interest in Pengram’s agreement with Scoonover Exploration LLC and JR Exploration LLC (the “Underlying Agreement”) to acquire the Golden Snow Property, by paying to Pengram up to $175,000 in a promissory note and direct payments, and expending up to $1,750,000 in exploration work. The Golden Snow project consists of 111 mineral claims located in the Eureka Mining District in Eureka County, Nevada.

 

NOTE 4 – LOANS PAYABLE

 

Loans payable consist of short term monies advanced. These loans are unsecured; bear no interest rate and no specified maturity date.

 

30
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

NOTE 5 – LOANS PAYABLE – RELATED PARTIES

 

Loans payable related parties consist of various short term monies advanced by shareholders. These loans are unsecured; bear no interest rate and no specified maturity date.

 

NOTE 6 – NOTE PAYABLE

 

Note payable consists of short term monies due to Pengram Corporation. The company has agreed to pay Pengram Corporation by way of a series of promissory notes (see Note 2), bearing no interest, payable per schedule detailed in Note 7.

 

NOTE 7 - PROVISION FOR INCOME TAXES

 

The provision for income taxes for the periods ended April 30, 2012 and April 30, 2011 represents the minimum state income tax expense of the Company, which is not considered significant.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

Pengram Corporation Agreement – Golden Snow Project

 

The Company is obligated to Pengram Corporation for up to $175,000 in a promissory note and direct payments, and $1,750,000 in exploration expenses as follows:

 

(i)           The first 25% interest in the Underlying Agreement upon the Company:

a.           Paying Pengram $25,000 by way of a promissory note, bearing interest at a rate of 10% per annum, due on September 27, 2011;

b.           Completing exploration expenditures on the Property totaling $250,000 by December 31, 2012.

(ii)          An additional 25% interest in the Underlying Agreement upon the Company:

a.           Paying Pengram $50,000 on or before May 31, 2013;

b.           Completing additional exploration expenditures on the Property totaling $500,000 by December 31, 2013:

(iii)            An additional 25% interest in the Underlying Agreement upon the Company:

c.           Paying Pengram $100,000 on or before May 31, 2014;

d.           Completing additional exploration expenditures on the Property totaling $1,000,000 by December 31, 2014.

 

31
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES - CONTINUED

 

Pengram Corporation Agreement – Golden Snow Project - Continued

 

The Company is also obligated to pay all advance royalties, county and BLM claim fees and Nevada state taxes during the currency of the Earn-In Agreement.

 

On December 31, 2011, Pengram, in consideration of $5,000 (which has been paid), agreed to accept, in substitution for the $25,000 promissory note set out above, a series of non-interest bearing promissory notes totaling $30,000 payable on the following dates:

 

March 31, 2012  $5,000 
June 30, 2012   5,000 
September 30, 2012   10,000 
December 31, 2012   10,000 
TOTAL   30,000 
Less: Amount Paid   <5,000
Note Payable,     
Balance at April 30, 2012  $25,000 

 

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 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

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

 

NOTE 10 – 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.

 

32
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

NOTE 10 – GOING CONCERN - Continued

 

The 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 $2,221,875 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 financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

NOTE 11 – REVERSE STOCK SPLIT

 

On September 2, 2009, the Board of Directors approved a one-for-five reverse split of the Company’s common stock. Upon the completion of the reverse stock split, which was effective on October 1, 2009, the Company’s authorized shares of common stock was decreased from 400,000,000 shares, par value $0.001 per share, to 80,000,000 shares, par value $0.001 per share. Issued and outstanding common stock was reduced from 47,353,200 shares to approximately 9,470,660 shares. Weighted Average Shares Outstanding and Net Loss per Share have been restated on the Statements of Operations and Accumulated Deficit for the effect of the reverse stock split.

 

NOTE 12 – STOCK ISSUANCES

 

On June 8, 2010 our Board of Directors terminated the convertible notes offering approved on March 16, 2010 and approved two private placement offerings for up to an aggregate of 10,000,000 Units for proceeds of up to $100,000 as follows:

 

33
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

NOTE 12 – STOCK ISSUANCES - CONTINUED

 

Foreign Private Placement

 

On June 8, 2010, our Board of Directors approved a private placement offering of up to 5,000,000 Units at a price of $0.01 US per unit, with each Unit consisting of one share of our common stock and one share purchase warrant (the Foreign Private Placement”). Each share purchase warrant entitled the holder to purchase an additional share of common stock exercisable for a period of two years at a price of $0.01 US per share. The private placement offering was made to persons who are not “U.S. Persons” as defined in Regulation S. Subsequent to the offering, the corporation received subscriptions for an aggregate of 14,700,000 shares and payment in full of the subscription proceeds. In order to allow for the oversubscriptions to the Foreign Offering, on March 24, 2011, the Corporation increased the number of Shares being issued under the Offering to 14,700,000 Shares. Upon the issuance of the Shares, the Corporation terminated this Foreign Offering.

 

U.S. Private Placement

 

Also, on June 8, 2010, our Board of Directors approved a private placement offering of up to 5,000,000 Units at a price of $0.01 US per Unit, with each Unit consisting of one share of our common stock and one share purchase warrant (the “U.S. Private Placement”). Each share purchase warrant entitled the holder to purchase an additional share of common stock exercisable for a period of two years at a price of $.01 US per share. The private placement offering was made to persons who are “Accredited Investors” as defined in Regulation D. Subsequent to the offering, the corporation received subscriptions for an aggregate of 5,300,000 shares and payment in full of the subscription proceeds. In order to allow for the oversubscriptions to the US Offering, on March 24, 2011, the Corporation increased the number of Shares being issued under the Offering to 5,300,000 Shares. Upon the issuance of the Shares, the Corporation terminated this US Offering.

 

On April 26, 2011 our Board of Directors approved two concurrent private placements as follows:

 

Foreign Private Placement

 

On April 26, 2011, our Board of Directors approved a private placement offering of up to 2,500,000 shares of our common stock at a price of $0.10 US per share to persons who are not “US Persons” as defined in Regulation S if the Securities Act of 1933.

 

34
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

NOTE 12 – STOCK ISSUANCES - CONTINUED

 

U.S. Private Placement

 

Also, on April 26, 2011, our Board of Directors approved a private placement offering of up to 2,500,000 shares of our common stock at a price of $0.10 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.

 

NOTE 13 – SUBSEQUENT EVENTS

 

As of August 10, 2012, all stock had been issued in accordance with the stock subscription agreements in effect at April 30, 2012.

 

35
 

 

SUPPLEMENTAL STATEMENT

 

36
 

 

TERRACE VENTURES INC.

(AN EXPLORATION STAGE COMPANY)

STATEMENT OF OPERATING EXPENSES

 

   YEAR ENDED   YEAR ENDED   INCEPTION to 
   APRIL 30,2012   APRIL 30,2011   APRIL 30, 2012 
             
Operating Expenses:               
Accounting  $24,830   $24,570   $181,500 
Amortization   1,481    -0-    1,481 
Bad Debt Expense   -0-    -0-    214,892 
Bank Charges   220    456    1,420 
Cancelled Merger Costs   -0-    -0-    8,300 
Consulting   1,500    5,500    121,150 
Exploration Expense   3,850    -0-    28,116 
Foreign Exchange Loss   905    -0-    905 
Impairment Expense   2,500    -0-    2,500 
Interest Expense   2,656    -0-    2,656 
Legal   36,917    27,597    320,231 
Office Administration   30,000    30,000    204,600 
Office Expenses   -0-    -0-    4,271 
Property Maintenance   29,572    -0-    29,572 
Regulatory Expenses/Fees   8,598    6,672    45,435 
Rent   1,500    1,500    27,825 
Telephone   900    900    7,631 
Travel & Entertainment   193    -0-    4,901 
                
Total Operating Expenses  $145,622   $97,195   $1,207,386 

 

See Notes to Financial Statements.

 

37
 

 

 

 

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

 

None.

 

ITEM 9A.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, 2012 (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.

 

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, 2012 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 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:

 

38
 

 

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

 

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended April 30, 2012 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.

 

ITEM 9B.OTHER INFORMATION.

 

None.

 

39
 

 

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.

 

Name   Age   Positions
Howard Thomson   66  

President, Secretary, Treasurer,

Chief Executive Officer, Chief Financial Officer

and Sole Director

 

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

 

Howard Thomson is 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.

 

40
 

 

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 own more than 10% of a registered class of our securities (“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 solely on our review of such reports received by the Company, the Company has determined that the following persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act:

 

Name and Principal Position  

Number of Late
Insider
  Reports

 

Transactions Not
Timely Reported

 

Known Failures to
File a Required
Form

Howard Thomson

Sole Executive Officer and Director 

  One   One   None

  

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, 2012 and 2011.

 

SUMMARY COMPENSATION TABLE 
Name & 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   2012   $30,000   $0   $0   $0   $0   $0   $0   $30,000 
President, Secretary, Treasurer, CEO & CFO   2011   $30,000   $0   $0   $0   $0   $0   $0   $30,000 

 

41
 

 

Outstanding Equity Awards at Fiscal Year End

 

As at April 30, 2012, 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.

 

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/A
             
Equity Compensation Plans Not Approved By Security Holders   Nil   N/A   4,000,000

 

42
 

 

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 1,000,000 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 13, 2012 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 group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.

 

43
 

 

Title of Class  

Name and Address
of Beneficial Owner

 

Number of Shares
of Common Stock
(1)

 

Percentage of

Common

Stock(1)

 
               
DIRECTORS AND OFFICERS               
Common Stock  

Howard Thomson
CEO, CFO, President, Secretary,
Treasurer & Director

 

450,000 Shares

(direct)

  1.4 %
Common Stock  

All Officers and Directors
as a Group (1 person)

 

450,000 Shares

 

  1.4 %
               

5% SHAREHOLDERS

 
Common Stock  

George Hatch
5% Holder
18555 2nd Avenue,
Surrey, BC, Canada

 

2,128,016 Shares

(direct)

  6.4 %

 

(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 13, 2012. As of August 13, 2012, there were 33,160,660 shares of our common stock issued and outstanding.
(2)

 

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:

 

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

 

44
 

 

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 5605(a)(2), 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.

 

45
 

 

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

During the fiscal years ended April 30, 2012 and 2011, we retained our independent auditor, Sarna & Company, Certified Public Accountants, to provide services in the following categories and amounts:

 

   Year Ended April 30, 2012   Year Ended April 30, 2011 
Audit Fees  $12,900   $12,800 
Audit-Related Fees  $NIL   NIL 
Tax Fees  NIL   $NIL 
All Other Fees  $9,700   NIL 
Total  $22,600   $12,800 

 

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.

 

PART IV

 

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)
    Certificate of Change Pursuant to NRS 78.209 decreasing the authorized capital of common stock to 80,000,000 shares, par value $0.001 per share.(9)
3.3   Bylaws.(1)
10.1   2006 Stock Incentive Plan.(4)
10.2   Stock Option Agreement between the Company and Howard Thomson dated March 31, 2006.(4)
10.3   Management Consulting Agreement dated March 21, 2006 between the Company and Howard Thomson.(4)
10.4   Interim Agreement dated July 9, 2008 between the Company and Pyro Pharmaceuticals, Inc.(5)
10.5   Amendment Agreement dated September 26, 2008 to the Interim Agreement dated July 9, 2008 between the Company and Pyro Pharmaceuticals, Inc.(6)
10.6   Share Purchase Agreement dated April 29, 2009 among Terrace Ventures Inc., Marktech Acquisition Corp., Worldbid International Inc. and Geobiz Systems Inc.(7)
10.7   Amendment Agreement to Share Purchase Agreement dated August 12, 2009 among Terrace Ventures Inc., Marktech Acquisition Corp., Worldbid International Inc. and Geobiz Systems Inc.(8)
10.8   Earn-In Agreement (Golden Snow) dated April 26, 2011 between Pengram Corporation and Terrace Ventures Inc.(10)
10.9   Earn-In Extension Agreement (Golden Snow) dated June 29, 2011 between Pengram Corporation and Terrace Ventures Inc.(11)

 

46
 

 

Exhibit
Number
  Description of Exhibit
10.10   Amendment Agreement dated July 31, 2012 between Pengram Corporation and Terrace Ventures Inc.
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 July 15, 2008.
(6)   Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on October 2, 2008.
(7)   Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on April 29, 2009.
(8)   Filed with the SEC as an exhibit to our Annual Report on Form 10-K filed on August 13, 2009.
(9)   Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on October 2, 2009.
(10)   Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on April 28, 2011.
(11)   Filed with the SEC as an exhibit to our Annual Report on Form 10-K filed on August 15, 2011.

 

47
 

 

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 14, 2012   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 14, 2012   By: /s/ Howard Thomson
        HOWARD THOMSON
        Chief Executive Officer, Chief Financial Officer ,
        President, Secretary, Treasurer and
        Director

 

48

 

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