Press Room

Letter to Shareholders

May 28, 2007

Letter from the CEO to the Shareholders of Terra Systems, Inc. (TSYI):

As we move forward into 2007, I would like to personally thank each of you as shareholders of TSYI for your loyalty, patience and confidence in the company. We are at that point in a developing company's growth where we need to make a commitment to enhancing our governing oversight and senior management advisors. A significant step in this direction was the recent addition of three independent directors and a senior management consultant. I would like to start out by welcoming our incoming independent board members and providing a little background on each.

Reynold Roeder - Reynold has over 25 years experience in operations, project development, accounting, finance, investment banking and strategic planning with LECTRIX LLC, PacifiCorp, and Deloitte & Touche. Mr. Roeder's management experience includes building several organizations from the ground up, structuring and negotiating large scale transactions and helping create industry standards in IRC Section 29 tax credits for synthetic fuels produced from coal.

Mr. Roeder is a principal in UFA (www.unitedfundadvisors.com) where he serves as CFO and Managing Director, Energy. Mr. Roeder is developing an energy practice within UFA focusing on IRC Section 45 Production Tax Credits and solar energy projects qualifying for the federal investment tax credit. UFA is a co-developer with Terra on several power projects.

Mr. Roeder is also the Chief Executive Officer of LECTRIX LLC (www.lectrix.com), an international joint venture originally sponsored by Bechtel, Siemens and American Electric Power. Mr. Roeder participated in the management buy-out of LECTRIX. Notable accomplishments of LECTRIX include a partnership with Rocky Mountain Power, Ltd. of Calgary, Alberta to develop a 230kV transmission line from Lethbridge, Alberta to Great Falls, Montana (www.matl.ca). Mr. Roeder was one of the original founders and early developers of the Montana Alberta Tie-Line ("MATL") and was the primary drafter of the merchant tariff filed with the Federal Energy Regulatory Commission. He was a key designer of the open season process used to sell capacity on the line. The transmission line has been vital to the proposed development of 600 MWs of wind projects in Montana. In 2006, Mr. Roeder sold his interest in Montana Alberta Tie Ltd to Tonbridge Power Corporation. Mr. Roeder remains the CEO of LECTRIX and is continuing to pursue merchant transmission development projects in North America.

Prior to LECTRIX, Mr. Roeder worked at PacifiCorp Financial Services, at various times holding titles of Assistant Controller, Controller, and Vice President. While there, he was the founder and President of PacifiCorp SynFuel, LLC, an enterprise that developed four IRC Section 29 tax credit projects processing coal into synthetic fuel. Mr. Roeder obtained several private letter rulings, structured the investment, and oversaw the engineering, design, permitting, construction, and operations of four manufacturing plants, including negotiating all coal purchase and synthetic fuel sale contracts.

Mr. Roeder also is an active investor in the energy sector, maintaining investments in Tonbridge Power Corporation, Terra Systems, Inc., Raser Technologies, Inc. ("Raser"), and Microfield Group Inc. Mr. Roeder serves on the board of directors of Raser, a publicly traded geothermal energy project developer, where he chairs the audit committee.

During his career, Reynold has held CPA licenses in the states of Oregon, California and New York. He has several patents pending relating to the energy sector and has lobbied in the U.S. Senate.

Frederick W. Buckman, Sr. - Mr. Buckman has extensive experience in leadership roles in the utility industry, domestically and internationally. Buckman was a co-founder and former Chairman and CEO of Trans-Elect, Inc., the first independent owner and developer of electrical transmission systems in the U.S.

From 1994 to 1998, Buckman served as President and Chief Executive Officer of PacifiCorp. In that position, he helped transform PacifiCorp from a regional utility to a diversified energy company with significant national and international holdings. During his tenure, PacifiCorp acquired or developed energy interests in Australia, Turkey and the Philippines. It also developed a national presence in both electricity and natural gas marketing.

Prior to joining PacifiCorp, Buckman was President and Chief Executive Officer of Consumers Power Co., the utility subsidiary of CMS Energy. Buckman helped restore the financial health of Consumers Power following the write-down of the company's ill-fated effort to build the Midland nuclear plant. He was instrumental in rebuilding the company's relationships with its investors, NRC, federal/state/local regulators, customers and employees. Prior to becoming President, Buckman served two years as the Chief Nuclear Officer of the company. He had nearly 15 years of experience in plant operations and licensing during an earlier assignment with the company.

Buckman serves as a member of the board and Lead Director of StanCorp Financial Group (NYSE: SFG). He also serves as a member of the board of InfraSource Services, Inc. (NYSE: IFS) and MMC Energy (OTC BB: MMCN). He recently concluded an eight year term as Chairman of the Board of Oregon Health and Science University, where helped guide the privatization of the regional medical center and teaching hospital. In addition, Buckman chaired the Nike World Masters Games held in Portland in 1998, and was Chairman of the Governor's Strategic Planning Task Force for the State of Oregon in 1997. Buckman also serves as an adjunct professor of nuclear engineering at the University of Michigan.

Buckman began his career in the nuclear power industry, with assignments in plant operations, licensing, safety analysis and regulation. He further served as President of Delian Corp., a consulting firm specializing in nuclear power plant risk assessment and nuclear regulation. He was one of the early leaders in using risk based methodology to prioritize plant maintenance, modification and capital deployment. He was also an industry leader in the commercialization of advanced nuclear fuel technology.

A graduate of the University of Michigan with a bachelor's degree in science engineering, Buckman received his doctorate in nuclear engineering from the Massachusetts Institute of Technology and attended the advanced management program at Harvard Business School.

Jerry R. Key ("JR") - Mr. Key has over 35 years experience in engineering and coal handling operations. JR has served in various senior mining positions during his career. He served as superintendent for Bankhead Mining Co., Jefferson Coal Co. and Cobb Coal Company in Alabama. He next was General Manager of P.V. Mining Co. in Indiana. He later served as Vice President and General Manager of Bridger Coal Co. in Wyoming, one of the largest coal mines in the nation. From 1994 to 1997 he held the position of Director of Technical Services at InterWest Mining Company (PacifiCorp) in Salt Lake City. Mr. Key became involved in the Section 29 projects with PacifiCorp in 1996 and was in charge of operations for PacifiCorp Syn Fuel LLC where he worked with Mr. Roeder and oversaw the engineering, construction and finally the operations of four synfuel-from-coal plants. He presently oversees operations of four synfuels plants for SFM, LLC. JR graduated from the University of Alabama with a degree in Mining Engineering.

In addition, I would like to welcome Brent Cook in his role as Senior Management Consultant. Mr. Cook is the Chief Executive Officer of Raser Technologies (NYSE Arca:RZ). Previously, Mr. Cook was President of Headwaters, Inc., a billion dollar NYSE listed energy and energy technology company. He served with Headwaters from 1996 to 2002 in positions including CEO, President, and Chairman of the Board of Directors. Prior to his Headwaters career, Mr. Cook was Director of Strategic Accounts, Utah Operations, at PacifiCorp, an electric utility servicing seven western states.

I am looking forward to the combined wealth of experience and expertise that this group will provide as a resource while we locate capital, refine the strategic direction and focus operations of the company in the coming years. We are truly fortunate to have assembled such a qualified group of individuals.

We were able to attract these independent board members due to the milestones that Terra achieved during the past year. These include:

Pilot Briquetting Plant: Under the direction of Combustion Resources, LLC, TSYI has designed, constructed and is operating a pilot briquetting plant at the College of Eastern Utah's newly established Western Energy Technology Center located at the former Willowcreek mining complex. The pilot plant is upgrading carbon products and producing value added briquettes for an internationally based end user.
Exclusive Clean Coke Technology Licensing Agreement: In building the relationship with Combustion Resources, TSYI acquired the long term and exclusive rights to Combustion Resources, LLC's Clean Coke Technology for development.
Headwaters Agreement: TSYI signed an agreement with Headwaters, Inc's Covol Engineered Fuels ("Covol") under which TSYI grants Covol an option to operate TSYI's mobile coal drying unit using TSYI's proprietary pneumatic accelerator technology. TSYI's mobile coal dryer will be tested to compliment the front end processing of coal at Covol's dry coal cleaning facility located in Price, Utah.
Achieved Fully Reporting SEC Registrant Status: In 2006, TSYI continued to mature and became a fully reporting company with the SEC for first time since 2001 and remains fully reporting in 2007
Move to OTC: TSYI moved off the Pink Sheets and was approved for trading on the OTC Bulletin Board
Mountain Island Energy, LLC (MIE, a wholly owned subsidiary of TSYI) has completed the feasibility study on the construction of a specialty coal based Carbon Calciner in conjunction with Combustion Resources. The study resulted in favorable economics. The project will now move beyond the feasibility stage.

In the coming year, TSYI will also focus on the following areas:

PAS Technology -- Further developing TSYI Particle Accelerator System (PAS) technology with Headwaters and on its own to add value to waste coal and carbon by-products bridging the gap between mines, power generators and other end users.
Specialty Carbon Processing - TSYI and Combustion Resources look to expand their alliance into specialty carbon processes and products in 2007.
Wind Energy - MIE will continue to examine the wind potential on its land north of Soda Springs, Idaho anticipating expanding the project onto adjacent ridgelines and selling the power to local and regional power customers.

We are pleased to draw you attention to Terra's new website at: www.tsyi.com for more detailed information on the projects mentioned above.

As I conclude, on behalf of the Board of Directors of TSYI, thank you for your patient support of the company this past decade. We look forward to your continued active support of TSYI.

Warmest Regards,

Clayton

Clayton Timothy
CEO -Terra Systems, Inc.
May 2007

Note: Certain statements contained herein may be forward-looking statements within the meaning of federal securities laws. Terra Systems, Inc. intends that such forward-looking statements be subject to the safe-harbor created within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and our future results that are based on current expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this statement.

Company Profile

Terra Systems, Inc. is a development stage company focused on advanced, clean and renewable energy technology applications and projects. TSYI is engaged in the development and commercialization of it's patented pneumatic accelerator system technology and the upgrading of specialty and waste carbon products. Terra Systems was founded in 1996 and is headquartered in Salt Lake City, Utah with a satellite office in Price, Utah.