Press Room

Press Release

April 17, 2007

Form 10KSB for TERRA SYSTEMS CORP

Salt Lake City, Utah - Terra Systems, Inc. (OTC Bulletin Board: TSYI - News) -

Annual Report

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

You should read the following description of our financial condition and results of operations in conjunction with the audited financial statements and the notes thereto included elsewhere in this report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Our actual results and the timing of business events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause a discrepancy include, but are not limited to, those discussed in "Risk Factors," "Business," and elsewhere in this report.

General

Terra Systems was incorporated in Utah on February 17, 1996, and is a development-stage company. Our primary business is the development and commercialization of our patented pneumatic accelerator. This device is a gas linear particle accelerator that conveys and processes bulk materials at high velocity in a particle isolate state, using air as the medium of movement. The traditional and more costly medium for processing bulk materials is water. Our technology operates efficiently at ambient temperatures and at low pressures and does not use water. We believe that most if not all, organic and inorganic bulk materials used in basic industries (such as coal, gypsum, black sands, corn, rice, and wheat) can be more economically separated and classified by our dry-process technology.

This capability facilitates a number of associated procedures, including: drying, micropulverizing, mixing, forming, conveying, and loading. In addition, bulk materials can be beneficiated in important ways including moisture reduction, ash reduction, Btu enhancement, and electro-customization. Our system can perform multiple tasks, needs less maintenance, requires no chemical additives, and can improve the surrounding environmental quality.

Our success and ability to compete will be dependent in part on the protection of our existing and potential patents, trademarks, trade names, service marks, and other proprietary rights. Thus, a majority of our research and development efforts have been focused on product development, testing, and patent application.

We seek to continue developing our products internally through research and development, or if appropriate, through strategic partnerships. We expect, however, that if we can purchase or license products, services, or technologies from third parties at a reasonable cost, we will do so in order to avoid the time and expense involved in developing these products, services, or technologies.

Results of Operations

Twelve months ended December 31, 2006 compared to twelve months ended December 31, 2005

From inception through December 31, 2006, we have incurred losses totaling $19,190,814 and generated revenues of $618,142 from operations. During the years ended December 31, 2006 and 2005, we had $45,897 and zero sales revenues respectively. This factor, among others, raises substantial doubt concerning our ability to continue as a going concern. We intend to use capital and debt financing as needed to supplement the cash flows that we expect will be provided by licensing agreements. Our primary source of capital historically has been through the sale of our securities.

Realization of sales of our products and services is vital to operations. We may not be able to continue as a going concern without realizing additional sales or raising additional capital. We cannot guarantee that we will be able to compete successfully or that the competitive pressures we may face will not have a material adverse effect on our business, results of operations and financial condition. Additionally, a superior competitive product could force us out of business.

Our net loss for the year ended December 31, 2006 was approximately $1,412,231, compared to a net loss for the year ended December 31, 2005, of approximately $6,487,246. The net loss was attributable to lower than expected revenues from sales of our products and services. Our expenses for the year ending December 31, 2006, were approximately $1,424,476 of which approximately 91% were general and administrative expenses. Our expenses for the year ended December 31, 2005, were approximately $6,702,276, of which approximately 91% were general and administrative. The increase in general and administrative expenses in 2005 was due to the issuance of 6,062,150 shares of common stock valued at $5,137,490 for services, financing fees and an acquisition. Also, during 2005 the Company recognized $728,331 in expense relating to stock options granted during the year. For the year ended December 31, 2006, depreciation and amortization expense was $8,532 compared to depreciation and amortization expense of $5,097 for the year ended December 31, 2005.

Future Business

We see opportunities for our technology and business in an array of large industries, including power generation, agriculture, mining, environmental, construction, ceramics, and materials transportation. We anticipate that we will generate revenues through the sale of our proprietary equipment, fees, royalties, and profit sharing from licensing of our technology.

We are continuing discussions with PacifiCorp regarding pulverized coal processing for the utility industry. We have been working closely with management and engineering personnel in the preliminary product design and development stages. A major objective of the proposed strategic business alliance with these entities will be to design a system that has the ability to produce low ash, low moisture, and ultra fine coal, which enhance the combustion process and reduce unburned carbon and NOx emissions. Our research and development team has been actively engaged in the design of a demonstration unit since the beginning of 2001.

Liquidity and Capital Resources

Given our current negative cash flows, it will be difficult for Terra Systems to continue as a going concern. While the issuance of a patent should allow us to pursue revenue and cash generating contracts and opportunities, it may be necessary to raise additional funds or reduce cash expenditures. Funds could be generated through the issuance of additional stock or through the sale of existing plant and office equipment. Cash expenditures could be eased through a reduction in overhead costs, including but not limited to labor and associated employee benefits.

As mentioned in our audited financial statements included with our Form 10-KSB, our audited consolidated financial statements have been prepared on the assumption that we will continue as a going concern. Our product line is limited and it has been necessary to rely upon financing from the sale of our equity securities to sustain operations. Additional financing will be required if we are to continue as a going concern. If additional financing cannot be obtained, we may be required to scale back or discontinue operations. Even if additional financing is available there can be no assurance that it will be on terms favorable to us. In any event, this additional financing will result in immediate and possible substantial dilution to existing shareholders.

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About Terra Systems, Inc.
Terra Systems, Inc. is a clean energy technology company incorporated in 1996 focused on advanced clean coal power generation, enhancement and utilization of waste coal and upgrading of specialty carbon products.

Contact
George Ford
Terra Systems, Inc.
gford3648@msn.com

Note: Certain statements contained herein may be forward-looking statements within the meaning of federal securities laws and Terra Systems, Inc. intends that such forward-looking statements be subject to the safe-harbor created thereby. Forward-looking statements include Terra Systems, Inc. expectations as to the managing and marketing of its businesses 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, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Actual results may vary materially from such expectations. Words such as "expects," "anticipates," "targets," "goals," "projects," believes," "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances, are forward-looking. Although Terra Systems, Inc. believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that our results of operations will not be adversely affected by such factors. Unless legally required, we undertake no obligation to revise or update any forward-looking statements for any reason. 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.