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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC
20549

FORM 10-QSB

(Mark One)[X]Quarterly Report under Section 13 or
15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 31,
2008

[ ]Transition Report under Section 13 or 15(d) of the
Exchange Act

For the transition period from ________to ________

Commission File Number 000-50569

TERRACE VENTURES
INC.(Exact name of small business issuer as specified in its
charter)

|NEVADA                                           | 91-2147101                       
|------------------------------------------------ | ---------------------------------
|(State or other jurisdiction of incorporation or | (IRS Employer Identification No.)
|organization)                                    |                                  

810 PEACE PORTAL DRIVE, SUITE 202 BLAINE, WA
98230(Address of principal executive offices)

(360) 220-5218(Issuer's telephone number)

NOT APPLICABLE(Former name, former address and
former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ]No [ ]

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

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 36,753,200
Shares of Common Stock as of March 10, 2008.

Transitional Small Business Disclosure Format (check one): Yes [
] No [X]

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B, and, therefore, do not include all information and footnotes
necessary for a complete presentation of financial position, results of
operations, cash flows, and stockholders' equity in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the nine months ended January 31, 2008
are not necessarily indicative of the results that can be expected for the year
ending April 30, 2008.

2

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Report of Independent Registered Public Accounting Firm

To the Board of Directors 
  Terrace Ventures Inc.

We have reviewed the accompanying balance sheet of Terrace Ventures
  Inc. as of January 31, 2008, and the statements of operations and accumulated
  deficit, changes in stockholders equity (deficit), and statements of cash
  flows for the nine month periods ended January 31, 2008 and January 31, 2007,
  and for the period February 20, 2001 (date of inception) to January 31, 2008.
  These interim financial statements are the responsibility of the management
  of Terrace Ventures Inc.

We conducted our review in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). A review of interim
  financial information consists principally of applying analytical procedures
  and making inquiries of persons responsible for financial and accounting matters.
  It is substantially less in scope than an audit conducted in accordance with
  the standards of the Public Company Accounting Oversight Board (United States),
  the objective of which is the expression of an opinion regarding the financial
  statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications
  that should be made to the accompanying interim financial statements in order
  for them to be in conformity with accounting principles generally accepted in
  the United States of America.

Our review was made for the purpose of expressing limited assurance
  that there are no material modifications that should be made to the financial
  statements in order for them to be in conformity with U.S. generally accepted
  accounting principles. 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. Such information has been subjected to the inquiry and
  analytical procedures applied in the review of the basic financial statements,
  and we are not aware of any material modifications that should be made thereto.

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

---

We have previously audited, in accordance with standards of the
  Public Company Accounting Oversight Board (United States), the balance sheet
  of Terrace Ventures Inc. as of April 30, 2007, and the related statements of
  operations and accumulated deficit, changes in stockholders equity (deficit),
  and cash flows for the year then ended (not presented herein); and in our report
  dated August 3, 2007, we expressed an unqualified opinion on those financial
  statements which included an explanatory paragraph describing Terrace Ventures
  Inc.s ability to continue as a going concern as described in Note 5 to
  the financial statements. In our opinion, the information set forth in the accompanying
  balance sheet as of April 30, 2007 is fairly stated, in all material respects,
  in relation to the balance sheet from which it has been derived.

Sarna & Company

Sarna & Company, Certified Public Accountants 
  Westlake Village, California 
  March 6, 2008

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

ASSETS

|                                               |   | (Unaudited)      |   |   | (Audited)      |  
|---------------------------------------------- | - | ---------------- | - | - | -------------- | -
|                                               |   | January 31, 2008 |   |   | April 30, 2007 |  
|                                               |   |                  |   |   |                |  
|Current Assets:                                |   |                  |   |   |                |  
|Cash                                           | $ | 30               |   | $ | 92,275         |  
|Trust Account Receivable                       |   | 5,917            |   |   | 3,467          |  
|Notes Receivable                               |   | 210,947          |   |   | 20,000         |  
|                                               |   |                  |   |   |                |  
|Total Current Assets                           |   | 216,894          |   |   | 115,742        |  
|                                               |   |                  |   |   |                |  
|                                               |   |                  |   |   |                |  
|                                               |   |                  |   |   |                |  
|TOTAL ASSETS                                   | $ | 216,894          |   | $ | 115,742        |  
|                                               |   |                  |   |   |                |  
|                                               |   |                  |   |   |                |  
|LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
|                                               |   |                  |   |   |                |  
|Current Liabilities:                           |   |                  |   |   |                |  
|Accounts Payable and                           |   |                  |   |   |                |  
|Accrued Expenses                               | $ | 60,620           |   | $ | 30,123         |  
|Due to Shareholders                            |   | 15,000           |   |   | 11,295         |  
|Common Stock Payable                           |   | 40,000           |   |   | 145,925        |  
|                                               |   |                  |   |   |                |  
|Total Current Liabilities                      |   | 115,620          |   |   | 187,343        |  
|                                               |   |                  |   |   |                |  
|Stockholders' Deficit:                         |   |                  |   |   |                |  
|Common Stock, $0.001 par
      value           |   |                  |   |   |                |  
|400,000,000 shares
      authorized,           |   |                  |   |   |                |  
|36,753,200
      and 34,183,200                |   |                  |   |   |                |  
|shares issued                                  |   | 36,753           |   |   | 34,183         |  
|Additional Paid in Capital                     |   | 1,571,342        |   |   | 1,317,387      |  
|Deficit Accumulated During                     |   |                  |   |   |                |  
|the
      Exploration Stage                    |   | (1,507,221       | ) |   | (1,423,171     | )
|                                               |   |                  |   |   |                |  
|Total Stockholders' Equity/(Deficit)           |   | 101,274          |   |   | (71,601        | )
|                                               |   |                  |   |   |                |  
|TOTAL LIABILITIES AND                          |   |                  |   |   |                |  
|STOCKHOLDERS' EQUITY/(DEFICIT)                 | $ | 216,894          |   | $ | 115,742        |  

See Notes to Financial Statements

2

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

|                      |   | THREE MONTHS ENDED |   |   | NINE MONTHS ENDED |   |   | INCEPTION to |  
|--------------------- | - | ------------------ | - | - | ----------------- | - | - | ------------ | -
|                      |   | JANUARY 31,        |   |   | JANUARY 31,       |   |   | JANUARY 31,  |  
|                      |   | 2008               |   |   | 2007              |   |   | 2008         |  
|Revenues              | $ | -0-                |   | $ | -0-               |   | $ | -0-          |  
|Operating Expenses    |   | (17,730            | ) |   | (85,495           | ) |   | (94,997      | )
|Loss Before Other     |   |                    |   |   |                   |   |   |              |  
|Income and Expenses   |   | (17,730            | ) |   | (85,495           | ) |   | (94,997      | )
|Other Income:         |   |                    |   |   |                   |   |   |              |  
|Interest Income       |   | 4,033              |   |   | -0-               |   |   | 10,947       |  
|Other Expense:        |   |                    |   |   |                   |   |   |              |  
|Unrealized Loss       |   |                    |   |   |                   |   |   |              |  
|On
      Investment   |   | -0-                |   |   | -0-               |   |   | -0-          |  
|Loss Before Provision |   |                    |   |   |                   |   |   |              |  
|for Income Taxes      |   | (13,697            | ) |   | (85,495           | ) |   | (84,050      | )
|Provision for         |   |                    |   |   |                   |   |   |              |  
|Income Taxes          |   | -0-                |   |   | -0-               |   |   | -0-          |  
|Net Loss              |   | (13,697            | ) |   | (85,495           | ) |   | (84,050      | )
|Accumulated Deficit,  |   |                    |   |   |                   |   |   |              |  
|Beginning of Period   |   | (1,493,524         | ) |   | (1,313,519        | ) |   | (1,423,171   | )
|Accumulated Deficit,  |   |                    |   |   |                   |   |   |              |  
|End of Period         | $ | (1,507,221         | ) | $ | (1,399,014        | ) | $ | (1,507,221   | )
|                      |   |                    |   |   |                   |   |   |              |  
|                      |   |                    |   |   |                   |   |   |              |  
|Net Loss per Share    | $ | (0.00              | ) | $ | (0.00             | ) | $ | (0.00        | )
|Weighted Average      |   |                    |   |   |                   |   |   |              |  
|Shares Outstanding    |   | 36,753,200         |   |   | 33,344,100        |   |   | 36,324,867   |  

See Notes to Financial Statements

3

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

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

See Notes to Financial Statements

4

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

|                                                                   |              |  |   |            |  |   |            |   |   | 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          | )
|Common Stock Issued     $0.10 per share 
         July 12, 2007    | 2,570,000    |  |   | 2,570      |  |   | 254,355    |   |   | ----        |   |   | 256,925          |  
|Net Loss, Period Ended     January
      31, 2008                  | ----         |  |   | ----       |  |   | ----       |   |   | (84,050     | ) |   | (84,050          | )
|Balances     January 31, 2008                                      | 36,753,200   |  | $ | 36,753     |  | $ | 1,571,742  |   | $ | (1,507,221  | ) | $ | 101,274          |  

See Notes to Financial Statements

5

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

|                                           |   | NINE MONTHS ENDED |   |   |              |  
|------------------------------------------ | - | ----------------- | - | - | ------------ | -
|                                           |   | JANUARY 31,       |   |   | INCEPTION to |  
|                                           |   | 2008              |   |   | 2007         |  
|                                           |   |                   |   |   |              |  
|Cash Flows from                            |   |                   |   |   |              |  
|Operating Activities:                      |   |                   |   |   |              |  
|                                           |   |                   |   |   |              |  
|Net Loss                                   | $ | (84,050           | ) | $ | (276,903     | )
|                                           |   |                   |   |   |              |  
|Adjustments
        to Reconcile Net       |   |                   |   |   |              |  
|Income
        to Net Cash Provided/(Used) |   |                   |   |   |              |  
|by Operating Activities:                   |   |                   |   |   |              |  
|Unrealized
        Loss on Investment      |   | -0-               |   |   | 100,500      |  
|(Increase)/Decrease in:                    |   |                   |   |   |              |  
|Trust Account Receivable                   |   | (2,450            | ) |   | (1,891       | )
|Notes
        Receivable                   |   | (190,947          | ) |   | -0-          |  
|Prepaid
        Expenses                   |   | -0-               |   |   | (26,500      | )
|Increase(Decrease) in:                     |   |                   |   |   |              |  
|Accounts
        Payable                   |   | 30,497            |   |   | (4,098       | )
|                                           |   |                   |   |   |              |  
|Net Cash
        Provided/(Used)           |   |                   |   |   |              |  
|by Operating Activities                    |   | (246,950          | ) |   | (208,892     | )
|                                           |   |                   |   |   |              |  
|Cash Flows from                            |   |                   |   |   |              |  
|Investing Activities:                      |   |                   |   |   |              |  
|                                           |   |                   |   |   |              |  
|Stock Investment                           |   | -0-               |   |   | (100,500     | )
|                                           |   |                   |   |   |              |  
|Net Cash
        Used                      |   |                   |   |   |              |  
|by Investing Activities                    |   | -0-               |   |   | (100,500     | )
|                                           |   |                   |   |   |              |  
|Cash Flows from                            |   |                   |   |   |              |  
|Financing Activities:                      |   |                   |   |   |              |  
|                                           |   |                   |   |   |              |  
|Loans from Shareholders                    |   | 15,000            |   |   | 145          |  
|Payments on Loans                          |   | (11,295           | ) |   | (10,000      | )
|Proceeds Related to                        |   |                   |   |   |              |  
|Issuance
      of Common Stock             |   | 151,000           |   |   | 323,340      |  
|                                           |   |                   |   |   |              |  
|Net Cash
      Provided by                 |   |                   |   |   |              |  
|Financing Activities                       |   | 154,705           |   |   | 313,485      |  
|                                           |   |                   |   |   |              |  
|                                           |   |                   |   |   |              |  
|Net Increase (Decrease) in Cash            | $ | (92,245           | ) | $ | 4,093        |  
|                                           |   |                   |   |   |              |  
|Cash at Beginning of Period                |   | 92,275            |   |   | 171          |  
|                                           |   |                   |   |   |              |  
|Cash at End of Period                      | $ | 30                |   | $ | 4,264        |  

See Notes to Financial Statements

6

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

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

Basis of Presentation

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

Use of Estimates

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

Exploration Stage Company

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

Pro Forma Compensation Expense

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

7

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Mineral Property Acquisition and Exploration Costs

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

Depreciation, Amortization and Capitalization

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

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

Income Taxes

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

Fair Value of Financial Instruments

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

8

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Investments

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

Per Share Information

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

NOTE 2 - PROVISION FOR INCOME TAXES

The provision for income taxes for the periods ended January
  31, 2008 and January 31, 2007 represents the minimum state income tax expense
  of the Company, which is not considered significant.

NOTE 3 - COMMITMENTS AND CONTINGENCIES

Operating Leases

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

Litigation

The Company is not presently involved in any litigation.

NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

NOTE 5  GOING CONCERN

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

9

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

NOTE 5  GOING CONCERN - CONTINUED

The consolidated financial statements of the Company have been
  prepared assuming that the Company will continue as a going concern, which contemplates,
  among other things, the realization of assets and the satisfaction of liabilities
  in the normal course of business. The Company has incurred cumulative net losses
  of $1,507,221 since its inception and requires capital for its contemplated
  operational and marketing activities to take place. The Company's ability to
  raise additional capital through the future issuances of common stock is unknown.
  The obtainment of additional financing, the successful development of the Company's
  contemplated plan of operations, and its transition, ultimately, to the attainment
  of profitable operations are necessary for the Company to continue operations.
  The ability to successfully resolve these factors raise substantial doubt about
  the Company's ability to continue as a going concern. The consolidated financial
  statements of the Company do not include any adjustments that may result from
  the outcome of these aforementioned uncertainties.

NOTE 6  INVESTMENT IN CLOSELY HELD STOCK

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

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

10

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

NOTE 6  INVESTMENT IN CLOSELY HELD STOCK  CONTINUED

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

NOTE 7  MERGER AGREEMENT/STOCK ISSUANCES

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

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

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

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

11

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

NOTE 7  MERGER AGREEMENT/STOCK ISSUANCES - CONTINUED

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

On March 7, 2007, the Company approved a private placement of
  up to 5,000,000 shares of the Companys common stock at a price of $0.10
  per share to fund the Solara Loan and for working capital purposes. This offering
  was made to non-US investors pursuant to Regulation S of the United States Securities
  Act of 1933. On July 12, 2007, 2,570,000 shares were issued under this private
  placement, for a total contribution of $256,925. As of January 31, 2008, $40,000
  representing advances on 400,000 shares was received and is reflected in the
  financial statements as Common Stock Payable.

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

As of January 31, 2008, $200,000 was loaned to Solara, and is
  reflected in the financial statements, along with accrued interest receivable
  in the amount of $10,947, as Notes Receivable.

12

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

NOTE 8  STOCK OPTIONS

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

13

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SUPPLEMENTAL STATEMENT

---

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

|                            |   | THREE MONTHS ENDED |  |   | NINE MONTHS ENDED |  |   |              | 
|--------------------------- | - | ------------------ |  | - | ----------------- |  | - | ------------ | 
|                            |   | JANUARY 31,        |  |   | OCTOBER 31,       |  |   | INCEPTION to | 
|                            |   | 2008               |  |   | 2007              |  |   | 2008         | 
|                            |   |                    |  |   |                   |  |   |              | 
|Operating Expenses:         |   |                    |  |   |                   |  |   |              | 
|Accounting & Audit          | $ | 3,840              |  | $ | 3,920             |  | $ | 26,640       | 
|Bank Charges                |   | 43                 |  |   | 107               |  |   | 90           | 
|Consulting                  |   | -0-                |  |   | 60,000            |  |   | 5,900        | 
|Exploration and Development |   | -0-                |  |   | -0-               |  |   | -0-          | 
|Legal                       |   | 4,308              |  |   | 11,944            |  |   | 33,044       | 
|Office Administration       |   | 7,500              |  |   | 7,500             |  |   | 22,500       | 
|Office Expenses             |   | -0-                |  |   | -0-               |  |   | 250          | 
|Regulatory Expenses/Fees    |   | 747                |  |   | 1,274             |  |   | 1,966        | 
|Rent                        |   | 750                |  |   | 750               |  |   | 2,250        | 
|Telephone                   |   | 302                |  |   | -0-               |  |   | 2,117        | 
|Travel & Entertainment      |   | 240                |  |   | -0-               |  |   | 240          | 
|                            |   |                    |  |   |                   |  |   |              | 
|                            |   |                    |  |   |                   |  |   |              | 
|Total Operating Expenses    | $ | 17,730             |  | $ | 85,495            |  | $ | 94,997       | 

See Notes to Financial Statements

15

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

As used in this Quarterly Report on Form 10-QSB, the terms
"we, "us, "our, Terrace and our company mean Terrace Ventures Inc. unless
otherwise indicated. All dollar amounts in this quarterly report are in U.S.
dollars unless otherwise stated.

FORWARD LOOKING STATEMENTS

The information in this discussion contains forward-looking
statements. These forward-looking statements involve risks and uncertainties,
including statements regarding our 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 discussed below, and, from time to time, in other reports we file with the
United States Securities and Exchange Commission (the SEC), including our
Annual Report on Form 10-KSB for the year ended April 30, 2007 and our Current
Reports on Form 8-K. These factors may cause our actual results to differ
materially from any forward-looking statement.

CORPORATE OVERVIEW

We were incorporated on February 20, 2001 under the laws of the
State of Nevada. We are an exploration stage company engaged in the acquisition
and exploration of mineral properties. We own a 100% undivided interest in a
mineral claim that we refer to as the Peach Mineral Claim (the Peach Claim)
located in the Nicola, Simalkameen and Osoyoos Mining Divisions of the Province
of British Columbia, Canada.

Our plan of operation is to continue to carry on with our
exploration work on the Peach Claim in order to ascertain whether it possesses
commercially exploitable deposits of gold. Further exploration of this mineral
claim is required before a final determination as to its viability can be made.
No commercially viable mineral deposit may exist on our mineral claim. We can
provide no assurance that our mineral claim contains a mineral deposit until
appropriate exploratory work is done and an evaluation based on that work
concludes further work programs are justified. At this time, we have no reserves
on our mineral claim.

We have not earned any revenues to date. We do not anticipate
earning revenues until such time as we enter into commercial production of our
mineral property. We are presently in the exploration stage of our business and
we can provide no assurance that we will discover proven reserves on our
property, or if such deposits are discovered, that we will enter into further
substantial exploration programs.

PLAN OF OPERATION

Our plan of operation is to continue to conduct mineral
exploration activities on the Peach Claim in order to assess whether the claim
possesses commercially exploitable mineral deposits. The exploration of the
Peach Claim is currently in the preliminary stages. Our planned exploration
program is exploratory in nature and no mineral reserves may ever be found.

3

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We completed Phases I and II of our planned four phase
exploration program on the Peach Claim property. The total cost for Phases I and
II was approximately $12,500. Based on the results of Phase II of the
exploration program, we determined to proceed with Phase III subject to
obtaining additional financing. Phase III of our exploration program consists of
soil sampling to be conducted on a flagged grid within prospective areas
identified by the two previous phases. Subject to obtaining additional
financing, we intend to complete Phase III of the exploration of the Peach Claim
in Spring of 2008. A decision on proceeding beyond the planned Phase III will be
made by assessing whether the results of Phase III are sufficiently positive to
enable us to obtain the financing we will need for us to continue through
additional stages of the exploration program. This assessment will include an
assessment of the market for financing of mineral exploration projects at the
time of our assessment and an evaluation of our cash reserves after the
completion of Phase III. The decision whether or not to proceed will be based on
the recommendations of our geological consultant.

Cash Requirements For The Next Twelve Months

During this exploration stage, our sole officer and director,
Howard Thomson, will only be devoting approximately six hours per week of his
time to our business. We do not foresee this limited involvement as negatively
impacting our company over the next twelve months as all exploratory work has
been and will continue to be performed by outside consultants. Additionally, we
will not have a need to hire any employees over the next twelve months; nor do
we plan to make any purchases of equipment over the next twelve months due to
reliance upon outside consultants to provide all tools needed for the
exploratory work being conducted. Our total expenditures over the next twelve
months are anticipated to be as follows:

Planned Expenditures Over theCategory
      Next Twelve MonthsProfessional Fees
    $20,000Mineral Exploration costs
      $5,000Miscellaneous
    $4,000TOTAL
      $29,000


RESULTS OF OPERATIONS

Three Months and Nine Months Summary

|                |   | Three Months Ended January 31, |   |   | Nine Months Ended January 31, |  
|--------------- | - | ------------------------------ | - | - | ----------------------------- | -
|                |   |                                |   |   |                               |  
|                |   |                                |   |   |                               |  
|                |   | 2008                           |   |   | 2007                          |  
|Revenue         | $ | -                              |   | $ | -                             |  
|Expenses        |   | (17,730                        | ) |   | (85,495                       | )
|Other Income    |   | 4,033                          |   |   | -                             |  
|Other Expense  |   | -                              |   |   | -                             |  
|Unrealized loss |   |                                |   |   |                               |  
|on investment   |   |                                |   |   |                               |  
|Net Loss        | $ | (13,697                        | ) | $ | (85,495                       | )

4

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Revenues

We have not earned any revenues since our inception and we do
not anticipate earning revenues until such time as we have entered into
commercial production of our mineral property. We are currently in the
exploration stage of our business and we can provide no assurances that we will
discover commercially exploitable mineral deposits on our property, or if such
resources are discovered, that we will be able to enter into commercial
production of our mineral property.

Operating Expenses

|                         |   | Three Months Ended |  |   |            |  |  | Nine Months Ended |  |   |            | 
|------------------------ | - | ------------------ |  | - | ---------- |  |  | ----------------- |  | - | ---------- | 
|                         |   | January 31         |  |   | Percentage |  |  | January 31        |  |   | Percentage | 
|                         |   |                    |  |   |            |  |  | Increase /        |  |   |            | 
|                         |   | 2008               |  |   | 2007       |  |  | (Decrease)        |  |   | 2008       | 
|Accounting & Audit       | $ | 3,840              |  | $ | 3,920      |  |  | (2.0)%            |  | $ | 26,640     | 
|Bank Charges             |   | 43                 |  |   | 107        |  |  | (59.8)%           |  |   | 90         | 
|Consulting               |   | -                  |  |   | 60,000     |  |  | (100)%            |  |   | 5,900      | 
|Exploration and          |   | -                  |  |   | -          |  |  | n/a               |  |   | -          | 
|Development              |   |                    |  |   |            |  |  |                   |  |   |            | 
|Legal                    |   | 4,308              |  |   | 11,944     |  |  | (63.9)%           |  |   | 33,044     | 
|Office Administration    |   | 7,500              |  |   | 7,500      |  |  | n/a               |  |   | 22,500     | 
|Office Expenses          |   | -                  |  |   | -          |  |  | n/a               |  |   | 250        | 
|Regulatory Expenses/Fees |   | 747                |  |   | 1,274      |  |  | (41.4)%           |  |   | 1,966      | 
|Rent                     |   | 750                |  |   | 750        |  |  | n/a               |  |   | 2,250      | 
|Telephone                |   | 302                |  |   | -          |  |  | n/a               |  |   | 2,117      | 
|Travel & Entertainment   |   | 240                |  |   | -          |  |  | n/a               |  |   | 240        | 
|Total Operating Expenses | $ | 17,730             |  | $ | 85,495     |  |  | (79.3)%           |  | $ | 94,997     | 

The decrease in our expenses for the quarter ended January 31,
2008 as compared to the comparative period in 2007 is primarily due to decreases
in our consulting expenses and legal fees.

Net Loss

We recorded a net loss of $84,050 for the nine months ended
January 31, 2008 and have suffered aggregate losses in the amount of $1,507,221
and net cash outflows from operations. We expect our operating expenses will
increase significantly if our board of directors decides to proceed beyond Phase
III of our exploration program to Phase IV.

LIQUIDITY AND FINANCIAL CONDITION

|Working Capital           |                     |                   |                      
|------------------------- | ------------------- | ----------------- | ---------------------
|                          | At January 31, 2008 | At April 30, 2007 | Percentage           
|                          | (Unaudited)         | (Audited)         | Increase / (Decrease)
|Current Assets            | $216,894            | $115,742          | 87.4%                
|Current Liabilities       | (115,620)           | (187,343)         | (38.3)%              
|Working Capital (Deficit) | $101,274            | $(71,601)         | 241.4%               

5

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|Cash Flows                                    |                   |                  
|--------------------------------------------- | ----------------- | -----------------
|                                              | Nine Months Ended | Nine Months Ended
|                                              | January 31, 2008  | January 31, 2007 
|Cash Flows from Operating Activities          | $(246,950)        | $(208,892)       
|Cash Flows from Investing Activities          | -                 | (100,500)        
|Cash Flows from Financing Activities          | 154,705           | 313,485          
|Net Increase (decrease) in Cash During Period | $(92,245)         | $4,093           

We had cash on hand of $30 and a working capital surplus of
$101,274 as of January 31, 2008 compared to a working capital deficit of $71,601
as of April 30, 2007. We anticipate that we will incur approximately $29,000 for
operating expenses, including professional legal and accounting expenses
associated with our reporting requirements under the Exchange Act during the
next twelve months. Accordingly, we will need to obtain additional financing in
order to complete our full business plan, see Financing Requirements,
below.

Loan Agreement with Solara Technologies Inc.

On May 18, 2007, we entered into a loan agreement with Solara
Technologies, Inc. (Solara). Under the terms of the Loan Agreement, we loaned
a total of $200,000 to Solara. The loan matures May 25, 2008, and accrues
interest at a rate of 8% per annum payable on maturity. The loan was made
pursuant to the terms of the letter of intent dated February 28, 2007 between
the Company and Solara. The loan is secured by an assignment of certain tax
credits which Solara represents that it is entitled to claim and receive and
have a value of not less than $200,000. Under the terms of the Loan Agreement,
Solara was required to: (i) enter into a formal merger agreement within 60 days
of the date of the Loan Agreement; (ii) obtain shareholder approval of the
proposed merger within 90 days of the date of the Loan Agreement; (iii) provide
required financial statements within 90 days of the Loan Agreement; and (iv)
complete the proposed merger within 120 days of the Loan Agreement. The formal
merger agreement was not entered into by the parties as required under the terms
of the Loan Agreement, and as a result, we have requested that Solara repay the
Loan.

Financing Requirements

As at January 31, 2008, we had total assets of $216,894 and a
working capital surplus of $141,274. From inception to January 31, 2008, we have
suffered aggregate losses in the amount of $1,507,221 and net cash outflows from
operations. We expect to continue to incur substantial losses until we complete
the development of our business. For these reasons our auditors stated in their
report that they have substantial doubt that we will be able to continue as a
going concern. Our current operating funds are not sufficient to complete the
full exploration of the mineral claim and begin mining efforts should the
mineral claim prove commercially viable. Therefore, we will need to obtain
additional financing in order to complete our full business plan.

On July 12, 2007, we issued 2,570,000 shares of our common
stock at a price of $0.10 per share to 27 subscribers pursuant to Regulation S
promulgated under the Securities Act. The shares represent the first tranche of
a private placement of up to 5,000,000 shares at a price of $0.10 US per share
approved by our Board of Directors on March 7, 2007. There is no assurance that
any additional shares will be issued under the private placement. The proceeds
of the private placement were used to fund $200,000 of loans to our former
merger candidate, Solara Technologies Inc., to retire corporate debt and for
general corporate purposes.

6

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On February 13, 2008, we approved an offering to be completed
pursuant to the provisions of Regulation S of the Securities Act of up to
10,000,000 units (the Units) with each Unit consisting of one share of common
stock of the Corporation and one share purchase warrant. Each warrant will be
exercisable at a price of $0.03 per Share for a period of two years from
closing. The proceeds of this private placement offering will be used for
general corporate purposes. There is no assurance that this private placement
offering or any part of it will be completed.

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

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.

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.

We have identified certain accounting policies, described
below, that are most important to the portrayal of our current financial
condition and results of operations. Our significant accounting policies are
disclosed in Note 1 to the interim financial statements included in this
Quarterly Report.

Use of Estimates

Management uses estimates and assumptions in preparing the
financial statements included in this Quarterly Report 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

We have been in the exploration stage since our inception and
have not yet realized any revenues from our planned operations. We are primarily
engaged in the acquisition and exploration of mining properties. Upon the
location of commercially mineable reserves, we plan to prepare for mineral
extraction and enter the development stage.

Mineral Property Acquisition and Exploration Costs

We expense all costs related to the acquisition and exploration
of mineral properties in which we have secured exploration rights prior to
establishment of proven and probable reserves. To date,

7

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we have not established the commercial feasibility of any
exploration prospects; therefore, all costs are being expensed.

Depreciation, Amortization and Capitalization

We record 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.

RISKS AND UNCERTAINTIES

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

We have incurred a net loss of $1,507,221 for the period from
February 20, 2001 (inception) to January 31, 2008, and have no revenues to date.
Our future is dependent upon our ability to obtain financing and upon future
profitable operations from the development of our mineral claim. These factors
raise substantial doubt that we will be able to continue as a going concern.

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

Our current operating funds are sufficient to complete the
proposed exploration program; however, they will be insufficient to complete a
full exploration of the mineral claim and begin mining efforts should the
mineral claim prove commercially viable. Therefore, we will need to obtain
additional financing in order to complete our full business plan. As at January
31, 2008, we had cash in the amount of $30. Our plan of operation calls for
significant expenses in connection with the exploration of our mineral claim. We
do not have sufficient cash on hand to complete Phase III of our proposed
exploration program. We also require additional financing to sustain our
business operations if we are not successful in earning revenues. Obtaining
additional financing would be subject to a number of factors, including the
market prices for the mineral property and gold. These factors may make the
timing, amount, terms or conditions of additional financing unavailable to us.

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

You 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. The expenditures to be made by us in
the exploration of the mineral claim may not result in the discovery of mineral
deposits. Problems such as unusual or unexpected formations and other conditions
are involved in mineral exploration and often result in unsuccessful exploration
efforts. If the results of our Phase III exploration do not reveal viable
commercial mineralization, we may decide to abandon our claim and acquire new
claims for new exploration. The acquisition of additional claims will be
dependent upon us possessing capital resources at the time in order to purchase
such claims. If no funding is available, we may be forced to abandon our
operations.

8

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Mineral exploration is highly speculative, involves
substantial expenditures, and is frequently non-productive.

Mineral exploration involves a high degree of risk and
exploration projects are frequently unsuccessful. Few prospects that are
explored end up being ultimately developed into producing mines. To the extent
that we continue to be involved in mineral exploration, the long-term success of
our operations will be related to the cost and success of our exploration
programs. We cannot assure you that our mineral exploration efforts will be
successful. The risks associated with mineral exploration include:

| | (i)   | the identification of potential economic mineralization
      based on superficial analysis;
| | ----- | --------------------------------------------------------------------------------------------
| | (ii)  | the quality of our management and our geological and
      technical expertise; and         
| | (iii) | the capital available for exploration and
    development.                                  

Substantial expenditures are required to determine if a project
has economically viable mineralization. It may take several years to establish
proven and probable reserves and to develop and construct mining and processing
facilities. Because of these uncertainties, our current and future exploration
programs may not result in the discovery of reserves, the expansion of our
existing reserves or the further development of our mines.

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

Our mineral claim does not contain any known bodies of ore. If
our exploration programs are successful in discovering proven reserves on our
mineral claim, we will require additional funds in order to place the mineral
claim into commercial production. The expenditures to be made by us in the
exploration of mineral claims in all probability will be lost as it is an
extremely remote possibility that the mineral claim will contain proven
reserves. If our exploration programs are successful in discovering proven
reserves, we will require additional funds in order to place the Peach Claim
into commercial production. The funds required for commercial mineral production
can range from several million to hundreds of millions. We currently do not have
sufficient funds to place our mineral claim 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.

The price of gold is highly volatile and a decrease in the
price of gold can have a material adverse effect on our business.

The profitability of mining operations is directly related to
the market prices of metals. The market prices of metals fluctuate significantly
and are affected by a number of factors beyond our control, including, but not
limited to, the rate of inflation, the exchange rate of the dollar to other
currencies, interest rates, and global economic and political conditions. Price
fluctuations of metals from the time development of a mine is undertaken to the
time production can commence can significantly affect the profitability of a
mine. Accordingly, we may begin to develop one or more of our mines at a time
when the price of metals makes such exploration economically feasible and,
subsequently, incur losses because the price of metals decreases. Adverse
fluctuations of the market prices of metals may force us to curtail or cease our
business operations.

9

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Because access to our mineral claim may be restricted by
inclement weather, we may be delayed in our exploration.

The Peach Claim comprises one mineral claim with a total area
of approximately 500 hectares, located in Nicola, Simalkameen and Osoyoos Mining
Divisions, approximately 40 kilometres west of Kelowna, British Columbia,
Canada. This is an essentially undeveloped area in British Columbia. The area
consists of many mountains and lakes with heavy forestation. An unpaved gravel
road is the only access. Winters are often severe with rain, freezing rain,
wind, and snow common between November and March, making the road often unsafe
and impassable for travel. Access to the Peach Claim may be restricted through
some of the year due to weather in the area. As a result, any attempt to test or
explore the property is largely limited to the times when weather permits such
activities. These limitations can result in significant delays in exploration
efforts. Such delays can have a significant negative effect on our exploration
efforts.

As we undertake exploration of our mineral claim, we will be
subject to compliance with government regulation that may increase the
anticipated cost of our exploration program.

There are several governmental regulations that materially
restrict mineral exploration. We will be subject to the laws of the Province of
British Columbia as we carry out our exploration program. We may be required to
obtain work permits, post bonds and perform remediation work for any physical
disturbance to the land in order to comply with these laws. While our planned
exploration program budgets for regulatory compliance, there is a risk that new
regulations could increase our costs of doing business and prevent us from
carrying out our exploration program.

Title to our Peach Claim is registered in the name of
another person. Our failure to register legal title to the claim in our name may
result in the loss of our interest in the claim.

Under British Columbia law, title to British Columbia mineral
claims can only be held by individuals, British Columbia corporations or foreign
corporations extra-provincially registered in British Columbia. Since we are a
Nevada corporation and we are not extra-provincially registered in British
Columbia, Canada, we are not legally allowed to hold claims in British Columbia.
Title to the Peach Claim is not held in our name. Title to the claim is being
held in trust by Don Archibald, a British Columbia resident from whom we
purchased our mineral claim. In the event Mr. Archibald were to transfer legal
title to our mineral claim to another party, we may not have a claim against the
third party and may be forced to commence an action against Mr. Archibald. There
is no assurance that we would succeed in recovering legal title to our mineral
claim or recover damages from Mr. Archibald in such instance.

Because our executive officers do not have formal training
specific to the technicalities of mineral exploration, there is a higher risk
that our business will fail.

Our management lacks technical training and experience with
exploring for, starting, and operating a mine. With no direct training or
experience in these areas, our management may not be fully aware of the specific
requirements related to working within this industry. Our management's decisions
and choices may not take into account standard engineering or managerial
approaches mineral exploration companies commonly use. Consequently, our
operations, earnings, and ultimate financial success could suffer irreparable
harm due to management's lack of experience in this industry.

10

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Because our executive officers have only agreed to provide
their services on a part-time basis, they may not be able or willing to devote a
sufficient amount of time to our business operations, causing our business to
fail.

Our directors and officers are employed on a full time basis by
other companies. Because we are in the early stages of our business, Mr. Thomson
will not be spending a significant amount of time on our business. Mr. Thomson
expects to expend approximately 6 to 8 hours per week on our business. Competing
demands on Mr. Thomson's time may lead to a divergence between his interests and
the interests of other shareholders.

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 quotation 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;
|   |                                                                                                                                                                                                                                          
|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

11

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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 3. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief Financial Officer,
we have evaluated the effectiveness of our disclosure controls and procedures as
required by Exchange Act Rule 13a-15(b) as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer has concluded that these disclosure controls and procedures
are effective.

There were no changes in our internal control over financial
reporting during the quarter ended January 31, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

12

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are either provided with this Quarterly
Report on Form 10-QSB or are incorporated herein by reference:

|Exhibit |                                                                                                                                                                
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                         
|3.1     | Articles of
      Incorporation.(1)                                                                                                                            
|3.2     | Certificate of Change to Authorized Capital effective
      December 19, 2005.(2)                                                                              
|3.3     | Bylaws.(1)                                                                                                                                                     
|10.1    | Mineral Claim Purchase Agreement dated August 15, 2001
      between the Company and Don Archibald.(1)                                                         
|10.2    | 2006 Stock Incentive Plan.(4)                                                                                                                                  
|10.3    | Stock Option Agreement between the Company and Howard
      Thomson dated March 31, 2006.(4)                                                                   
|10.4    | Management Consulting Agreement dated March 21, 2006
      between the Company and Howard Thomson.(4)                                                          
|10.5    | Agreement and Plan of Merger dated for reference May 24,
      2006 among the Company, Sporg Technology Corp., Sporg Corporation and
      Gordon F. Burley.(5)
|10.6    | Management Consulting Agreement with Ian
      Brodie.(7)                                                                                                      
|10.7    | Management Consulting Agreement with Frank
      Anderson.(7)                                                                                                  

13

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|Exhibit |                                                                                                                                                                                                       
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                                                                
|        |                                                                                                                                                                                                       
|10.8    | Letter of Intent
        dated February 28, 2007 between the Company and Dorn Beattie.(8)                                                                                                             
|10.9    | Loan Agreement dated May 18,
        2007 between the Company and Solara Technologies Inc.(9)                                                                                                         
|14.1    | Code of Ethics.(3)                                                                                                                                                                                    
|31.1    | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                                                       
|32.1    | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to 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 May 31, 2006.                         
|(6) | Filed with the SEC as an exhibit to our Annual Report on
      Form 10-KSB filed on August 14, 2006.                    
|(7) | Filed with the SEC as an exhibit to our Current Report on
      Form 8-K filed on October 11, 2006.                     
|(8) | Filed with the SEC as an exhibit to our Current Report on
      Form 8-K filed on March 7, 2007.                        
|(9) | Filed with the SEC as an exhibit to our Current Report on
      Form 8-K filed on May 24, 2007.                         

14

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SIGNATURES

In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|      |                      |     | TERRACE VENTURES INC.                                  
|----- | -------------------- | --- | -------------------------------------------------------
|      |                      |     |                                                        
|      |                      |     |                                                        
|Date: | March
      18, 2008 | By: | /s/
      Howard Thomson                               
|      |                      |     | HOWARD THOMSON                                         
|      |                      |     | Chief Executive Officer, Chief Financial
      Officer,
|      |                      |     | President, Secretary and Treasurer                     
|      |                      |     | (Principal Executive Officer)                          
|      |                      |     | (Principal Accounting Officer)                         

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